The health insurance death spiral occurs when individuals with higher health expenses are driven by market forces towards one particular plan. The higher costs associated with individuals who have pre-existing health conditions cause premiums and out-of-pocket costs to escalate, which drives healthier individuals out of the plan, because the cost becomes too high for the small amount of need they anticipate. This causes premiums and out-of-pocket costs escalate further because there aren't as many healthy individuals left to absorb the risk, so even more healthy people leave the plan, and prices climb even higher. This cycle continues spiraling on and on until prices are so high that the coverage is unaffordable.
Death spirals are typically caused by adverse selection. Insurers have successfully lobbied for laws and regulations which protect the insurance marketplace from a death spiral by encouraging individuals to get health coverage before they become ill.
