Republican Health Care Plan's Continuous Coverage Idea Needs A Redraft

The American Health Care Act revealed yesterday by Republicans promises to repeal the individual mandate right now and replace it with a provision that is supposed to prevent the insurance markets from falling into a death spiral. I'm very concerned that this substitute mechanism will not work. But it really doesn't matter if my concerns are correct. What matters is whether insurers believe it will work. If not, they won't play and the AHCA will be stillborn.

The substitute mechanism employed in section 133 of the AHCA requires insurers to charge purchasers a 30% "penalty" if they obtain coverage in a given year without having had coverage in the preceding year. The idea is that, in order to avoid those higher rates, individuals will be incentivized to purchase health insurance even in those years when they feel the premiums are high relative to their expected costs. No one will be forced to do so -- it won't be a tax on doing nothing like the Affordable Care Act imposed -- but, if people know about the penalty, it might be fairly effective and feel somewhat less coercive.

Except ...

1) I don't see how the continuous coverage requirement is a taxing or spending provision of the sort that can be enacted under prevailing Senate rules without 60 votes. The provision is a simple regulation of the insurance industry -- one that forces insurers to charge extra even to people who are in fact perfectly healthy and even if the insurer does not see a need to do so but that prohibits them from imposing either pre-existing condition exclusions or yet-higher premiums on those who waited until they were sick to buy insurance.

2) What happens this year? The AHCA repeals the individual mandate immediately. (Er, well, it doesn't "repeal" it, but sets the tax rate to zero, which is an awfully close approximation). That means if you don't buy health insurance coverage for 2017 nothing bad is likely to happen to you on your taxes for 2017. But under the AHCA you don't generally need coverage in 2017 in order to get coverage in 2018. At least so long as you purchase your policy during the (shortened) open enrollment period at the end of 2017, there's no continuous coverage requirement in 2018. It starts in 2019. So, if I were an insurance company I would be quite concerned that the healthy people who were induced to purchase ACA insurance precisely because of its individual mandate will start to disenroll as soon as President Trump signs the AHCA (assuming he would do so). That could destabilize the Exchanges before the AHCA's substitute mechanisms can even kick in.

3) The continuous coverage requirement will be too easily satisfied starting in 2020 to serve as much of an incentive for healthy people to purchase health insurance. All it takes to satisfy the requirement is that one have "creditable coverage" during the preceding year. But the AHCA piggybacks on earlier statutes (42 U.S.C. § 300gg-3 and 42 U.S.C. § 300gg-91, for those scoring at home) and defines creditable coverage to include "health insurance coverage," which essentially means anything that covers health expenses, no matter how minimally. Given that section 134 of the AHCA eliminates the requirement that ACA have an "actuarial value" of 60% (which will be reduced to 56% under the proposed Trump regulations), it seems possible -- and some math needs to be done here -- that an insured could purchase a cheap policy that did not cover much and had an actuarial value of, say, 50% when the insured felt healthy and then seek to use it to escape either higher premiums or pre-existing condition limits the following year when they thought their medical expenses would be high. And, trust me, many insurers will be more than happy, if state regulators permit it, to sell placeholder policies that have a minimal actuarial value and minimal coverages but that will preserve the insured's option to get good coverage in the years ahead.

So, there are a lot of issues with the AHCA just as there are with the ACA. This post just scratches the surface. It doesn't even touch the giant issue of Medicaid reform. What everyone is discovering or rediscovering, however, is that the set of solutions to America's healthcare conundrum that build upon the status quo are preciously thin and extraordinarily difficult to find. Software that preserves backwards compatibility is often ugly and difficult to write. And tweaks of one system may simply lead us from one instability to another. Now, people -- and, yes, liberals I'm talking about you -- should not fall into the trap of comparing idealized versions of the ACA to instinctually pessimistic prognostications about the consequences of the AHCA. The Republicans are right that, even without perhaps some coaxing and potentially self-fulfilling prophesies, the ACA is in deep trouble. But before we leap to another system, we better be confident that it at least has a chance of working.