Econ 309 Adverse Selection Death Spirals

"Adverse Selection Death Spirals" where rising insurance premiums drive out the low cost, healthy people, driving up average costs, and pushing up premiums more, perpetuating the cyclece, and reducing the gains from risk pooling.

• "Driving the Young From the Insurance Pool", (Catherine Rampell, New York Times, Feb. 26, 2010)

• Jonathan Cohn explains (The New Republic, Feb. 9, 2009)

• In February 2009, Wellpoint Anthem Blue Cross of California proposed raising premiums in the individual health insurance market by 39% for some policy, and 25% on average. Wellpoint Executive VP Brad Fluegel goes on Fox Business Newsto explain the company’s situation. (February 15, 2009. It gets good at 3:30.) After a discussion of rising health care costs, Fluegel says:

• Fluegel's best quote: “When you combine that with the fact that because of the economy which is particularly adverse in California with a very high unemployment rate, what’s happening is that people who are younger and healthier are making the decision to spend their money elsewhere if they lose their job or are having other sorts of issues, and deciding not to continue to buy insurance. That leaves the insurance pool in California with older and sicker, more expensive individuals. And so the combination of very significant cost increases in California combined by the fact that younger and healthier people are dropping their insurance, that’s what’s driving these increases.”

  • Wellpoint Anthem maintains that it lost millions of dollars in the California individual insurance policy market.

  • Health Care for America Now! (HCAN) dispute's Wellpoint's claims.