And by fewer, we’re talking about the Congressional Budget Office’s estimate Monday that 24 million people would lose health insurance over the next decade if the Republican bill becomes law.
Fewer people may be covered, a stoic Ryan said over the weekend on CBS’ “Face the Nation,” “because this isn’t a government mandate.”
The Republicans aren’t running a government, he said, “that makes you buy what we say you should buy.”
That might be a persuasive argument if it was grounded in any kind of economic logic. But it isn’t, so it’s not.
Conservatives have built much of their case for repealing and replacing Obamacare on the idea that a health-insurance mandate is unfair and downright un-American — Big Brother running amok, forcing decent, hardworking families to purchase something they don’t want.
The intellectual bankruptcy of this position serves only to demonstrate that critics of the Affordable Care Act are either deliberately deceiving the American people or that they have no idea how insurance markets work.
Giving them the benefit of the doubt (because I’m a good guy), let’s assume it’s the latter.
So let’s talk about health-insurance mandates.
I spoke to a number of healthcare economists, and every one of them — every one of them — said you can’t guarantee affordable, comprehensive coverage to people regardless of preexisting medical conditions unless you have a way to get younger, healthier people into the risk pool.
“I’m a lifelong Republican,” said Craig Garthwaite, co-director of the Health Enterprise Management Program at Northwestern University. “If you’re going to require that an insurer has to provide insurance to everyone, then you have to have a way to get people into the market when they’re healthy. Otherwise, insurers have to raise prices because everyone they cover will be sick.”
Since many conservatives seem to have skipped Econ 101 the day risk management was taught, the economic principle at work here is known as “adverse selection.”
“That means people who expect to have higher medical expenses are more likely to sign up for health insurance, and people who expect lower medical expenses are less likely to sign up,” said Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University.
The upshot of adverse selection is that the proportion of sick people in the risk pool ends up being higher than that of healthy people, which forces insurers to raises rates to accommodate the unexpectedly large number of claims.
As rates go up, more healthy people drop out, causing insurers to boost premiums again, which prompts more healthy people to walk, and so on.
When pundits talk about an insurance death spiral, that’s what they’re referring to. Before long, insurance becomes so expensive, no one can afford it and the entire system collapses.
The CBO estimates that average premiums under the Republican plan would jump by as much as 20% in 2018 and 2019, but they’d be about 10% lower than under Obamacare after a decade.
That’s not a reflection of a system that works better. It’s a reflection of insurers lowering costs by offering less coverage than people now receive, with higher out-of-pocket costs.
As a result, the individual insurance market will remain relatively stable, according to the CBO, so a death spiral is unlikely. But that’s setting the bar pretty low for a bill that purports to improve the U.S. healthcare system.
The Republican plan wants it both ways. On the one hand, it maintains the most popular aspect of Obamacare, the requirement that insurers cover everyone regardless of medical condition.
Prior to Obamacare, someone with diabetes, say, would be turned away by insurers in the individual-insurance market because he or she would be deemed too great a risk. Chronic diseases cost money.
Obamacare fixed that by prohibiting insurers from rejecting people with chronic ailments or other health issues — what’s known as “guaranteed issue.” To mitigate insurers’ increased risk, the law included a mandate that almost everyone had to buy insurance or face a financial penalty.
“There’s no way you can have guaranteed issue without a mandate,” said James Rebitzer, a healthcare economist at Boston University. “You’re completely locked in, according to the laws of economics.”
What he means is that efficient markets won’t tolerate half measures. Once a society commits to a specific course — universal coverage, say — you’re committed to guaranteed issue, which commits you to a mandate, which commits you to finding the most equitable way of getting everyone into the system.
On the other hand, Rebitzer said, if your primary goal is to limit the government’s ability to coerce citizens into doing things they don’t want, then you’ll eliminate insurance mandates, which means you’ll allow insurers to keep rate hikes in check by rejecting coverage for the sick.
“You can’t be a wuss about it,” he said. “Once you decide on your social values, you have to commit.”
Ryan and other Republicans say they’re committed. Their plan includes a provision that if you let your coverage lapse for a couple of months, you’ll face a one-year 30% rate hike when you buy insurance again.
Jonathan Skinner, an economics professor at Dartmouth College, called this “exactly the wrong way to structure something that you want people to buy.” By effectively penalizing people for returning to the risk pool, he said, the Republican plan creates an incentive for healthy people not to buy insurance.
“It’s like a perfect storm of disincentives,” Skinner said.
I’ve tried to avoid wonkiness and political ideology. As Rebitzer said, this is a matter of the laws of economics, and those laws are clear: You can’t have affordable and comprehensive coverage for everyone without getting everyone, young and old, sick and healthy, into the system.
“People are going to do what they want to do with their lives because we believe in individual freedom in this country,” Ryan said on “Face the Nation.”
“So the question is: Are we providing a system where people have access to health insurance if they choose to do so? And the answer is yes. But are we going to have some nice-looking spreadsheet that says, ‘We, the government of the American — the United States, are going to make people buy something and therefore they’re all going to buy it’? No.”
Either he’s trying to deceive you or he doesn’t know what he’s talking about.
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