Some Republicans Embrace ObamaCare Mandates
Several Republicans reportedly want to retain certain provisions in ObamaCare, not because those provisions are good policy, but because they’re popular. But if Republicans adopt the popularity standard, they will have to impose coercive government mandates that will drive up the cost of health insurance — just as they accuse President Obama and the Democrats of doing.
One of the ObamaCare provisions seen as worthy of retention is the requirement that health insurers accept any applicant regardless of health status, known as “guaranteed issue.”
Yes, most people think that if they’re uninsured and have a medical condition they should be able to get health insurance. But requiring private sector health insurers to accept anyone encourages people to game the system by waiting until they need coverage to get it. That’s one reason why Democrats included the individual mandate, as well as a penalty for not having coverage.
Ironically, Democrats didn’t always embrace the individual mandate — including Obama, who as a presidential candidate supported guaranteed issue but opposed the mandate.
While President Bill Clinton included a mandate in his health care reform proposal in 1993, things were different at the state level. Democrats in eight states — New Jersey, Massachusetts, Vermont, New York, Maine, New Hampshire, Washington and Kentucky — passed guaranteed issue in the mid-1990s in their individual market, where individuals buy their own health insurance, without a mandate to have coverage. (Note: employer-based group health insurance, which covers 165 million Americans, has been guaranteed issue for years.)
The result, as many of us predicted at the time, was that health insurance premiums in the individual market exploded in those states, and many people, especially the young and healthy, dropped their coverage, leaving the pool very small, very sick and very expensive — a situation referred to by actuaries as “adverse selection.”
How expensive, you ask?
New Jersey was the easiest to track since the state published health insurance premium costs for all of the available policies. Between 1994, when guaranteed issue went into effect, and 2004 (when a book comparing the changes was published), the monthly premium for a Plan D ($500 deductible) family policy sold by Aetna grew from $769 to $6,025 a month; Blue Cross Blue Shield of New Jersey’s family policy rose from $695 to $5,239 a month; and Fortis’s went from $847 to an unbelievable $17,356 a month (no, that’s not a typo).
An organization I ran at the time asked the proverbial question: Which was cheaper in New Jersey: A family (Plan D) health insurance policy or leasing a Ferrari? Answer: a Ferrari. By contrast, health insurance in neighboring Pennsylvania, which didn’t enact guaranteed issue, is very affordable.
There is a reason why these state legislators didn’t include a mandate: In general, Democrats have always believed that health insurance should accept anyone who applies regardless of their medical condition. Requiring guaranteed issue, these states reasoned, was just forcing health insurers to do what they should have done all along.
But if guaranteed issue is such a good idea, why stop with health insurance? Why not require life insurers to accept someone who has been diagnosed with a terminal disease? Or require property insurers to accept an application after a house has burned down?
To solve, or at lease reduce, the adverse selection problem, some people are suggesting an annual “open season,” which allows people to obtain coverage or switch health insurers during a designated time. The Federal Employees Health Benefits Plan (FEHBP) has such an open season.
However, the man who used to manage the traditional health plans in the FEHBP once told me the program had significant adverse selection problems. People still gamed the system, even though he did his best to stop it.
The better solution — and one that most Republicans and many Democrats support — is a state-based high-risk pool. Thirty-five states had already established such pools, covering about 222,000 uninsurable Americans, when ObamaCare was passed.
Strangely, ObamaCare actually created a new, mostly redundant, system of high-risk pools until guaranteed issue takes effect in 2014. However, the ObamaCare version never attracted the multitudes it predicted — about 62,000 are currently enrolled. That’s because the problem of an uninsured person being denied coverage, though real, has been overblown. As mentioned earlier, employees in the group market will get covered even if they have a preexisting condition, and most states had already addressed the problem in their individual markets.
By working with the current state-based high risk pools Republicans could abandon guaranteed issue while ensuring there is an adequate safety net for those who are uninsurable, which would help keep private health insurance pools large and more affordable.
Conservatives and free-marketers have often criticized Republicans for railing against heavy-handed government controls and mandates only to eventually adopt a watered-down version of a liberal proposal. If Republicans embrace guaranteed issue, they will also have to impose a coverage mandate, which every Republican denounces, or destroy the individual health insurance market.
Republicans need to realize that the American public doesn’t like or want ObamaCare, and trying to hold on to some of its provisions because they’re seen as popular is both bad policy and bad politics.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow at http://twitter.com/MerrillMatthews