While Obamacare collapses under its own weight congressional Republicans are preparing to save it and make it worse.
Obamacare is causing premiums on the government-created exchanges to rise higher and higher to point where fewer people can afford health insurance. Unfortunately, Republicans are on course to accelerate the death spiral and, thus, flub their chance to undo Obamacare and put our health care system on path toward a free market.
Obamacare imposed a regulation known as “guaranteed issue” on policies sold on the exchanges. Guaranteed issue means that health insurers must sell policies to all comers at any time. Under Obamacare, insurers must sell to anyone during the exchanges’ open enrollment period during the last few months of the year.
Guaranteed issue gives young and healthy people a big incentive to forego insurance coverage altogether. In a market without guaranteed issue, insurers can deny coverage to a person who is not insured and develops a serious illness. Young and healthy people run that risk when they do not buy insurance. Guaranteed issue removes that risk.
When enough young and healthy people forego insurance, “insurance pools” generally become older and sicker. When an insurance pool is comprised largely of people who are older and sicker insurance prices necessarily rise to cover costs. That rate increase causes many more young and healthy people who do have health insurance to drop it, leaving the pools even older and sicker than before, and so on. This process is known as an insurance “death spiral.”
Obamacare architects tried to avoid the death spiral by creating an “individual mandate,” a requirement that all people, including the young and healthy, purchase insurance or pay a fine. While the individual mandate has slowed the death spiral, it did not eliminate it. The mandate is loosely enforced, and many young and healthy people have found it more economical to pay the fine instead of buying insurance. As a result, premiums on the exchanges will rise an average of 25 percent in 2017.
Congressional Republicans are poised to make the individual insurance market even worse. Under House Speaker Paul Ryan’s “A Better Way” plan, the Republicans would eliminate the individual mandate but keep guaranteed issue. While in the short term this may be politically expedient, in the long term it is both politically and economically imbecilic.
“A Better Way” begins encouragingly enough by calling for the full repeal of Obamacare: “This law cannot be fixed. Its knot of regulations, taxes, and mandates cannot be untangled. We need a clean start in order to pursue the patient-centered reforms the American people deserve.” The repeal includes eliminating the individual mandate.
However, the proposal contains a glaring inconsistency.
It states that, “Nonpartisan analysts warned that the law’s new mandates and regulations would lead to higher premiums and reduced access to care.” Pages later, though, the proposal states, “No American should ever be denied coverage or face a coverage exclusion on the basis of a pre-existing condition. Our plan ensures every American, healthy or sick, will have the comfort of knowing they can never be denied a plan from a health insurer.”
In short, Speaker Ryan wants to keep one of the regulations, guaranteed issue, that guarantees higher premiums.
With both an individual mandate and guaranteed issue, the death spiral is like water in a bathtub with a leak in the drain plug. Removing the individual mandate is, in effect, pulling out the drain plug.
This represents the sort of short-term, cowardly thinking typical of Republican legislators.
Keeping guaranteed issue may protect Republicans against attacks from left-wingers claiming that by repealing Obamacare they are throwing people with pre-existing conditions off of their insurance. Chances are, though, the political left will accuse them of that regardless.
In the longer run, Republicans do significant damage to both the individual insurance market and their own political prospects.
In the late 1980s and early 1990s, eight states enacted guaranteed issue in their individual insurance markets without an individual mandate. Within a year insurance premiums skyrocketed with some increasing by triple-digit percentages.
As noted above, the average premium on the Obamacare exchanges is already set to increase 25 percent. If the ideas in “A Better Way” are enacted, the premium increases for 2018 and 2019 will make 2017 look like the good times.
Surging premiums would be a very effective weapon for Republicans’ opponents to wield in the 2018 and 2020 elections. Democrats and others on the left will point to the premium hikes as evidence that the Republicans’ health care plan is a failure. They will also claim it shows that free markets don’t work in health care, an effective bit of propaganda for the left’s wet dream of a single-payer insurance system.
It doesn’t take a genius to realize this—one need only look at recent history. They don’t call the GOP the stupid party for nothing.
The Republicans can deal with the pre-existing conditions issue without leaving in place a regulation that destroys health insurance markets.
For people who have both pre-existing conditions and insurance through an exchange, the GOP could let them keep their insurance and offer funds to insurers to help with their medical bills. For people who have pre-existing conditions but not insurance both now and in the future, Republicans can offer grants to state governments to enact programs that help people with pre-existing conditions obtain insurance. Let the 50 states and the District of Columbia embrace the “laboratories of democracy” approach that is part of federalism and at least a few are bound to adopt approaches that are effective.
“A Better Way” does contain a grant program for state governments, but it is for the purpose of crafting “premium-reduction programs that support wellness and offer innovative plan designs.”
It’s another mistake: that should be left to insurers in the private sector.
Instead, Republican legislation should include a grant program that encourages states to assist those with pre-existing conditions while eliminating guaranteed issue.
It’s both the politically and economically smart approach.