The Republicans' Slippery Slope on Obamacare
The nation is focused on what new leadership in Washington will mean for the Affordable Care Act (ACA), better known as Obamacare. Republicans won partly because of Obamacare’s implosion — including rising premiums, declining coverage quality, and diminished choices — and are expected to deliver fundamental changes to health-care policy. Nevertheless, Obamacare, though unpopular on the whole, contains several popular features. Hence the GOP’s path might seems relatively direct: keep the tolerable parts, repeal the unpopular ones, and move forward with replacement legislation. But the notion that a so-called “repeal and replace” approach can start by cherry-picking a few popular components is wrongheaded.
President Trump suggested in a 60 Minutes interview shortly after the election that he would retain Obamacare’s requirement for children under 26 to be covered by their parents’ policies as well as the law’s prohibition against excluding patients with preexisting conditions. Both features are popular and not too significant in terms of costs.
However, keeping these measures assumes, without any evidence, that Washington’s intervention on those issues is necessary. It also assumes, again without any evidence, that those two components can be isolated from some harder issues and dealt with as “one-off” concessions. Finally, it assumes that the popularity of those provisions implies positive, or at least neutral, policy outcomes. The president and Congress would be well advised to drop both.
Consider the Age 26 requirement. One might reasonably assume that its popularity suggests it provides a real solution to a real problem. Bu that is incorrect, for three reasons.
First, most Americans with private insurance are covered by self-funded plans from larger employers. Such plans usually provide for generous dependent eligibility. Second, the vast majority of states already regulated dependent eligibility. Third, prior to the ACA, in most states it cost more for a parent to add a 25-year-old dependent to a group policy than for the same dependent to pay for an individual policy. A typical, healthy 25-year-old could have procured a decent individual policy for less than $100 per month, while the incremental cost of adding dependents to a group policy could exceed $600 per month. So, in general, the new requirement did not provide any financial benefit to the consumer.
The popularity of this dubious policy can likely be explained through the rational ignorance of consumers: Who really wants to do comparison shopping to find coverage for their adult children? Additionally, the ACA changed the price equation by driving up premiums for young and healthy consumers. For their part, insurers have defended the national mandate out of self-interest; they sought to sell more of their typically overpriced dependent coverage. And, finally, the policy resonates with the small number of parents whose children are genuine risks for medical underwriting and thus might have found affordable coverage only through guaranteed inclusion.
None of these is a good enough justification. Like other Obamacare features, the mandate simply socialized the cost of high-risk medical cases. It benefited only those whose children have horrible diseases. But the issue of costs and coverage for high-risk individuals of all ages permeates the general debate around Obamacare replacement; sound policies must address more than the needs of a small subset of the population.
As for the ACA’s provisions requiring coverage of preexisting conditions, insurance contracts limiting coverage were already regulated under federal and state laws. In the group market, plans regulated under the Employee Retirement Income Security Act (ERISA) must cover all medical conditions of all employees equally. Nearly 80 percent of those with private coverage were thus already protected. In addition, the Health Insurance Portability and Accountability Act (HIPAA) of 1996 regulated such coverage limitations for those who departed group coverage for the individual market within a set period. And as noted, state laws widely imposed their own restrictions on insurers.
Since the number of Americans affected by the ACA’s preexisting coverage requirement is relatively small, why is the idea of preserving it so popular? Perhaps because preexisting coverage provisions sound like an evil trick to deny coverage. But unless the administration also intends to preserve national community rating and guaranteed issue — which doesn’t appear to be on the table — the risks associated with preexisting conditions will simply be factored into decisions about of whether to cover the individuals in the first place and at what price. The ACA’s community rating system and guaranteed issue have the same policy goals as preexisting condition restrictions, but they just don’t sound as evil. All three sets of restrictions are aimed at forcing carriers to socialize the costs of individual risks because of their inability to reliably project them.
Unless the states decide otherwise, based on the policy preference of their own citizens, carriers should be free to underwrite individual risks, such as preexisting conditions. Carriers should also be free to limit their exposure by contract and factor those risks into pricing or decline coverage altogether. And because insurers are less knowledgeable about a consumer’s medical needs than the patient and his or her doctor, the decision over which kind of coverage to purchase should remain up to the individual consumer. Such circumstances describe most of the pre-ACA state markets.
In my native Georgia, for example, my clients were able to choose between contracts including preexisting conditions, or those which excluded them but had lower premiums. I often recommended lower premiums, particularly if clients were comfortable with medical advice that their preexisting conditions were low risk. (For example, high blood pressure can often be addressed with medication, weight loss, and exercise.)
Obamacare’s socializing of the costs of insuring high-risk individuals is hardly frivolous. Republicans, who campaigned on a platform of fundamentally disentangling Washington from the workings of local market forces, would act wisely in letting states make such decisions. Prior to the ACA, insurers offered plans reflecting the preferences of each state and community. A handful of blue states had schemes closely resembling the ACA model. Those states had low uninsured rates and provided good solutions for the needy, but the socialized costs were reflected in high premiums for healthy individuals, large costs for employers, impediments to group benefits, and stagnant or negative economic growth among small businesses — phenomena that helped drive a Republican electoral sweep in 2016.
Keeping some Obamacare provisions based solely upon their popularity threatens to undermine real reform. Republicans should resist the temptation to implement piecemeal tweaks to health-care policy, lest they repeat the ACA mistake of bundling a lot of well-intentioned ideas into an incoherent mishmash. A better path is to devolve the development of solutions to states, which are best equipped to make decisions based on the needs and policy preferences of their communities.
Tom Haynes is the founder of Eagle Health Plans, LLC, a health-care small business solutions provider. Haynes is also chairman of the Board of Directors at the Competitive Enterprise Institute, a free-market think tank in Washington, DC.