It’s Time To Govern

Speaking of governing: You rightwingerdingers are about to get a lesson in medical insurance. And it will not be pretty. Sorry to burst your bubbles.

After reiterating his promise to repeal and replace the Affordable Care Act, President-elect Donald Trump has indicated that
he may keep two of the law’s most popular provisions. One is
straightforward enough — children up to the age of 26 being allowed to
stay on their parents’ plan. The other — preventing insurance companies
from denying coverage because of preexisting conditions — offers a
perfect illustration of why Trump and most of the other Republicans
critics of Obamacare don’t understand the health insurance market.

Let’s
say that in the beautiful new world of “repeal and replace,” insurers
are required to sell you insurance despite the fact that your kid has a
brain tumor. Insurance companies know what to do with that. Their
actuaries can calculate that kids with brain tumors typically require
(I’m making this number up) about $200,000 a year in medical care. So
they’ll offer to sell you a policy at an annual premium of $240,000.

At
this point your response will probably be that such an outcome is not
fair. When the law says insurance companies can’t discriminate on the
basis for pre-existing conditions, surely what it means is that they
have to charge roughly the same price for health insurance, irrespective
of your pre-existing condition. In the language of insurance, that’s
called “guaranteed issue at community rates.”

Unfortunately, in
the states that have tried guaranteed issues at community rates, the
insurance markets have collapsed. That’s because if you guarantee
everyone the right to buy health insurance at community rates, then some
consumers will game the system. The young and healthy ones won’t buy
any health insurance at all—they’ll go without until they are diagnosed
with diabetes or a brain tumor or get hit by a truck crossing the
street. And when that happens, they will immediately call up Aetna or
Anthem and exercise their right to buy health insurance at the low
community rate, irrespective of their medical condition. It won’t be
long before insurance companies begin losing a ton of money and are
forced either to raise premiums through the roof or stop writing
policies altogether.

So
how do you prevent that kind of gaming of the system by consumers?
Well, that’s easy. You require that everyone buy at least some minimal
level of insurance at the beginning of every year, so they can’t buy
insurance only after they get sick. Let’s call that an” individual
mandate.” But because you can’t expect poor people to pay $1,000 a
month, they will require subsidies to keep their out-of-pocket costs to
something like 10 percent of income. To pay for the subsidies, a new
tax will be required.

So let’s review what just happened. To
guarantee that people with pre-existing conditions can get affordable
health insurance, you need to have rules requiring guaranteed issue and
community rating. To keep insurance companies in business because of
guaranteed issue and community rating, you need to have an individual
mandate. And because poor people can’t afford health insurance, you
need subsidies. Combine all three, and what you have, in a nutshell, is
… Obamacare.

Yes, it’s a bit more complicated than that, but
not much. It’s possible to allow insurance companies charge twice or
three times as much, to people who are older or sicker. You can let
healthy people buy somewhat more barebones “catastrophic” policies to
satisfying their obligation under the individual mandate. You could
even avoid community rating by sending sick people into “high risk
pools” where their premiums would be subsidized by a tax on everyone
else’s health care premiums.

But
at the end of the day, once you decide that everyone, regardless of age
or medical condition, should be able to buy health insurance at an
affordable price, you have essentially bought into the idea that young
and healthy people have an obligation to subsidize the older and sicker
people in some fashion. And once you do that, it’s sort of inevitable
you end up where every health reform plan has ended up since the days of
Richard Nixon. You end up with some variation on Obamacare.

Of
course, if you want to scrap guaranteed issue, scrap community rating,
scrap the individual mandate and scrap the subsidies, as Republicans,
propose, then you end up where the country was in 2008—with a market
system that inevitable gives way to an insurance spiral in which
steadily rising premiums cause a steadily rising percentage of Americans
without health insurance.

There are no easy solutions here, no
free lunches. You can’t have all the good parts of an unregulated
insurance market (freedom to buy what you want, when you want, with
market pricing) without the bad parts (steadily rising premiums and
insurance that is unaffordable for people who are old and sick).

At
the same time, you can’t have all the good parts of a socialized system
(universal coverage at affordable prices) without freedom-reducing
mandates and regulations and large doses of subsidies from some people
to other people. Anyone who says otherwise – anyone promising better
quality health care at lower cost with fewer regulations and lower
taxes—is peddling hokum.

Of course, you could scrap Obamacare, scrap any kind of medical insurance for people who can’t afford it, and adopt the standard republican approach to medical care for poor people: Get sick and die.

We need to seize the moment and govern … but without malice or arrogance.