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Editorial: Health care primer 101

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Posted on March 23, 2017 |
By Angelo S. Lynn



As Republicans hope to end ObamaCare and begin the launch of TrumpCare, here’s a basic primer that explains one over-arching problem Republicans face: As crafted, the GOP plan does two things that have Republicans up for re-election in 2018 and 2020 running for cover: it could make roughly 24 million Americans now on Obamacare either lose their insurance or see the premiums increase so much they wouldn’t be able to afford coverage; and premiums for older and sicker Americans will skyrocket.

The non-partisan Congressional Budget Office noted that a 64-year-old making $26,500 would see after-subsidy premiums go from $1,700 under Obamacare to $14,600 under Trumpcare. That is why Republicans retooled their original draft and suggested they would add $85 billion — basically a plan to have a plan — supposedly to make coverage more affordable for low-income people nearing retirement. On average, health care for senior Americans would increase 67 percent as that’s what is expected to happen when the Republican plan allows big insurance companies to charge seniors up to five times more than younger Americans rather than the three-times cap imposed by Obamacare. That’s not opinion, just math.

But assuming Republicans will use the $85 billion to come up with a plan to subsidize larger numbers of older people so they can afford health insurance, that plan would destabilize the individual insurance market because of what's known as a death spiral. Here’s Washington Post columnist Matt O’Brien’s explanation:

“Think about the death spiral like this: If there aren't enough healthy people in the insurance market, premiums will go up; but if premiums go up too much, more healthy people will drop their coverage; at which point, premiums will increase even more, until eventually the insurance pool is full of sick people and only sick people. Obamacare prevents this from happening — yes, the CBO says it does — by forcing healthy people to buy insurance (or pay a fine) and by giving poor and sick people income-based subsidies that rise as premiums do. The first part tries to keep premiums from rising too much, and the second part insulates a lot of people from it if they do. The result is a stable enough market even with this year's average 22 percent rate hike.” (In Vermont the rate increases were in the single digits, in Indiana rates went down three percent; and remember the premium rate hike doesn’t mean people will bear those costs. On the contrary, more than 85 percent—those most in need—will not pay an increase because of income-based subsidies provided by Obamacare.)

“Trumpcare, for its part, would manage to keep the insurance market from imploding for the reverse reason,” explains O’Brien. “See, while it wouldn't require healthy people to get covered — and, in fact, would nudge them not to by penalizing them when they did buy a plan rather than when they didn't — it would make insurance too expensive for a lot of older and poorer people to be able to afford. Pushing those higher-cost people out of the market would push down premiums for everybody else, who would also be allowed to buy cheaper plans that didn't cover as much. This combination of younger people buying bare-bones plans and older people not being able to buy (affordB any plan is what would, in the CBO’s estimation, keep the insurance pool’s ratio of healthy-to-sick people at a sustainable level.

“(But) perhaps you can see the problem here,” O’Brien continues. “Suppose the GOP did turn its $85 billion magic asterisk into an $85 billion subsidy for older and poorer people. Sure, more of them would get coverage, but that's not the end of the story. The insurance pool would now be sicker, and there's nothing that would get more healthy people to sign up. If anything, the opposite. That's because more sick people would mean higher premiums, and higher premiums would mean fewer healthy people buying insurance — sending premiums up even more... This shouldn't be a surprise. If your health care plan only stabilizes the market by making insurance unaffordable for older people, then making insurance more affordable for them could destabilize the market.

“At that point,” O’Brien writes, “the only way the GOP could make their Obamacare replacement work is if they said that everyone had to buy insurance and subsidized it for the people who couldn't afford it on their own — otherwise known as Obamacare.”

Angelo Lynn

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