Republicans are adamantly against health insurer bailouts—unless, of course, it’s Republicans who are doing the bailing out.
The Affordable Care Act prohibits health insurers from denying coverage (“guaranteed issue”) or charging more (“community rating”) for a major medical condition in the individual market. It’s an anti-free market form of price controls.
Historically, insurers have opposed such laws because they encourage people to wait until they need care to get health insurance, which destroys the health insurance pool.
In order for Democrats to get health insurers to buy in to their scheme, Obamacare created a system of cross-subsidy programs: reinsurance, risk corridors and risk adjusters.
Republicans railed against these subsidies, calling them “insurer bailouts.” And Senator Marco Rubio cleverly figured out how to pass a law limiting bailout funds.
Now comes the Republican Obamacare replacement, which includes guaranteed issue, community rating and —wait for it — money for health insurer bailouts.
The Republican plan creates what they call a State Stability Fund. The bill allows states to use federally provided money in several ways in an effort to stabilize their individual health insurance markets.
For example, the bill suggests that states could create high risk pools for their high cost patients. But why would a state need to do that if insurers are required to accept anyone who applies? Answer: to reduce insurer loses in an effort to keep premiums lower.
Under this version of high risk pools—which varies from the standard approach—states would siphon off high-cost patients and shift them into the risk pool. Apparently, Alaska took this step to try and minimize the premium explosion under Obamacare.
But the whole purpose of insurance is to bear the risk of loss for a price (i.e., the premium). Removing the high-cost utilizers after they emerge is a dream come true for insurers.
In addition, if a state does not submit a proposal for how it will use its stability funds, there is a default mechanism. According to the text of the bill, the feds will make “payments to appropriate entities to ensure premium stability in the individual market with respect to claims that exceed $50,000 but do not exceed $350,000, in an amount equal to 75 percent of the amount of such claims.”
So if a state declines to choose an option, the federal government apparently will subsidize the health insurers for part of their loses on high-cost patients. Another win for insurers.
It cannot be repeated enough that all of these backdoor mechanisms to stabilize the market wouldn’t be necessary if the Republican plan—and Obamacare, for that matter—didn’t abandon standard actuarial principles, which allow underwriting.
Once the government imposes guaranteed issue and community rating, then it must try to devise a way to keep the market from collapsing.
Will the Republicans achieve that goal? Maybe, but it’s usually a bad idea to bet on government manipulation over the free market.
March 14, 2017