Who Knew Healthcare Could Be So Complicated? Part 2

Dear Donald –

Yesterday, I wrote about the basics of how  we get from covering oreexisting conditions to the ACA in a few logical steps. Today, I wanted to start going through the GOP replacement bill and see how it stacks up. Last night (or should I say this morning) the Ways and Means Committee approved the bill after an 18 hour session. I’d be willing to put good money on the fact that most of the “yes” votes haven’t fully read the bill considering it was only out for less than 48 hours before the meeting started. To be fair, I don’t think many of the “no” votes read the bill fully either, but they knew there were enough bad provisions to poison the entire thing, regardless of anything they might have agreed with. 

Let’s start with what is basically the linchpin of the entire ACA – the individual mandate. Without it, insurance pools quickly fall into a death spiral as healthy people drop out of the market and leave the sick ones behind. Since the very beginning, Republicans have attacked this provision as a direct assault on freedom, democracy, and apple pie. They argued that, by requiring individuals to purchase health insurance, you were mandating their participation in a market that they might not want to participate in. They said it was akin to requiring everyone to eat broccoli. As bizarre as that analogy is (who wrote that talking point? Someone’s four year old refusing to eat their vegetables?)it’s also way off base. Most traditional marketplaces actually provide a genuine option for non-participation without negative externalities. Basically, I can choose not to buy broccoli and it doesn’t really hurt anyone who does choose to buy broccoli. Health insurance is different. First of all, I can’t really choose not to participate in the healthcare system. By being a living breathing thing, I will at some point get sick or have an accident that requires medical care or die. At any of those junctures, I will interact with the healthcare system. My very existence is a guarantee of eventual market participation. 

As for the second issue, my decision not to purchase health insurance actually harms those who choose to purchase insurance. By not buying insurance, I operate outside the risk pool and drive up costs for others by either being exceptionally costly to serve when I join or by driving up the costs by not being able to pay my bills out of pocket as Heath care providers inflate what they charge insurance to cover the cost of the defaults. 

Regardless, Republicans HATE the individual mandate and made it a key piece of their repeal agenda. So what did they come up with?

An individual mandate that incentivizes staying uninsured for as long as possible. 

Remember, the ACA mandate charges individuals an annual tax as long as they stay uninsured and the government uses that money to help offset the costs of insuring more people. Under the replacement plan, individuals who lose their health insurance or let their coverage lapse would not be taxed by the government. Instead, private insurers would get to charge them extra when they do finally Get insurance again – up to 130% of the standard rate. That’s right, the Republican plan to end the individual mandate, increase coverage, and bring costs down keeps the mandate, penalizes those who are net covers when they decide to re-enroll, and increases costs. 

Let’s start with a basic issue – inertia. People, like objects, are content to keep doing what they’re doing unless something makes them change. The ACA penalty does that.  It makes staying uninsured costly. The new plan makes staying uninsured ideal, particularly when the cost of insurance would be 30% higher than it was when you lapsed coverage. Let’s imagine someone paying $5,000 per year for healthcare which they let lapse. Suddenly, they have the extra $5,000 per year and no penalties. Then, should they choose to reenroll, doing so could now cost them $6,500. What’s my incentive to re-enroll then until I absolutely have to have coverage – when I’m going to be the most expensive to the insurer and when I’m most likely to help precipitate the death spiral. The penalty is on those who choose to re-enter, not those who left, so the incentive is to just not re-enter. 

Next, note that now the penalty would get paid out to the insurance companies, not to the government, meaning that the global harms I may have done to the insurance market are offset with payments to private industry. The government no longer can use those funds for more genral welfare purposes. They get used to inflate CEO bonuses, not subsidize healthcare for low income Americans. 

It’s a truly bad idea that incentivizes all the wrong behavior and rewards the wrong actors. As a general rule, you penalize people doing what you DONT want them to do; you don’t penalize them for doing the right thing. Tomorrow, subsidies. 

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