The Republican claim about preexisting conditions and the American Health Care Act, which will be scored by the Congressional Budget Office on Wednesday, is that people with such conditions would be protected.
If you maintain coverage continuously, insurers won’t be able to raise your premiums because of them, Republicans say. If you don’t maintain coverage, you’ll still be able to buy insurance, subsidized to the point of affordability, through a “high-risk pool.”
They say this system will be just as good as Obamacare for people with preexisting conditions.
Most states operated high-risk pools before the Affordable Care Act, the healthcare law better known as Obamacare, and they tended to run out of money, because providing insurance to sick people is expensive. States ended up capping enrollment and/or setting premiums so high they remained unaffordable even after a subsidy.
The amount of money provided for high-risk pools in the AHCA ($8 billion, plus another $130 billion that states may use for high-risk pools but can also use for other purposes, over a 10-year period) is obviously insufficient to provide affordable coverage to everyone who would be priced out because of a preexisting condition in their plan. It sets up a repeat of the pre-ACA situation, in which people who have a preexisting condition and a gap in coverage will be unable to buy affordable insurance.
But it doesn’t have to be that way. If Republicans were genuine about wanting to protect the sick through the high-risk-pool approach, there is something they could do.
If they want to make a credible promise to cover people with preexisting conditions, they shouldn’t create a fixed-dollar fund that might run out. Instead they should define the benefit.
That is, their bill should specify who is entitled to a subsidy for insurance because of high medical costs, specify what such insurance must cover, and specify the price to which the subsidy must lower the net premium to be deemed “affordable.”
This is how Medicare and Medicaid work: Instead of a fixed-dollar appropriation, anyone who meets legal requirements is entitled to participate in these programs, and the government spends what is needed to pay the promised benefit to everyone who is entitled. That’s why they’re called “entitlements.”
If Republicans think the chronically ill are entitled to medical coverage, they should create an entitlement to pay for such coverage. And if problem of preexisting-condition coverage is as limited in scope as conservative commentators say it is, the costs shouldn’t be too eye-watering.
A new healthcare entitlement may sound like a not-conservative idea, but Republicans created one in 2003, when they added a prescription-drug entitlement to Medicare. And an entitlement for high-risk pools is approximately what is proposed by Chris Pope, a senior fellow focusing on health policy at the Manhattan Institute, a right-of-center think tank.*
Instead of creating a new high-risk pool, Pope proposes leaving the chronically ill on existing Obamacare exchanges. He’d let healthier customers leave the pools to buy insurance plans that offer lower premiums to align with their low expected healthcare costs. He also expects (reasonably) that a lot of healthy and uninsured people who today reject Obamacare-exchange plans on the grounds of price would choose to buy such plans outside the exchanges.
- Mark Wilson/Getty Images
Of course, if you let many healthy customers leave the Obamacare insurance pools, you could expect the premiums in the pools to rise sharply. But unlike the AHCA and other Republican proposals to greatly scale back subsidies for insurance, Pope’s proposal would leave in place Obamacare’s income-based subsidies, which effectively cap premiums at a specified fraction of the insured person’s income.
The subsidies would automatically expand, as much as is necessary, to make insurance affordable even to people with very high medical costs.
Of course, this would cost a lot of money, probably even more than the government now spends on subsidies under Obamacare. It would therefore interfere with Republican plans to sharply cut taxes for wealthy people. This is the obvious reason Republicans prefer a vaporware approach to covering preexisting conditions.
But it’s a shame that Republicans aren’t sincere about their stated intention to separately and adequately fund insurance for the chronically ill, in part because some of the Republican complaints about Obamacare’s approach to covering the chronically ill are valid.
The core approach to covering the chronically ill under Obamacare is cross-subsidy: Healthy people are charged premiums that far exceed their expected healthcare costs so the chronically ill can pay much less than their expected costs. It’s as though every participant in an Obamacare exchange is paying a flat amount into a fund to cover the chronically ill.
Premium subsidies defray much of this cost for people with low to moderate incomes. But relatively healthy people who make somewhat more than 400% of the poverty line, and therefore receive no subsidy, are not wrong when they feel Obamacare has stuck them with an unreasonable share of the cost to care for the sick.
- REUTERS/Carlos Barria
This is like a capitation tax. People hate capitation taxes; just ask Margaret Thatcher.
This implicit tax is one of the main drivers of high premiums in Obamacare, which is one of the main sources of public discontent with the law. A lot of higher-income (but not necessarily high income) participants in the Obamacare exchanges can accurately identify themselves as losers from Obamacare. Millions of others forgo insurance to avoid paying the premium that includes the implicit charge to care for the chronically ill.
With a properly structured high-risk pool (one that creates an entitlement!) we could abandon that structure and finance coverage for the sick through fairer taxes, like income and payroll taxes. And government-financed protection for the chronically ill would make it possible to cut premiums for the healthy and allow a somewhat freer market in health insurance.
Such an approach could guarantee coverage for the sick and quiet some of the most common consumer complaints about Obamacare. It would be nice if that could be the healthcare debate we were having.
Unfortunately, Republicans would never spend the money it would take to fix the real problem they have identified.
*I was a fellow at the Manhattan Institute from 2009 to 2012.