Alaska taps a broader base to stabilize its individual market

Kaiser Health News published a brief follow-up to last year's news that Alaska's legislature stepped in to prevent the collapse of its individual market. Last year, the state was down to just one insurer who was sustaining losses. The state's individual market might have been an example of a death spiral: once premiums are high enough, some healthy individuals stop buying insurance, gambling that they won't incur significant health care costs in the next year. Since those who remain tended to have more healthcare costs on average, insurers would need to raise premiums on everyone who remains to cover costs. As a result, some more healthy individuals decide to stop buying insurance, intensifying the cycle. Seeing the imminent collapse of the individual market, the legislature of Alaska stepped in with a broad-based tax (taxing all insurance companies in the state) to offset the high costs associated with the individual market.

The hope is that the subsidy (which comes from a much larger pool of people and cannot be avoided, rather than simply those who buy individual insurance) is enough to reverse the spiral by keeping premiums at a more palatable level. The results from the first year seem positive. Likely, the architects of the Affordable Care Act likely wanted to do something similar, but thought that it would have been politically infeasible to pass the legislation with an explicit tax. Instead, they settled on the concept of an individual mandate, a penalty that may have been reduced too much for its original purpose of keeping healthy people in the insurance pool.