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Death Spiral

A funny thing happened while everyone was focused on the implosion of Obamacare. President Obama quietly abandoned all of his first term ambitions in the Middle East. The New York Times says the president has decided to reduce all of his policy goals in the region to three things.

At the United Nations last month, Mr. Obama laid out the priorities he has adopted as a result of the review. The United States, he declared, would focus on negotiating a nuclear deal with Iran, brokering peace between the Israelis and the Palestinians and mitigating the strife in Syria. Everything else would take a back seat. ...

Not only does the new approach have little in common with the “freedom agenda” of George W. Bush, but it is also a scaling back of the more expansive American role that Mr. Obama himself articulated two years ago, before the Arab Spring mutated into sectarian violence, extremism and brutal repression.

He was going to heal the rift with Muslim world, remember? He was going to end al-Qaeda where it began, do you recall? He was going to build a world without nuclear weapons, it may be noted. Well forget that: it's down to holding the final perimeter instead.

The Times fails to point out he is likely to fail in three out of the three self-chosen goals. It is improbable that he can broker a meaningful peace deal between Israel and the Palestinians, stop the Iranian nuclear bomb or shut down the Syrian civil war. Though they might describe it as "review" of foreign policy, it is actually a shutdown process; the act of shooting all the remaining sheep in the corral prior to boarding up the ranch and putting up the "for sale" sign.

His foreign policy meltdown may mirror the condition of his flagship domestic program which may also be in a terminal condition.  Scott Gottlieb at Forbes notes that lost amid the outrage over the non-functionality of the Obamacare website lies something even worse. Its designers overlooked that only the uninsurable are likely to stay in the Obamacare exchanges. Gottlieb calls it a "death spiral".

Given the failed launch of Obamacare, there’s a real chance that the entire scheme falls into an “insurance death spiral” — but not as visibly (or rapidly) as the way these sorts of unsuccessful insurance pools usually unravel.

A death spiral happens when only the sickest beneficiaries get into an insurance pool, causing the cost of medical claims to rise, and in turn raising future premiums.

These higher premiums, in turn, dissuade healthier beneficiaries from buying coverage. This exacerbates the strains and makes sure the pool continues to attract only the sickest consumers who are most in need of the medical coverage, and willing to pay the rising premiums. This is how the downward spiral ensues. ...

As the pool inside the exchange becomes older, sicker, and costlier, more plans will have an economic incentive to get out of the Obamacare market altogether.