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Actuarial analyst raises specter of Affordable Care Act 'death spiral'

A healthcare actuary and consultant on April 13 raised concerns about the potential fora "death spiral" in the individual market under the Affordable Care Act.

MichaelTaggart, who works as a consultant for S&P Dow Jones Indices and for the actuarialfirm Milliman, said he was troubled by what he believes to be a serious indicatorof instability in a system that he said is inherently unstable. That indicator isthe trend, as shown in the April "S&P Healthcare Claims Index Monthly Report," revealing that the per-member, per-month(PMPM) costs in the individual market have now surpassed the PMPM costs in the employer-basedmarket.

Taggartspoke on a panel in Washington, D.C., sponsored by McGraw Hill Financial, to discussthe financial health of the ACA.

A deathspiral is "always a possibility," Taggart said. "It is not somethingI would say lightly," he added. Taggart would not put a probability on suchan occurrence, though.

Taggartsaid in a brief interview after the event that he thinks indicators by year-end2016 will reveal whether the situation is so dire. He said that if the trend showingindividual PMPM costs rising above employer-based costs continues, and there isnot enough of an infusion of healthy people into the individual market, then therewill be a cause for concern the following year.

The year2017 "is crucial," Taggart said.

He explainedthe circumstances that he said would create a psychological effect among healthinsurers, who would look at the lack of healthy people in the pool and start pullingout of markets, leading to more destabilization.

The reasonthat the employer-based market is used as a benchmark is that it has a proportionof healthy people paying for those who are not as healthy and have pre-existingconditions. The expectation is that this proportion would be the same in the individualmarket, explained panelist Glen Doody, vice president for S&P Dow Jones Indices,during a question-and-answer period.

Taggartsaid in a short interview after the panel session that health care providers needto take on more of the pricing risk, with budgets and fewer fee-for-service structuresthat encourage more use of health care services. Also, Taggart said, there shouldbe higher tax penalties for those who forgo health insurance.

However,an S&P Ratings Services analyst cautioned that the scenario Taggart describedis not imminent.

It is"too early to say," Deep Banerjee, director of financial services ratingsfor North American insurance at S&P Ratings Services, said in a brief interview.Banerjee noted that every insured person who is healthy, even those people gettingACA subsidies, would have to leave the individual market for Taggart's envisioneddeath spiral to occur.

The juryis still out.

"Whetherindividual market costs will begin tracking with the employer-based market, or insteadcontinue their rise and diverge to a more costly plateau, is yet to be definitivelyseen," stated the research report issued by S&P Dow Jones Indices."The next few months of data should be telling."

S&P Global Market Intelligence,S&P Ratings Services and S&P Dow Jones Indices are divisions of McGraw HillFinancial.