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November 22, 2016

The Preexisting Condition Provision Must End For A Republican Replacement Plan To Work

  Forbes

Some health policy analysts on the right are buying into the argument—or plea—from the left that a Republican Obamacare replacement can and should keep “guaranteed issue,” the provision that health insurers must accept anyone regardless of a preexisting medical condition.

Some of President-elect Donald Trump’s statements seem to agree—some, but not all.

In pushing for health care reform, President Obama repeatedly implied that the health insurance system was broken because people with a medical condition couldn’t get coverage.

Obamacare architect and economist Jonathan Gruber writes, “The problem these patients faced was one of the most pernicious flaws of the individual insurance market pre-Obamacare; their exclusion essentially undercut the entire notion of insurance.” In fact, it’s letting an individual sign up for coverage after a medical event has occurred that undercuts the entire notion of insurance.

Guaranteed issue is one of the primary cost drivers of Obamacare, and Republicans should reject the pressure to keep it if they want their replacement plan to work better and cost less. That’s because guaranteed issue incentivizes people to wait until an insurable event has occurred—in this case an expensive medical condition or accident—and then get coverage.

And that’s exactly what many people are doing under Obamacare. Oh, and that’s exactly what many Bay State residents did after Mitt Romney passed Romneycare. Even with a mandate to have coverage and several restrictions on enrolling (e.g., an abbreviated annual open enrollment season), people game the system.

Just imagine if an uninsured driver could have an auto accident and then call an auto insurer to get coverage for that accident. The pool of insured drivers would be very small—only those who just had an accident—and coverage very expensive.

Some guaranteed issue defenders contend it could work—if the government increased subsidies for the uninsured with a major medical condition.

That might help for some lower-cost medical conditions that can be managed. But some cancer drugs cost more than $100,000 a year. Insurers will pay the claims for their current policyholders who develop such medical challenges, but no insurer wants more of them.

Roughly 80% of the population is in Medicare, Medicaid, the military, or they work for an employer who provides coverage—and all are guaranteed issue.

But guaranteed issue doesn’t create as many problems if people join a group, in part because the reason for joining the group (e.g., a new job) isn’t primarily to get coverage for a medical condition.

The place where guaranteed issue poses the biggest problem is in the individual market, when someone with a preexisting condition who is uninsured wants to buy an individual policy to cover that existing condition—like that uninsured driver who wants auto coverage after an accident. That ability will destroy an individual market’s insured pool, and we’re seeing that in Obamacare.

However, eliminating the guaranteed issue provision in the individual market doesn’t mean we can’t provide a safety net for individuals who are uninsured and uninsurable. We can and we should.

Before Obamacare, 35 states had high risk pools—state-created safety nets that provided the uninsurable with coverage. About 225,000 people were in those pools nationwide.  Estimates suggest that perhaps 2 million to 4 million uninsured Americans could benefit from those pools but chose not to join.

Four million—if it’s actually that high—is a little more than 1% of the U.S. population. That’s a safety net problem, not a reason to blow up the health insurance system for the other 98%. Had Obama just wanted to fix the problem, he could have done so for much less money and with bipartisan support—and saved himself, the Democrats and those who’ve seen triple-digit premium increases and multiple policies canceled a lot of grief.

Those risk pools were a mixed bag; some worked well, others didn’t. We could have easily fixed that problem by imposing some best practices and subsidizing the pools to ensure that participants had affordable rates.

High risk pools existed to provide a coverage option for the uninsurable and to keep from undermining the health insurance system. Bringing back a new and improved high risk pool system as part of a replacement plan would help get the health insurance market functioning once again.

At this point it’s not entirely clear what Trump supports. He has called for the creation of high risk pools. So his comments about guaranteed issue may just be a way of saying we need a safety net to ensure people can find coverage if they want it. And on that point virtually everyone agrees.


 

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