May 16, 2017
IT'S ALL JUST VARIATIONS ON OBAMACARE:
No Exit on Health Care (Richard A. Epstein, May 15, 2017, Hoover)
During his campaign, then-candidate Trump wrote that he "does not believe health insurance carriers should be able to refuse coverage to individuals due to pre-existing conditions." That leaves open the question of how much more, if anything, high-risk patients can be charged relative to others. The key provision of the AHCA fudges this particular question, by saying that its legislation does not allow health care insurers "to limit access to health care coverage for persons with preexisting provisions." But that provision would not prevent them from increasing the cost of coverage so as to reduce or eliminate the amount of the implicit subsidy. In addition, there is also fierce resistance to those provisions in the AHCA that would allow the states to raise the community rating differential so that insurers could increase from three-fold to five-fold the rate differential between their youngest and oldest customers, in order to reduce that cross-subsidy.Such intense opposition to these key AHCA provisions is indicative of the huge difficulties that it takes to manage cross-subsidies. If these are kept too large, as they are under the current Affordable Care Act, then insurance in the individual market will implode because young people will flee from plans that offer them a raw financial deal. But if the level of the subsidy is reduced, then the cost of existing coverage for older insureds will necessarily skyrocket, so that they will be forced to leave their plans. One possible way to control this problem is for the federal government to cover the costs of the needed subsidies from general revenues, which would make their cost explicit, by putting it on the budget, allowing for a political debate about the size of the subsidy. But elected officials are reluctant to raise taxes, and even when they do, there is a real question of whether the funds set aside are sufficient to cover any shortfall that might exist.
The simplest way to attack the size of the subsidy is to reduce the set of benefits that are included in the health plan. On this score, the rich set of essential medical benefits under the ACA are far more extensive than those provided in any voluntary market, which is a good sign that they should be pared back in ways that make coverage more affordable. Private insurance companies in an unregulated market can alter their product mix in response to changes in cost and demand. But government programs face huge rigidities in this regard, because every type of current service supplier will lobby furiously to make sure that its benefits survive the financial axe. The new bill does not attack this problem directly, but allows for states to gain waivers from the essential benefits, inviting a massive political battle as to which particular benefits will be cut and why.At the same time, it is hard to see what progress can be made in dealing with preexisting conditions. Thus under the House version of the AHCA, states may seek waivers that allow insurers to charge more for preexisting conditions, but only if they set aside sufficient funds to help those hurt by the rise in market rates. The AHCA contains $138 billion to deal with the issue, to be divvied up among 50 states to help them reach their goal. But, as with essential minimum benefits, this provision raises at least as many questions as it answers. It is never clear whether these funds are sufficient to cover the shortfall, and, if so, how they are to be allocated across the states. Nor is it clear just how much funds any state must commit to the program in order to make the waiver good. The AHCA does not set up a competitive market in which each firm makes its own pricing system. What it does is propose an alternative system with a different set of coverage formulas and cross-subsides that no one can figure out how to price in advance, which accounts for some of the intense opposition to the legislation.
Posted by Orrin Judd at May 16, 2017 5:30 AM