I’m having a really hard time with this. I’m going to try and walk through my dilemma in the hope that someone will be able to make me understand.
The Republicans hate the individual mandate. I get that. I don’t necessarily understand their rationale, but I accept it. They also, however, understand the need for some sort of carrot/stick to get healthy people to buy insurance so that we don’t get adverse selection and see the private insurance market enter a death spiral. So they need to replace it.
We have discussed this before. There are many ways to solve this adverse selection problem without a mandate. Open enrollment periods, penalties for not signing up, loss of protections, inducements for keeping coverage, etc. We have written about this again and again and again and again and again and again. So I’m not saying that you can’t replace the individual mandate.
Many wonks believe that too few healthy people are joining the exchanges. This is leaving the risk pool too expensive and leading to higher premiums. To fix that, we could increase the size of the mandate penalty (stick), increase the size of the subsidies to make insurance cheaper (carrot), or both (carrot and stick).
The AHCA plan, though, goes at this sideways. It eliminates the stick. It reduces the carrot. And it then puts in a new plan – the 30% insurance markup if people lose continuous coverage.
In theory, making people pay a lot more if they don’t buy insurance as soon as they need to will make healthy people join the market. If they know it will cost a lot more if they wait until they are sick, or if they know it will mean they won’t have community ratings if they don’t purchase plans early, they should buy in – reducing adverse selection.
But this plan doesn’t really do that. It’s a one-time, one year, 30% markup on insurance. That’s a tiny, tiny penalty in the scheme of things.
Let’s say I’m single and I’m in my late 20’s, and insurance costs me $3000. With the promised $2000 subsidy, I’d have to pay $1000 more to get insurance. Or… I could just forego it this year, and if I need it next year, it will cost me $3900 (I will owe $1900). In just one year, I make money. If I skip a number of years, I can save even more. I’m not sure this is much of a stick.
They could fix this by increasing the size of the stick or by sweetening the deal with carrots, but they didn’t.
Moreover, the incentive is totally in the wrong direction. The individual mandate punishes those who don’t buy insurance – every year. As long as I remain uninsured, I will be penalized. I will be hit again and again, until I buy insurance. That’s a stick.
The new AHCA penalty works in the opposite direction. Once I’m out of the market, I’m left alone. It’s not until I re-enter that I’m hit with the penalty. The longer I stay out, the longer I avoid the pain. It’s an inducement to remain uninsured.
We know what needs to happen to reduce adverse selection. We need to make the carrots and/or sticks stronger. This seems to do the opposite. I don’t get it.
P.S. I’m also not entirely sure that this aspect of the law can pass muster for reconciliation. It’s an insurance regulation, not part of the federal budget.
