Time to revisit the 3-Legged Stool.
2018 MIDTERM ELECTION
Time: D H M S
Ever since Trump's stunning electoral college victory on Tuesday, there's been a lot of hand-wringing (including by myself) about the Republican Party finally getting to actually make good on their obsessive desire to kill off the Affordable Care Act.
At the same time, there's been a similar number of articles written about why doing so might be trickier than they think. Many of those articles focus on the actual legalities involved (which parts can be killed via reconciliation, which parts can't, what the timeline would be and so on), while others go into the political and economic impact of actually repealing the law and what their replacement might look like. This is what I'm writing about in this entry.
Let's revisit this post from a year and a half ago, back when the King vs. Burwell Supreme Court case was the biggest threat looming over the ACA:
An Affordable Care Act alternative unveiled earlier this month by three House Republican committee chairmen, intended to be put in place if the Supreme Court guts the law in the case of King v. Burwell, would allow people to stay on their parents’ plans until age 26, as ObamaCare does.
The alternative would also guarantee renewability of plans, making sure that people cannot be dropped because of medical conditions.
The law prevents insurers from discriminating against people with pre-existing medical conditions, whether they already have insurance or not. This provision is paired with ObamaCare's mandate to buy insurance, intended to prevent people from waiting until they are sick to buy insurance, knowing they can’t be denied.
Here's the thing: The Affordable Care Act is primarily based on a "3-legged stool" approach (as outlined by the now-infamous Jonathan Gruber back in 2010):
At the health law’s core is a “three-legged stool” approach to reforming these markets: new rules that prevent insurers from denying coverage or raising premiums based on preexisting conditions, requirements that everyone buy insurance, and subsidies to make that insurance affordable.
...The truth is that all three legs of the stool are necessary to assure affordable coverage. The first “leg” is regulations that require insurance companies to offer insurance to any applicant with premiums based on age (and tobacco use) and not on underlying health status. Insurance companies are also prohibited from excluding coverage due to preexisting illnesses.
This is a highly popular reform, but it doesn’t work in a vacuum. If insurance companies must charge the same price to people whether they’re sick or healthy many healthy people will view this as a “bad deal” and not buy insurance. This results in higher prices that chase even more people out of the market. The result is a “death spiral” that leads only the sick to purchase insurance at very high prices. Several states tried such community rating reforms—offering health insurance policies within a given territory at the same price to all persons without medical underwriting—in their nongroup markets over the past two decades, and sharp rises in insurance prices ensued along with rapidly shrinking market size.
This fact motivated Massachusetts in 2006 to add a second “leg” to the stool: a requirement that all residents purchase insurance. In this way the state could ensure a broad distribution of health risks in the market and fair “communityrated” pricing to all.
The problem with this solution in a vacuum, however, is that many families cannot afford health insurance at those community-rated prices. Massachusetts therefore added a third “leg” in the form of subsidiesthat make health insurance affordable for those below three times the poverty line (as well as some targeted exemptions from the mandate for those who were above the subsidized level but could not afford coverage). This reform has shown very encouraging results, with the number of uninsured in the state falling by 60 percent and nongroup premiums falling by 40 percent.
Again, to summarize:
- First Leg - Guaranteed Issue: Insurance carriers are required to enroll anyone as long as they pay their premiums, no matter what their medical history/condition
- Second Leg - Individual Mandate: To keep the risk pool from becoming disproportionately filled with insanely expensive-to-treat enrollees only (cancer, diabetes, etc), include a coverage mandate with a penalty for not signing up, to goad healthier people into doing so.
- Third Leg - Tax Subsidies: Since insurance will still be way too expensive for many of the people being required to buy it, include financial assistance to cover a chunk of it for lower-income folks.
The ACA also includes a couple of other provisions intended to keep costs from shooting up too much...one of which is the time-limited "Open Enrollment Period" (6 months the first year, 3 months each year after that...we're in the middle of the 4th Open Enrollment Period right now). This is actually standard among most employer-sponsored insurance plans as well as Medicare enrollment...you have a limited time window in which to sign up for your policy for the upcoming year; after that, you're out of luck except for certain exceptions.
The reason for this is that otherwise, some people wouldn't bother signing up at all until they actually become sick/injured; this would let them get out of paying for months or years of premiums while then requiring the carrier to shell out huge sums of money on healthcare claims. By limiting them to a narrow time window to only 3 months of the year, you're basically making enrollees play russian roulette: Better to sign up for the full year than to take a chance of being SOL during the other 75% of the year. The exceptions to this time window include special major life events such as getting married, divorced, having a child, getting out of the army and so forth.
"But wait!", you're saying, "aren't premiums shooting up anyway?" Well, yes, to some degree...but one of the main reasons for that is that the second and third leg turned out to be too short under the current version of the ACA. Basically, the subsidies aren't quite generous enough, and the individual mandate penalty isn't quite harsh enough. Two of the legs are a bit too short. To keep the metaphor going, this results in a wobbly stool. It needs a couple of shims wedged under those legs (amendments to the law)...which is what Hillary Clinton and the Democrats would have tried to put into place next year if she/they had won the election.
In addition, there's been a lot of complaints that the 'exceptions" (Special Enrollment Periods) to the Open Enrollment Period are too lenient; HHS has already tightened up a bit on these, but it's supposedly still an issue.
The point is that instead of extending those two legs, the GOP is essentially promising to keep the first leg while cutting off the second and third ones entirely.
Look at that image above and tell me what would happen in that instance.
If you don't believe me, take a look at what happened in New York a couple of decades ago when they tried something similar:
A cautionary tale in healthcare reform
Two decades ago, New York passed a law requiring insurers to accept all applicants, even those with preexisting conditions. Now, premiums in the state are the highest in the nation by some estimates.
Spurred by heart-wrenching stories of sick people denied health coverage, the state of New York did what many of President Obama's critics say he should do now -- it passed a relatively simple law requiring insurers to accept all applicants.
Other states have taken similar steps, making narrowly targeted changes instead of trying to overhaul their whole healthcare systems.
But two decades later, New York's experience offers a cautionary tale: Making isolated changes to the complex medical insurance system can have unwelcome consequences.
Premiums in New York are now the highest in the nation by some measures, with individual health coverage costing about $9,000 a year on average. And nearly one in seven New Yorkers still lacks health coverage, a greater proportion than before the law was passed.
The state has become a victim of a dangerous dynamic in insurance markets. Laws allowing consumers to buy insurance at any time often saddle companies with a lot of high-cost customers.
That in turn drives up premiums, pushing away younger, healthier people who are vital to a functioning insurance system.
"You basically can't have a functioning insurance market if people can buy insurance on the way to the hospital," said Mark Hall, a Wake Forest University economist who studied New York's experience.
The article above focuses mainly on the ACA's limited-time open enrollment period, but it amounts to the same thing: If you guarantee that anyone can enroll, that means that you're going to have a lot of people with absurdly expensive ailments or conditions, which in turn will push up the rates for everyone else as well to cover the cost of treating them.