Will Paul Ryan's Obamacare Replacement Work For People With Pre-Existing Conditions?
The pre-existing conditions issue played a central role in the design of the Affordable Care Act, and dealing with this issue appropriately in any ACA replacement plan will be instrumental to the achievement of stable and sustainable individual and small group health insurance markets.
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PHILADELPHIA, PA – JANUARY 26: U.S. President Donald Trump (L) shakes hands with Speaker of the House Rep. Paul Ryan (R-WI) (R) during a luncheon at the Congress of Tomorrow Republican Member Retreat January 26, 2017 in Philadelphia, Pennsylvania. Republican Congressional members gathered in Philadelphia to participate in the retreat. (Photo by Alex Wong/Getty Images)[/caption]
House Speaker Paul Ryan and House Republicans’ June 2016 Better Way health care reform proposals, supported by Representative Tom Price, President-elect Trump’s nominee to head HHS, will surely influence the development of replacement legislation. Consistent with the Better Way, there would appear to be fairly broad support among Congressional Republicans for a replacement plan that at a minimum (1) guarantees that people who maintain continuous coverage can do so at terms that do not reflect health status, (2) provides substantial incentives for people to purchase coverage before needing costly medical care, and (3) provides some form of safety net for those who fail to purchase and maintain coverage.
The ACA guarantees issue of individual and small group health insurance at premiums that do not consider a buyer’s health during annual open enrollment and special enrollment periods. Premiums vary by age within a 3 to 1 range. Premium subsidies to buyers with incomes up to 400 percent of the poverty level, and cost sharing subsidies for those with incomes up to 250 percent of the poverty level, encourage the take up of coverage. The individual mandate imposes modest penalties for failure to obtain coverage, provided that available coverage is “affordable” (costs less than about 8 percent of income).
The subsidies and mandate have yet to produce balanced and stable risk pools in many states. Individual market enrollment has been much lower than projected; the average age and morbidity of enrollees has been higher. Many potential buyers, especially the young, who do not expect substantial medical expenses and are eligible for little or no subsidy regard expensive coverage with substantial cost sharing and narrow provider networks as not worth the cost. The 3 to 1 age rating band lowers premiums for older buyers but increases premiums for younger people, reducing their incentives to insure.
Large premium increases in many states and accompanying losses to and exits of insurers suggest that market sustainability under the current law’s structure would be at best uncertain without significant changes, such as larger taxpayer subsidies and/or tougher penalties for violating the mandate. Widening the age rating band would facilitate lower premiums for younger buyers, but by itself would require higher premiums and increase adverse selection among older buyers.
The House Republicans’ Better Way insurance market proposals would guarantee people who maintain continuous coverage the ability to purchase health insurance in the individual market regardless of pre-existing conditions at premium rates that do consider the buyer’s health. The currently uninsured would be able to do likewise during a one-time open enrollment period. The ACA’s individual and employer mandates would be repealed.
Instead of the ACA’s premium and cost sharing subsidies tied to income, people without access to employer sponsored coverage, Medicare, or Medicaid would receive “a universal advanceable, refundable tax credit” to help pay for coverage. The size of the credit would increase with age but not be tied to income. Most of the ACA’s restrictions on coverage amounts and required benefits would be repealed, with regulatory authority returned to the states. A default age rating band of 5 to 1 could be increased or decreased by the states. Expanding the range would reduce subsidies from younger to older buyers.
People who failed to obtain and/or maintain coverage would not be guaranteed access to coverage at rates that do not reflect their health status. Following the initial open enrollment period, and depending on state policy, insurers would be able to deny coverage, include exclusions or waiting periods, and/or charge higher premiums to applicants who had failed to purchase and maintain coverage. Under the Better Way’s safety net component, people who failed to purchase and maintain coverage would be eligible for basic coverage with higher premium rates in state high risk pools with some level of federal funding. This approach would separate the subsidization of people who wait to buy coverage until needing care from pricing in the guaranteed issue market, reducing if not eliminating the impact on premium rates for people who purchase and maintain coverage.
The arguments against pre-ACA state high risk pools—limited protection, high premiums, and inadequate funding—are well known. Many argue that repeal of the individual mandate, even with its modest penalties and exemptions, is fundamentally incompatible with the attainment of balanced and stable risk pools. Adverse selection death spirals occurred before the ACA in a number of states that adopted guaranteed issue with significant rating restrictions without mandating coverage. That state experience, however, arose without either refundable tax credits to encourage coverage take up or separately funded high risk pools.