Millions of Americans may soon drop their Affordable Care Act (ACA) coverage, potentially leading to a significant increase in health insurance costs for the remaining enrollees. This scenario has sparked concerns about a "death spiral" in the ACA market, where rising costs could further discourage people from maintaining their insurance, creating a vicious cycle. But is this fear justified? Let's delve into the details and explore the potential outcomes.
The Subsidy Lapse and Its Impact
The expiration of enhanced premium subsidies for consumers purchasing coverage on the ACA marketplace has resulted in a substantial increase in insurance premiums. According to KFF estimates, the average subsidy recipient's monthly premium more than doubled from $888 in 2025 to $1,904 in 2026. This sudden spike in costs is particularly affecting young, relatively healthy individuals who may now question the value of their insurance.
The Young and Healthy Exit
Economists predict that young, healthy individuals will be the most likely to drop their insurance policies if they perceive premiums as excessive. This demographic shift could leave an older, sicker population in the risk pool, which may lead to higher insurance costs for all. Insurers might then raise premiums further to cover the increased costs, potentially triggering a self-reinforcing cycle.
The "Death Spiral" Concern
Meredith Rosenthal, chair of the Department of Health Policy and Management at Harvard University's T.H. Chan School of Public Health, warns that the exit of young, healthy individuals could lead to a "death spiral." This term describes a situation where the average cost of care increases, causing premiums to rise, which in turn discourages more people from enrolling, and so on.
Demographic Insights
The Urban Institute and The Commonwealth Fund estimate that 7.3 million people will leave the ACA marketplace in 2026 due to the subsidy lapse. Approximately 5 million of these individuals will become uninsured, with young adults bearing the brunt of this increase. According to Jessica Banthin, a senior fellow at the Urban Institute, 19- to 34-year-olds account for nearly half of the anticipated rise in the uninsured population.
The Role of Insurers and Premiums
Insurers have raised their gross premiums by an estimated 26% for 2026, but most enrollees will face even sharper increases. This is partly due to the expectation that healthier individuals will drop coverage, as indicated by insurer filings with state regulators. Other factors, such as rising healthcare costs and new specialty drugs, also contribute to the premium hike.
Why the "Death Spiral" Concern May Be Premature
Some policy experts argue that the warnings of a death spiral are premature. They suggest that the disappearance of enhanced subsidies is a temporary shock to the system. Michael Gusmano, a professor of health policy, believes the concern is understandable but slightly exaggerated. The tax credit structure, which caps out-of-pocket expenses as a percentage of household income, may prevent a death spiral by ensuring that higher premiums are largely borne by the federal government via tax credits.
The Impact of Income Caps
Gerard Anderson, a professor of health policy and management, emphasizes that the greater the reduction in subsidies, the higher the risk of a death spiral. However, the income caps in the tax credit structure could mitigate this risk. If insurers raise premiums, the federal government will absorb most of the increase through tax credits, preventing consumers from bearing the full burden.
Consumers Least Likely to Re-enroll
Aside from young consumers, individuals who no longer qualify for any premium tax credits are the least likely to sign up or re-enroll. These are households earning more than 400% of the federal poverty line, which equates to $62,600 for a one-person household. Many of these families qualified for enhanced subsidies but are now ineligible, facing significantly higher insurance costs.
A Controversial Proposal
A more concerning scenario, according to policy experts, is the conversion of the current subsidy structure into a fixed-dollar payment for consumers, as proposed by some Republican lawmakers and President Donald Trump. In this case, individuals would bear the entire premium increase, significantly increasing the risk of a death spiral.
Conclusion
The ACA's future remains uncertain, and the potential for a death spiral is a serious concern. However, the tax credit structure and income caps may provide a buffer against this outcome. As the situation unfolds, further analysis and data will be crucial in understanding the true impact on enrollees and the ACA market as a whole.
