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The basic market contradiction the House health plan fails to acknowledge

The basic market contradiction the House health plan fails to acknowledge

Picture of Trudy  Lieberman
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The GOP took a victory lap after the passage of the House bill on Thursday. (Photo by Mark Wilson/Getty Images)

On Thursday, House Republicans edged out a narrow victory that begins to dismantle the Affordable Care Act. The legislation on its way to the Senate makes it difficult, perhaps impossible for some patients to gain coverage if they have preexisting health conditions. 

It undermines the ACA’s guarantee that sick people can get health insurance. The uproar this week over health coverage provisions for people with preexisting conditions in the repeal and replace bill once again demonstrates that Americans want everyone to have health insurance whether they’re sick or well — not withstanding the comment made on Fox News today by co-host Brian Kilmeade who asserted coverage for preexisting conditions is a luxury “America is getting used to.” 

The Republican plan lets states junk three major regulations under the Affordable Care Act. States could apply for waivers to jettison Obamacare’s guarantee of coverage for people with preexisting health conditions. One rule would do that by letting insurance carriers charge higher prices to people who have health conditions and who have had a lapse in coverage for more than 63 days. Obamacare required insurers to charge the same rate to all comers in a given area who are the same age. Last year House Speaker Paul Ryan articulated how the GOP planned to change that. “Less than 10 percent of people under 65 are what we call people with pre-existing conditions, who are really kind of uninsurable,” Ryan said. “Let’s fund risk pools at the state level to subsidize their coverage so that they can get affordable coverage. You dramatically lower the price for everybody else.” However, AARP said its recent research showed 40 percent of adults between ages 50 to 64 — about 25 million people — could be denied coverage if the requirements disappeared.

States that opt-out of Obamacare would be required to set up a high-risk pool where sick people could buy insurance. In other words, those with high-cost conditions or who have experienced a catastrophic event will be shunted aside so that insurance companies can offer cheaper rates to those who are healthy. State high-risk health insurance pools have never worked well. Policies were expensive and coverage was often skimpy. There’s no reason to believe that will change if the Republican plan becomes law.

On Wednesday a Politico/Morning Consult poll showed that a majority of voters don’t want to weaken existing protections for people with medical conditions. Fifty-two percent of Democrats and 48 percent of Republicans said they oppose allowing states to opt out of requirements to take everyone no matter their health status. “In a polarized climate, this is one issue where Democrats and Republicans largely agree,” said Kyle Dropp, Morning Consult’s co-founder and chief research officer. Pennsylvania Rep. Lou Barletta, a Republican, told Politico every member of Congress must have been inundated with calls to preserve pre-existing condition protections. “It was an issue that as soon as you hear it, it’s like, ‘Yeah, of course we don’t want them to deny you — what if it was my wife or my child? The hard part is how do you do it.” 

Barletta’s comment gets to the fundamental problem the Affordable Care Act has had all along. It tries to square the circle by attempting to make health insurance as universal as possible in a private insurance market, which has very different goals. Insurance companies are in business to make money, and to do that, they must select the people with the lowest health risks. That’s because the healthiest people won’t submit a bunch of costly claims. As the sad demise of the health care co-ops showed, too many sick and expensive people in an insurer’s risk pool not only wreak havoc on a carrier’s bottom line, they can ultimately cause a company to fail, especially if the insurer has no government support to prop it up. In the case of the big health insurers that have other profitable lines of business, they have two options when they begin to enroll too many sick people: They can leave the market or jack up rates high enough to compensate for the increased risk, at which point consumers start to drop their policies. 

Those with high-cost conditions or who have experienced a catastrophic event will be shunted aside so that insurance companies can offer cheaper rates to those who are healthy. State high-risk health insurance pools have never worked well. Policies were expensive and coverage was often skimpy. There’s no reason to believe that will change if the Republican plan becomes law.

The fact so many carriers have chosen not to sell Obamacare policies in certain counties — 16 counties in Tennessee, for example — reflects their need to insure only the best risks, and areas with a lot of unhealthy people are not where they want to be. This year, one third of all U.S. counties have only one insurer participating in the Obamacare exchanges, leaving consumers with no choice of carriers, a point made loud and clear by supporters of the GOP’s American Health Care Act. Earlier this year, Anthem CEO Joseph Swedish threatened that his company would “surgically extract” itself from some markets for 2018, and just last week he warned again Anthem may leave some Obamacare markets. Swedish and other company executives have taken their case to Congress and the White House, and the latest version of the American Health Care Act, with its provision to segregate the healthy and the sick, addresses their needs. It’s a fix, though, that doesn’t help patients who may end up uninsured or paying exorbitant prices for the coverage they do manage to get in some state high-risk pool, just as they did in the days before Obamacare.

A few of us who have watched Obamacare unfold for nearly 10 years did question early on how this fundamental contradiction between using profit-making insurance companies and insuring the sick to expand coverage in the ACA would work out, since it seemed to violate every principle of actuarial science. And for the first couple years it appeared that maybe it would be okay. People signed up for coverage and about 85 percent of them got tax credits to help defray premium costs while those with really low incomes got extra subsidies to help pay for deductibles and coinsurance. Some carriers also got a lot of new business, and the number of uninsured people dropped dramatically. But the underlying contradiction was always there.

In the end not enough people signed up, especially the young and the healthy, and it was only a matter of time before high claims costs from sick people and not enough well people to balance out the pool began to affect even the big companies like Anthem and Aetna. On Wednesday, Medica, the only remaining carrier in Iowa’s individual market announced it would likely stop selling policies, which include those sold on the Obamacare exchange, next year. That follows the exit of Aetna and Wellmark Blue Cross and Blue Shield, the state’s biggest insurer. The company cited market instability as the reason for its departure, which would leave areas of the state without a carrier.

The bill the House passed this week may patch up the ACA’s health exchange markets, or it may drastically change them in ways that go back to the days of high rates of uninsurance and people denied coverage because they are too sick. But the basic problem can be fixed only with an arrangement that includes everyone in the risk pool so that the cross-subsidization — from the well to the sick, from the young to the old, and the wealthy to the poor — will make it possible to insure everyone at a reasonable cost. As I’ve argued before in this space, our health care narrative must change, and that will take time. But the bloodletting in Congress over the past few weeks shows that voters are very reluctant to return to the bad old days of denied coverage and sky-high premiums for the sick.

Veteran health care journalist Trudy Lieberman is contributing editor of the Center for Health Journalism Digital and a regular contributor to the Remaking Health Care blog.

Comments

Picture of <span class="username">Guest (not verified)</span>

I search to see if your were related to Joe Lieberman but found that is unlikely since you savaged him during the ACA passage for "being responsible" for killing the "public option." So clearly your position if socialism works. I don't advise you to schedule any speaking tours in Venezuela right now. People might just risk being shot to get to you.

I applaud your having the decency to mention that one must not be covered for at least 63 days before the health insurer get's the right to scrutinize why you want to become their customer (all of the sudden). Although people would not dare trying to by fire insurance so they could make a claim on their already destroyed building, people now think this is a right due to the warping of reality that the ACA causes. That is what Brian Kilmeade meant, and he meant low lifes, not Americans (who realize that somebody is getting a bill when you get a fee lunch). Most of the time people who promise free lunches have good intention, so I don't question yours, just your judgment.

Picture of <span class="username">Guest (not verified)</span>

Trudy, first, sorry for the typos in my May 5 comment and my tone. You are clearly dedicated to a solution and have followed the healthcare issue closely for many years. I am an employer who has been interested in the issue for about 25 years, hoping some consensus similar to my own would come forward. It has not, so here is my two cents:

Insurance is a product like any other and can and should be delivered the most efficiently when polished by the currents of market forces. But healthcare is immune to market forces the same way the Post Office is now and Bell Telephone was 30 years ago. The predictable result is inefficiency (regardless of the good people in charge and running daily operations). This is just a law of nature. "Socialism works" is sarcastic absurdity to anyone who understands this. Still, when there is no other choice, there is no other choice. Is that the case with healthcare?

Here is what needs to happen. People need to buy insurance if they want coverage BEFORE they need to get care. Once the event occurs they are no longer quaified to buy insurance but they should still be able to purchase care, and they deserve a fair and transparent price to do so. And, if they do not have the means to pay for basic lifesaving care then there can be an application for government assistance after the fact. There is no need to have an expensive insurance program for people without insurance if everyone is entitled to basic care. The issue is that people should be able to buy premium coverage to get access to the expensive new treatments and devices. This will create a market for their invention. This is just like those who could afford the first Tesla cars paying for the technology to bring it into mass production and affordability for the masses. Right now the world has the benefit of the US medical innovation machine to ride on. If we kill it we will not only harm the US but also the world. Following my program would greatly enhance the world's medical care.

Coverage needs to be all by individual. Having coverage tied to employment is the source of all of the gaps. Because employment is not continuous. Imagine that you life, auto and homeowners insurance had to change every time you considered a new job. It would be nuts. This can be fixed by offering premiums tax free for individuals and making pricing transparent and published nationwide a requirement for every health product/ service. You wouldn't even need to eliminate the employer based group coverage. It would die nearly immediately from competition. A limited network of providers in which you are blind to costs and captive to your employment is much less desirable to a nationwide network where you could shop for the best care for the best value and you could never be dropped, never worry about privacy at work about your medical use.

But you would point out that in the bad old days the individual market was much more expensive than the group market. Well yes, especially with after tax dollars on premiums. The reason was that bad risks individuals were skewed to take the bad deal to get coverage, making it a self fulfilling high risk pool by default. Make individual coverage the better option and this dynamic reverses and so do the premiums.

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