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You are here: Home / Anderson On Health Insurance / Rebuilding the stool

Rebuilding the stool

by David Anderson|  May 14, 20157:34 am| 7 Comments

This post is in: Anderson On Health Insurance, C.R.E.A.M., Election 2016, Politics, Bring On The Meteor, Fools! Overton Window!

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PPACA is said to be a three legged stool. The first leg is expanding coverage by restricting underwriting to be limited by age, geography and smoking status. Insurance companies can not turn people away due to their medical history or projected future medical cost risk. This leg of the stool makes insurance available to everyone. It also makes insurance more expensive.

The next two legs of the stool address the cost problem. The next leg is subsidies to enable people to afford the more expansive and thus more expensive insurance. This allows relatively healthy people to look at their post-subsidy costs and believe that they are getting a good deal from a personal finance point of view. The other leg of the stool is the mandate penalty which does two things. The first it encourages the marginal deciders who are on average healthy and low cost users to buy a policy as the net cost savings of not having a policy won’t be too large. Secondly, the mandate penalty/tax funds some of the emergency care that people who opt-out will use over the course of the year. It eliminates some of the free rider problem.

The mandate is not perfect in eliminating free riders nor moving all people onto the Exchanges as there are numerous exemptions and a number of special snowflakes who don’t think they’ll ever get sick until they do. The recent South Carolina handyman going blind is a good example of such a special snowflake.

Shit happens, and insurance helps clean up. As long as the mandate moves enough people who are relatively healthy and relatively reluctant to buy an ACA policy without the final kick in the pants of paying something for nothing instead of something for something, it will work to keep the risk pools healthy enough to keep net premiums down.

The analogy is right but the details are wrong on the last part. That last leg has to be a participation enforcement mechanism that gets healthy people into the pool. An individual mandate is a type of participation enforcement mechanism but it is not the only one. If there is a negative ruling in King v Burwel giving up the individual mandate and replacing it with two or three year contracts with very limited open enrollment is a viable trade.

Andrew Sprung at Xpostfactoid is riffing off of Jonathan Bernstein’s argument that a reactionary victory at the Supreme Court could still lead to a complete Republican surrender on policy as reality hits the road. Andrew argues that removing the poison pill of repealing the individual mandate by speeding up the Wyden Waiver process would be an enticing piece of policy bait that everyone could live with:

think there’s a third possibility: with both sides under heavy pressure and public opinion as to who’s to blame hanging in the balance, Republicans might settle for amending the ACA in a conservative direction without destroying it. (See Michael Leavitt, Bush Jr.’s HHS Secretary, on this.) But how much amendment would be enough to satisfy the wrath of the party’s base?

Here’s one possibility: detoxify Bernstein’s poison pill a bit. Give each state the option of repealing the individual mandate.
Like most viable amendment proposals, this is really a version of enabling ACA innovation waivers without the waiver.

As long as there is a viable participation enfocement mechanism in place, the structure holds water, insurers stay viable, and the state hospital associations still get paid instead of increasing their charity care expenses. There are numerous work-arounds that could perform the same basic function of the individual mandate, so the individual mandate is trade-able as long as there is a functional replacement for it.

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Reader Interactions

7Comments

  1. 1.

    rikyrah

    May 14, 2015 at 8:46 am

    once again, I learn more from you than I ever have from the MSM about the ACA

  2. 2.

    Big R

    May 14, 2015 at 10:08 am

    I’m sorry, Richard; maybe it’s my own exhaustion, but I’m confused by this post. Normally your writing is so clear that even the most abstruse insurance topics make sense. I got lost around the point that you said “the analogy is right.” Can you unpack that section a little more?

    Says the person getting free policy analysis on the Internet. Hey, buddy – that thing you’re doing for me for nothin’ – you’re doin’ it wrong. Do it better! (I’m an ungrateful wretch in real life too.)

  3. 3.

    Richard Mayhew

    May 14, 2015 at 10:43 am

    @Big R: Okay — reasonable request.

    The three legged stool is the right analogy. There are three things that have to happen for private market near universal insurance to have a chance of working:

    a) Community Rating/Guaranteed Issue — everyone can get insurance
    b) Subsidies to help people afford the insurance
    c) Incentive for healthy/cheap to participate in order to make the risk pools healthy enough.

    Right now C is the individual mandate — either get minimal qualifying coverage or pay 2% of your income as an additional tax.

    The set of possible functional C is larger than just the individual mandate. There are other ways to get the healthy/cheap into the risk pools.

  4. 4.

    Xantar

    May 14, 2015 at 10:48 am

    Wait. I thought King v. Burwell is about the second leg in your stool (the subsidies). If there’s an adverse ruling, then the subsidies disappear for some states.

    Unless your point is that the subsidies disappear which would make the individual mandate untenable since it would force people to buy insurance that they cannot afford without subsidies. In which case I think I follow your argument (although I’d still need to unpack it a little).

  5. 5.

    Richard Mayhew

    May 14, 2015 at 11:13 am

    @Xantar: My arguement is a What Happens next argument.

    If the Supremes rule for the government, then nothing needs to happen.

    If Supremes rule for the reactionaries something happens.

    a) No Congresisonal Fix —> insurance market is destroyed in Healthcare.gov states unless those states establish a state-run exchange. This post is not relevant to this scenario

    b) Congress and Obama negoatiate something out —> Mandate would be part of the discussion, and as long as there is another participation enforcement mechanism as a replacement (which there are several which raises the cost of running naked) then the Mandate could/should be part of the discussion IF it is replaced. Non-replacement is not an option, let the GOP own the tar baby of throwing 8 million people off insurance and wrecking insurance markets in 30 states.

  6. 6.

    catpal

    May 14, 2015 at 11:59 am

    We need another leg on that stool – the leg of bigger pool of participating physicians/providers. When you have to make the decision to choose a plan – 1) reasonably affordable(with subsidy) with reasonable ($1000) deductible — you don’t know at that time that many physicians do Not accept that insurance plan. Then when you need to use the insurance – you find out that 92% of the physicians you called do not accept that insurance/plan.

    What about reimbursement penalties for providers who refuse to accept the insurance exchange plans? Any ideas?

  7. 7.

    Richard Mayhew

    May 14, 2015 at 12:01 pm

    @catpal: not going to happen… if in the most liberal congress since 1964 could not vote in the public option with Medicare negotiating rates at Medicare plus X, then any other Congress to the left of the current one will have a hard time taking money back from doctors for not contracting with other private entities.

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