Pre-existing Conditions: Advice for Republicans

How they can win on health care.

There is always hope, and health care is no exception. 

The fight to repeal and replace Obamacare—the fight to repair America’s broken, costly, and frustrating health care system—goes on, despite all.

Right now, hope must seem lost to weary Republican candidates on the hustings in this year’s hard-fought midterm elections.

Health care has become the number one issue cited by voters, and on that issue GOP candidates are on the back foot.

In the wake of Obamacare, health care (still) costs too much, is (still) too bureaucratic and complicated, and has become very politicized.

National Republicans’ failure to repeal and replace Obamacare in 2017, following seven years of vote-getting promises to do just that, has run the Grand Old Party into a bit of a ditch in 2018.

For the first time in a decade, Democrats are free to go on offense on health care. Where before they were embarrassed and hesitant, they now feel liberated to blame everything that’s wrong with American health care on Donald Trump and the Republicans.

And best of all, from their perspective, they can accuse Republicans of being blue meanies on the issue of pre-existing conditions.

A Hard Nut to Crack

How to help people with expensive medical conditions is one of the hardest nuts to crack in health reform. Obamacare purports to ‘protect’ them via a pair of mandates known as guaranteed issue and community rating. The guaranteed-issue mandate requires insurers to take every applicant, regardless of his or her health status. Community rating requires insurers to charge younger and healthier people a lot more than they charge older and sicker people. Under Obamacare’s 3-to-1 community-rating ratio, the highest premium charged may not exceed 3 times the lowest premium charged. It is this mandate (community rating) that drives up costs, by preventing insurers from pricing their product according to risk.

In campaigns around the country, Democratic candidates are making the following argument: Obamacare protects people with pre-existing conditions, but Republican efforts to repeal and dismantle Obamacare would destroy those protections. Insurers would once again be able to deny people coverage based on a pre-existing condition. (Implicit but false premise: Republicans are proposing to repeal guaranteed issue.) We’d go back to the bad old days when sick people could be denied coverage by heartless insurance companies, and children died on the sidewalk!

Those bad old days never existed. We did have problems before 2010, but nothing that bad. No one died on the sidewalk. A federal law passed in the mid-1980s known as EMTALA made sure of that. Insurers did accept applications from sick people. What was different from today was that insurers were free to charge applicants a market-based price, that is, a price based on the individual’s medical risk profile. There was no community-rating mandate in the individual market, save in about a dozen Democratic-leaning states, where, predictably, it caused prices to be needlessly high. Since some people could not afford a market-based price, those people did face a problem. But the problem was manageable with taxpayer subsidies via high risk pools, government reinsurance programs, and similar mechanisms. The lack, in most states, of ‘pre-existing conditions’ mandates (guaranteed issue, community rating) was simply not a problem.

Interestingly, none of the bills Republicans voted on in 2017 would have eliminated or even weakened Obamacare’s guaranteed-issue mandate. And as for community rating, Republicans merely proposed relaxing it to a 5-to-1 ratio, in lieu of Obamacare’s 3-to-1. That’s a far cry from ‘destroying’ protections for sick people.

All of the Republican bills would have provided insurers and states more flexibility to address the issue of pre-existing conditions, and to bring down costs in innovative ways.

So the left’s attack is neither accurate nor honest.

But Republicans, in an already tough political environment, are acting spooked, and many are rushing to protest their fervent and unending fealty to Obamacare’s pre-existing conditions rules. This, in turn, has dismayed those of us who see in those rules (especially community rating) the heart of Obamacare’s devastation and soaring costs.

Guaranteed issue can stay. It’s community rating that has to go, or at least be relaxed sufficiently to allow something like market-based pricing to reappear. Fix community rating, and prices will fall, and far more people will be able to afford coverage.

There’s always hope. We just need the courage to act on it, and a little political savvy.

Insurance vs. Benefits

To win on this issue, we must bear in mind a vital distinction: the distinction between insurance and benefits. They are not the same thing.

Insurance is defined by risk. Benefits are defined by—for want of a better word—politics.

Obamacare outlawed true health insurance, in effect permitting only prepaid group health benefits.

In a world where true insurance has been outlawed and there are only benefits, guaranteed issue is politically unavoidable. There is no point in resisting it.

So Republican candidates can be forgiven for their current, somewhat embarrassing posture on guaranteed issue. They realistically have little choice.

But they do have a choice on community rating.

And the best way to do that, at this point, is to do two things: first, re-legalize true insurance—to exist alongside prepaid group benefits, as was the case before Obamacare. And second, adopt sensible plan-switching rules to make sure people can move between insurance and benefits without facing unacceptably high charges.

The states know how to do this. Many of them did it before 2010. Some did it very well. Kansas, for example, had the cheapest true-insurance rates in the country. And the lowest uninsured rate. They didn’t need Obamacare to get their people covered. And the same thing is true, in varying degrees, for all of the states, save about a dozen where Obamacare-like policies were imposed, at great cost to their own citizens.

True insurance is cheap. And because of that, it gives people a powerful incentive to get insured early, while they’re healthy, and to stay insured. That’s what we want, right?

Prepaid benefits, by contrast, tend to give people the opposite incentive: to wait till they’re sick to seek coverage. Which drives up costs for everyone. And that tends to lead to the imposition of coercive mandates, to try to force everyone into the ‘pool.’ Without some such ‘incentive,’ prepaid benefits tend to collapse in an insurance ‘death spiral.’

So true insurance is clearly preferable to prepaid benefits, all other things being equal. But in principle people should be free to have either. Neither should be illegal. Neither should be mandatory.

The real trick is in to make it possible for people to move between the two domains without getting pinched. This is a manageable problem.

The various bills the Republicans voted on in 2017 would have made the regulation of prepaid benefits more flexible, but would not have re-legalized true insurance—at least not enough to let Kansas be Kansas again.

A Solution

The Health Care Choices Plan proposed in 2018 by the Heritage and Galen foundations would go a step further than the 2017 Republican bills—a very welcome step. It would transfer the whole question of pre-existing conditions, along with existing federal subsidies, back to the states. Which is where, in principle, all health insurance regulatory and subsidy issues belong anyway.

The states would then be free to work out compromise solutions that their residents can live with. They could, for example, adopt proven ideas like reinsurance and invisible risk pools for people with expensive pre-existing conditions. State politicians would be under the same pressures to protect sick people as federal politicians are. They wouldn’t let their citizens die on the sidewalk.

To be clear, I don’t regard this approach—block-granting Obamacare back to the states, so they can begin to restore true insurance—as optimal. The optimal solution is to get the feds out of the business of regulating and subsidizing health insurance altogether, so that the states and the private sector can bring true insurance roaring back to life.

But the Heritage-Galen approach, though not perfect, is the best option we have, within the realm of the currently feasible. It’s a step in the right direction and a good start.

Health insurance is a line of business Uncle Sam has no constitutional warrant to be in, and federal involvement adds no value. But reversing a century of bad federal health policy won’t happen overnight.

And let no one deny that federal involvement has made things worse. The evidence is indisputable. Costs are up, premiums are up, and deductibles are up—way up—all thanks to Obamacare.

Meanwhile, access to doctors and hospitals is down, as provider networks shrink in response to Obamacare’s crazy, tangled maze of mandates and subsidies.

Oh, and by the way, 30 million Americans are still uninsured. So after all that pain and expense, we still don’t ‘cover everyone’ and we have not eliminated the (largely mythical) ‘free-rider problem.’

Tear Down This Wall

Whatever happens in this year’s midterm elections, it’s imperative that—at a minimum—conservatives and libertarians continue working to poke holes of freedom in every government scheme from Obamacare to Medicare.

If you can’t repeal and replace Obamacare, at least create openings through which people can escape its Berlin Wall.

Health care freedom, after all, is a human right.

Republicans did manage to poke a first, massive hole in Obamacare’s Berlin Wall when they effectively repealed its notorious individual mandate, the linchpin of the whole misguided scheme.

They then poked a second important hole when President Trump administratively re-legalized so-called short term health plans, which permit risk-based pricing.

Short-term plans arose decades ago as a bridge to help people between jobs. After 2014, when Obamacare took full effect, Democrats realized the plans are much cheaper than the ACA’s crappy, overpriced coverage, so of course they had to go. In 2016 President Obama tried to kill them off via executive action. In 2017 President Trump reversed Obama’s action and re-legalized the plans. In doing so, he gave new hope to millions who could not afford an ACA plan.

But let’s not stop there. Let’s build on this good start.

First of all, let’s make it easier for people to cut out the insurance middle man, and kick the bureaucrats out of the examining room, by protecting the innovative alternatives to ‘insurance’ that have sprouted up under Obamacare’s nose. I mean, for example, cash-based alternatives like health care sharing and direct pay medicine (also called direct primary care).

And secondly, let’s reverse Medicare’s individual mandate, which is far more draconian than Obamacare’s ever was, and far less justified. /1

HSAs for All

And let’s adopt what I call ‘Health Savings Accounts for All.’ Right now, 90 percent of Americans are not allowed to contribute to an HSA, which is a tax-free savings account for personal medical expenses. An HSA is your money. You own it. You control it. You can spend it how you want, within reasonable limits. You can build up a sizable health-care nest egg for your retirement, and bequeath what you don’t use to your loved ones. An HSA liberates you to take control of your health care choices. Let’s liberalize the limits on HSA eligibility and contributions to give every American the chance to save and spend, tax-free, for his or her own health care.

Instead of ‘Medicare for all,’ HSAs for all! /2

Keep It Simple

Finally, a word of advice for Republican candidates. Make your health care message simple, principled, and unafraid. Endorse the Health Care Choices Plan, to send the Obamacare mess back to the states for much-needed repair and replacement. Endorse Health Savings Account for All, so everyone can save tax-free for their own health care. And take a clear stand in favor of more price transparency and lower prices through competition rather than mandates.

Promise your voters: ‘If elected, I will fight every day to do two things: get health care prices down, and get the insurance companies out of your way. Health care decisions should be between you and your doctor, period.’ 

That’s a message you can win on.

If you increase your congressional majorities on November 6th, especially your Senate majority, try again on repeal and replace. But whatever happens, keep poking holes of freedom in Obamacare’s Berlin Wall.

There is always hope, and health care is no exception.

Dean Clancy, a former senior official in Congress and the White House, writes on U.S. health reform, budget, and constitutional issues. Follow him at deanclancy.com or on Twitter: @deanclancy.


Notes

1/ Update, October 3, 2019: Today President Trump issued an executive order ending the Medicare individual mandate. The order directs the relevant federal agencies to implement the change by April 1, 2020. The move is a strategic masterstroke on the president’s part, restoring the possibility of competition in the over-65 health insurance market. It reaffirms the traditional American principle that welfare recipients have a natural right to decline public benefits.

2/ Update, October 22, 2019: Today the House Republican Study Committee (RSC) published a health reform proposal, dubbed ‘A Framework for Personalized, Affordable Care,’ that essentially combines the Health Care Choices Plan and the HSAs for All agenda. In this author’s opinion, the RSC health plan is the best, most thoughtful, and most politically savvy health-reform plan ever proposed by congressional Republicans.

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