October 27, 2018
The discussion of health care has been badly warped ever since the debate over the Affordable Care Act (ACA) in 2009. A central feature of the ACA was the requirement that everyone get insurance, or pay a penalty if they don’t. While many resented having the government force them to buy insurance, especially in a context where they had to buy it from a private insurance company (i.e. there was no public option), this was actually a central feature of the ACA.
The main point of the ACA was to make it possible for people with serious health issues to get coverage. Insurers are happy to cover healthy people. For the most part, covering a healthy person means insurers get a check every month for nothing. It’s good work, if you can get it.
People with health problems are a different story. They actually do cost the insurers money. This is why insurers either charged people with health problems very high premiums or didn’t allow them to buy insurance at all, in the years before we had the ACA.
The ACA prohibited discrimination based on pre-existing conditions. It only allowed insurers to vary premiums based on age, not health. But, as several states discovered, a ban on discrimination based on health will not work by itself. This means that the average cost of insurance will be much higher.
That makes it a bad deal for relatively healthy people, many of whom will then decide not to buy insurance. With fewer healthy people in the pool, the average cost per person rises. This leads to higher premiums, which leads to more relatively healthy people leaving the pool. You go through a few rounds of this process and you end up with an insurance pool with relatively few healthy people and very high premiums.
This is why the ACA came with a mandate for buying insurance. The point was to keep healthy people in the pool to ensure that health insurance would be affordable. Of course, even without discrimination based on health, insurance would still be very expensive. This was the reason for the subsidies.
Unfortunately, the subsidies were not very generous and they phased out at levels that left many middle-income families with very high insurance costs. Still, many more people had access to insurance than before the ACA.
Trump and the Republicans are determined to dismantle the ACA and bring us back to the pre-ACA world in which people with health issues either cannot get insurance or face extraordinarily high premiums. The key to getting to this spot is unraveling the insurance pools so that relatively healthy people do not have to share in the cost of paying for less healthy people.
While keeping the pools intact was always the key to making the ACA work, this fact was largely derailed over the extensive coverage given to the “Young Invincibles.” The story here is that the premiums were modestly weighted so that younger people paid somewhat more than their average cost so that older people could pay somewhat less than their average cost.
This got highlighted as a case of the young subsidizing older pre-Medicare insurees. The argument was that if we didn’t get enough young healthy people to sign up for ACA insurance the system would not be financially viable. In reality, the Young Invincibles story was nonsense. As any simple analysis showed, it made relatively little difference if fewer young people signed up for insurance, what mattered was whether there was a skewing based on health.
The subsidy that young people on average paid into the system was relatively modest since their cost for insurance is on average just one-third of the oldest pre-Medicare age group, people between the ages of 55 and 64. It is healthy people in this latter age group that pay the largest subsidy for insuring less healthy people.
While most people in their twenties and thirties can count on being in generally good health, a large share of the people in their late 50s and early 60s are also in good health. These relatively healthy people pay a much larger sum towards supporting the less healthy than the “Young Invincibles.”
To take my own case: I have been fortunate to have very good health. The largest chunk of my health care bill consists of my bi-annual check-up with my family practitioner and a flu shot when I remember to get it. Yet, the average cost of health care for people in my age group is over $9,000 a year. This is hugely more than insurers are paying to cover my actual health care expenses.
If people like me are given the option to pay less money for a plan that excludes coverage for many conditions, and includes a large deductible, it would be a very good deal for us. It also would quickly destroy the insurance pools and leave people with health issues unable to afford insurance.
To take a simple story, suppose that the healthiest 20 percent of the pool, with average costs of $1,000 per person, opted out. This would raise the average for the cost for the remaining 80 percent to $11,000. If this higher price led the next 20 percent to leave, with average costs of $2,000 per person, the average for the remaining 60 percent would jump to $14,000 per year. This process continues until we get left with nothing but people with high costs in the pool, and correspondingly high premiums.
The Republican proposals are all about giving relatively healthy people more attractive options that would allow them to get out of pools that include individuals with high costs. This is the point of the Trump administration’s “short-term” insurance plans. These are plans that are not required to meet the ACA’s conditions. They would be unattractive to people with health issues but could save relatively healthy people large amounts of money.
Under the ACA, people could enroll in these plans for up to three months. This was a way to keep coverage for people who were changing jobs. The Trump administration’s new rules allow people to keep these plans for up to a year and to renew them for up to two more years.
This is all about giving relatively healthy people a way to get out of standard insurance pools and thereby avoid sharing in the cost of providing care to less healthy people. Over time, the Trump plan will reduce the number of relatively healthy people in the standard pools and once again make insurance unaffordable for people with serious health issues.
The basic point here is that if we want health care to be affordable for people with serious health problems, then the rest of us will have to share in the cost through some mechanism. We can do this through general taxation with some sort of universal Medicare-type program or we can look to do it through insurance premiums with something like our current system.
But, if we allow people to just pay for the cost of their own health care and no more, then we are telling people with heart conditions, cancer survivors, and other serious medical issues that they are screwed. Trump and the Republicans may think this is a good thing, but we should be clear on what they are doing. They want people with health problems to suck up their health care costs, and if they can’t afford these costs…next time, find some rich parents.
Note: An early version indicated that the new rules on short-term insurance plans had not yet gone into effect. They actually went into effect on October 2. Thanks to Robert Salzberg for the correction.