The Agenda

Peter Suderman on the Republican Alternative to PPACA

Peter Suderman of Reason has written a terrific post on the contradictions plaguing the health section of the new Republican “Pledge to America”:

If eliminating benefit caps and preventing rescissions is now GOP policy, then they’re with the Democrats; ObamaCare does both of those things. The new health care law also includes a number of state-based pilot programs intended to look for ways to incentivize medical efficiency.

But the larger problem is the requirement that insurance companies be forced to sell anyone a policy regardless of medical history or current ailments (preexisting conditions). It’s called “guaranteed issue,” and it’s at the heart of the problem with ObamaCare. Usually paired with another policy called “community rating,” which strictly limits how insurers can charge individuals differently based on their health risk factors (which ends up meaning that individuals with risk factors get charged more), it’s a very popular set of reforms, for obvious reasons: It turns an insurance premium into an all-you-can-eat health care buffet that you only have to pay for when you want it. 

But in addition to being popular, it’s also a recipe for a swift insurance death spiral. Knowing that they can get insurance at any time, healthy people leave the pool to save money. That drives up premium prices, which drives more people out of the pool, and so on and so forth until you’re left with a very small, very sick, very expensive insurance pool. The PPACA’s authors decided to solve this problem by including an individual mandate requiring everyone to purchase health insurance or pay a tax/penalty. [Emphasis added.]

But the mandate is among the least popular provisions in the bill.

That is, the Republican proposals in the Pledge are incoherent. The Patients Choice Act, however, was not. The conservative alternative has traditionally been reforming the individual insurance market, as Mark V. Pauly of Wharton and John Cochrane of the Booth School have long recommended. The next post will touch on reforming the individual insurance market, and why it’s a more difficult and unlikely proposition that many conservatives and libertarians suggest. 

P.S. Yuval Levin has sent me a well-timed email:

I think you and Peter Suderman are not reading the Pledge language correctly on health care. The document says “We will make it illegal for an insurance company to deny coverage to someone with prior coverage on the basis of a pre-existing condition.” Notice the words “with prior coverage.” In other words, a person with continuous insurance coverage who has to change coverage (because he loses his job, if he had an employer plan, or because he has to move to another state if he’s in the individual market) has to be offered a new plan without a new risk rating. Especially as part of a system that includes genuine and fully funded high-risk pools (which the Pledge also proposes) this is a way to make sure that people with continuous coverage are not cut off because of changes in their circumstances. It does not create an incentive to stay uninsured until you’re sick (which would lead to the insurance death spiral scenario). On the contrary, it creates an incentive to get insured when you’re healthy, because it says that as long as you’re continuously insured, changes in your health won’t change your ability to be covered. It makes *continuous* coverage the essence of the system. That’s how insurance needs to work. Such a system would therefore not require a mandate, but would rely on a powerful incentive to get into the system when you’re healthy.

Capretta and Miller do a good job of explaining how that would all work here.

I was just about to write a post explaining the time-consistent insurance concept, drawing on Capretta and Miller as well as Mark V. Pauly. I’m not as optimistic about this approach as Capretta and Miller, but I do think it deserves a hearing. 

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