GOP Plan Ensures Obamacare 'Death Spiral'

March 8, 2017

 

The House Republican Obamacare replacement plan was finally revealed on Tuesday, and after years of promising The American People something better, we can now say with certainty that was mostly empty rhetoric. The GOP answer to healthcare, now known as the American Health Care Act, is kind of like Obamacare, but more dysfunctional, with less coverage, and it will cost patients more. Worst of all, the GOP (the same one that said the ACA was forced on them) wants to move their bill forward to voting in committees this week, without cost estimates from the Congressional Budget Office, coverage estimates from the Congressional Research Service, hearings, or public comments. It seems like they hope that by keeping us in the dark, consumers will take whatever political sales pitch they offer. Fortunately, we know why Obamacare worked and can use that information to understand how Trumpcare – as some have already dubbed it – won’t work.

 

The American Health Care Act epitomizes the truth that you can’t have it both ways in life, which is especially true in governance and doubly true in healthcare policy. The Affordable Care Act was designed to address problems in the health insurance market that had been studied and written on for several decades. If you study the ACA, it’s clear the law was written with an underlying desire for it all to work. Essential benefits coverage and other consumer protections ensure access for consumers and a level playing field for businesses. The less-popular individual mandate balances risk pools. Subsidies ensure people who cannot afford insurance aren’t unfairly punished. Taxes, mainly on the 1%, help pay for subsidies. Every part balances another. Trumpcare, on the other hand, appears to have been crafted to deliver tax breaks for the rich, maintain the politically popular parts of Obamacare, and undo the less-popular but necessary parts of the law that make it work. In total, the law would dole out about a trillion dollars in tax cuts, with the 1% benefitting the most.

 

According to Health Affairs, “[The] legislation does not repeal the ACA’s insurance reforms, such as the ACA’s requirements that health plans

  • cover preexisting conditions;

  • guarantee availability and renewability of coverage;

  • cover adult children up to age 26; and

  • cap out-of-pocket expenditures,

and the ACA’s prohibitions against

  • health status underwriting;

  • lifetime and annual limits; and

  • discrimination on the basis of race, nationality, disability, age, or sex.

Unlike the leaked version, the final bills do not eliminate the essential health benefits provisions (except with respect to Medicaid plans). They do repeal the ACA’s actuarial value requirements and replace the ACA’s three to one age ratio limit with a five-to-one ratio.”

 

The bill would also change Medicaid to allow per-person caps, give more discretion to the states for eligibility, defund Planned Parenthood and cut the ACA’s prevention and public health fund.

 

The biggest problem the House GOP will have to overcome in explaining this bill is how it addresses the “death spiral” they have been complaining about under Obamacare. Premiums on the exchanges went up this year, which caused worry among consumers and certainly made it harder for some Americans to get covered. But the GOP plan would take the semi-rhetorical “death spiral” they spoke of and make it very real for millions of people.

 

Incentives are important for making the ACA work, the core of which is risk pools. The Obama administration, as well as healthcare advocates, wanted to make health insurance available to everyone, despite their current health status. Once they did that, premiums would go up and healthy people would leave the market, sending the risk pools into a “death spiral” where only the sickest people with the most resources would be left. The individual mandate was the answer to this problem – punish healthy people for leaving the risk pool and thereby maintain balance to keep premiums affordable. Anyone who couldn’t afford to buy health insurance was aided through subsidies or the Medicaid expansion.

 

The GOP plan, in an attempt to give people more freedom, allows healthy people to leave the pool without penalty. However, the economics of the risk pool are the same, so there must be some force incentivizing healthy people to stay on their plans. Their answer is a continuous coverage requirement, enforced in the form of a penalty-rate premium upon re-entering the risk pool (regaining insurance coverage). Since insurance companies cannot deny coverage based on pre-existing conditions, by removing a barrier to exit and imposing a barrier to entry, this plan basically guarantees that healthy people will go without insurance until they get sick. The coverage they regain will likely be significantly more costly than it is now.

 

Debating the merits of the GOP plan is an important step in the legislative process, but as Health Affairs reports, leadership is not interested. “In considering the Affordable Care Act in 2009 and 2010, the House held 79 hearings over the course of a year, heard from 181 witnesses and accepted 121 amendments. The current House leadership hopes to get the repeal and replacement legislation through the House in three weeks. The Senate adopted the Affordable Care Act only after approximately 100 hearings, roundtables, walkthroughs and other meetings, and after 25 consecutive days in continuous session debating the bill. It is expected that the current House bill will go directly to the floor of the Senate for a vote. Whatever passes the Senate will return for a conference with the House, if it varies from the House bill, and then go to the President for his signature.”

 

The bottom line? The House GOP plan for the American healthcare system is built on fantasy. It tries to balance political interests with no regard for healthcare economics. It throws goodies to the rich while leaving the middle class much more vulnerable. Even worse, the timeline for enactment invites sloppy mistakes and blind spots. The American People probably don’t care whether or not Congress has Obamacare repealed as quickly as they promised; they care about having affordable healthcare that works.

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