The rollout of the Republican bill to repeal and replace Obamacare has not received a warm welcome on Capitol Hill – to put it mildly. Both the left and the right found plenty to hate inside this sixty-six-page bill, available for perusal right now on the House website to any soul brave enough to hack through the legislative lingo and dig out the details.
Democrats are decrying the plan for eroding federal support of health care and cutting aid to the poor. Conservative Republicans are protesting that the changes do not go far enough, and simply amount to yet another welfare entitlement. Two things are certain: this is just the starting point, and the plan will change. Even the current supporters admit as much, including President Trump’s press secretary Sean Spicer.
Many parts of the plan will likely be lopped off to bring dissenting Republican votes back into the fold. During the process, it is important to bear in mind that this is not a standalone health care bill – it is just a plan designed to repeal the worst parts of the Affordable Care Act and replace them with something better. Seven years after its creation, the least popular parts of President Obama’s signature healthcare reform remain the nickname “Obamacare” itself and the individual mandate to purchase insurance or face a penalty. Politicians are not usually known to include universally unpopular provisions inside their legislation, so how did the individual mandate make it into Obamacare in the first place?
The Affordable Care Act includes many wildly popular regulations, almost all of which carried over into the nascent Republican plan. Under Speaker of the House Paul Ryan’s (R-WI) bill, health insurers will still be forced to price policies equally for people of the same age, include free birth control, and provide coverage to dependents up until their mid-twenties. These crowd-pleasing enhancements are not free. The insurance companies will not roll over and absorb the cost of compliance, but will instead pass along the price for these bonus features to the consumer. Requiring insurance companies to include extra perks raises the cost of every plan for everyone, just like if the government suddenly demanded every new car include a sunroof.
Now we arrive at the core financial problem with Obamacare and the reason why lawmakers had to turn to the individual mandate. Because prices have risen to compensate for all the newly required bells and whistles, some people who would have otherwise purchased insurance may decide that they do not need coverage at these higher rates. These consumers tend to be young healthy adults who rarely if ever need to go to the doctor. When these people cancel their policy and stop paying their premiums, the insurance company only has one course of action: to raise rates on the people still enrolled in a plan. Once the insurers do this, however, a new class of customers may realize that even though they go to the doctor here and there, they do not go enough to warrant these even higher prices. As a result, this second groups drops off the rolls of the insured. This feedback loop continues until only the sickest individuals remain, paying astronomical premiums to keep their now nearly bankrupt insurance company afloat.
The only way to stop this death spiral from starting is to figure out some way to keep that very first group of young, healthy people in the pool. The left resorted to the individual mandate: a barely disguised tax designed to punish noncompliance with the federal overlords’ agenda. The mandate was not and is not the only tool which can address this issue. The conservative solution for keeping cheaper beneficiaries in the insurance market is the requirement for continual coverage. So how does this work?
In our example above, the young healthy adult might drop out of the insurance market for years, only to be diagnosed with a chronic illness later in life. Under the rules established in Obamacare, this individual would be allowed to re-enter the marketplace and purchase a new plan at the standard rate. Under the GOP plan, this person would now be subject to a different kind of penalty. Instead of a yearly tax for failure to purchase an insurance policy, this person would incur a 30% increase in their premium cost.
Going back to the analogy using cars, if this person had decided that a car with a sunroof was not affordable and decided to go without one for a few years, under Obamacare they would have paid a tax penalty each year. Under the GOP plan, there is no annual penalty, but once they finally decide to buy a car, their monthly payments will be 30% higher than they would have been if they had owned a car the entire time.
Whether or not the government is entitled to compel an insurance company to comply with expansive federal directives is a topic for another column. Obamacare created the precedent for legislative control over the health insurance market, and the first draft of the Republican replacement plan does little to undo this bureaucratic meddling. The practical consequence of forcing insurers to include a vast array of benefits in their plans is that these offerings will rise in price, and consumers will send premium prices into a death spiral as the healthier ones drop out of the risk pool as a result. Lawmakers can try and prevent this from happening through either an individual mandate or with a requirement for continuous coverage. Both methods work to stabilize prices, but the Republican approach succeeds in accomplishing this feat in a manner which does not trample on the liberty of populace. No one should ever be forced to buy something, period. Instead, that person should have to face the consequences of their choices if the worst happens and they suddenly need insurance after choosing to go for years without it. The requirement for continuous coverage is the sensible, conservative solution to the death spiral problem.
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