How The Preexisting Conditions Dilemma Dooms Trumpcare 2.

After weeks of star chamber like proceedings to write the bill, the Senate today finally released its version of the healthcare reform. The Washington Post has a good summation spelling out the differences between it, Obamacare, and the previously passed House bill. In my opinion the Senate Bill is doomed to fail because it fails to address a fundamental dilemma in healthcare financing. First, let’s talk about Obamacare and how it addressed that dilemma.

One of the most popular aspects of Obamacare was its rule that insurers could not deny coverage to people with preexisting conditions or charge higher premiums to them. Prior to Obamacare, many people with chronic illnesses, or even at high risk for them, simply could not get health insurance. So Obamacare required that insurers cover them like anyone else.

This aspect of Obamacare is so popular that neither Trump, nor Republicans in general, want to abandon it. In fact, an incredible 92% of Americans support the Obamacare requirement that insurers must cover those with preexisting conditions. This may be a “divided nation” on many things, but not on that. Changing that aspect of Obamacare would be political suicide.

This leads to the most unpopular part of Obamacare, the part Republicans sued against, campaigned against, and swept the 2016 elections with. That part is the “individual mandate” requiring that everyone purchase health insurance or pay a tax penalty. Why did Obama and Democrats insist on having this unpopular provision that generated so much backlash? It’s simple. Without the individual mandate, it was not possible to require that insurers cover preexisting conditions.

Health insurance companies, like any other business, have to make money. If they don’t they will go out of business and provide no health insurance to anyone. People with preexisting conditions are often incredibly expensive to cover (often by many multiples above the $10,000 per person average spent on healthcare in the United States). That is why so many were not covered before Obamacare. If you require by law that insurers cover them, there are two ways to pay for this:

  1. Allow insurance companies to increase premiums on those paying for health insurance, or
  2. Increase the number of people who are paying for health insurance to increase the base of those insured and spread the additional costs to a higher number of insured people.

The problem with Option 1 is that it creates an insurance death spiral. As premiums increase, people quit insurance creating higher premiums for those remaining, prompting more to quit insurance . . . and so on. Further, the incentive is to not buy insurance until one is already sick. Imagine if you were permitted to wait to purchase fire insurance until your home is on fire. I think you could see how such a system could not work. Yet, it is the system the Senate bill is heading toward.

So Obamacare chose Option 2 and increased the base by mandating that people purchase insurance or pay a tax penalty. The individual mandate was not because Obama is a freedom-hating socialist, bent on destroying individual liberty in America, but because that was the only way to make the system work, in particular a system requiring that insurers cover preexisting conditions. At one point, the late 1980s, this idea of an individual mandate enforced by a tax penalty was a conservative idea. The conservative Heritage Foundation strongly supported the concept (see page 51 here). Not a word of its supposed unconstitutionality was to be heard.

The House bill made weak efforts to address this dilemma by allowing insurance premium increases to those who allow their insurance to lapse. This in theory would have encouraged some in the young and healthy population to maintain their insurance. The House bill also attempted to address it by allowing states to permit higher premiums for those with preexisting conditions. These provisions were so unpopular that they doomed the House bill.

How did the Senate bill address this dilemma? As near as I can tell, it simply punted. The Senate requires insurers to cover those with preexisting conditions and forbids insurers from charging more for it. So with millions less insured people, is the dilemma of paying for coverage of preexisting conditions resolved? Other than billions in subsidies to insurance companies, it simply is not.

Because it is too popular to repeal, Trumpcare 2 keeps the Obamacare requirement that insurers cover preexisting conditions at the same premiums as everyone else, but it eliminates the individual mandate that served as its financial foundation. With millions fewer Americans insured, the costs of insuring those with preexisting conditions will fall on a much smaller base of insured people, dramatically raising their premiums. With premiums escalating, fewer people will purchase insurance . . . and so on. The death spiral referred to above is on.

As for those millions without insurance, will they not get healthcare? Of course they will, we won’t just let them die. They will flock to already overcrowded emergency rooms to receive primary care in the most expensive manner possible. These are expenses they will not bear, lacking financial resources to do so, shifting more costs to the ever draining pool of insured people. In essence, many people who are insured under Obamacare now, and paying at least a part of their costs for healthcare, will become uninsured and pay none.

This is a small piece of the complex interrelationships of our massive (nearly one-fifth of the economy) healthcare industry. You can’t pull out just one thread of that tapestry without risking unraveling the whole picture. Trumpcare 2 is a massive legislative dodging of one of the most perplexing dilemmas in healthcare financing. However, its consequences cannot be dodged.

Thus, Trumpcare 2 as written is doomed. Any substitute must address this dilemma, one way or another.

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