Paul Ryan’s Obamacare fix is no fix at all

There has been a running conversation over the last few days between David Catron of the American Spectator and me about House Speaker Paul Ryan’s proposed “American Health Care Act” (AHCA). Catron supports the bill; I don’t. Catron has responded to my response to his defense of the American Health Care Act (AHCA). I figured if anyone could me convince me I’m wrong on the AHCA, it would be Catron. Alas, either he’s wrong or I’m pigheaded.

So, my follow-up response is below. Catron states that to repeal and replace Obamacare he favors…

… a multi-phase treatment: Surgery (using AHCA to remove the tumors like the mandates and taxes), plus chemotherapy (action by HHS secretary Price to stop regulator metastasis), plus radiation therapy (a final package of legislation to eradicate the vestiges of the disease). What most AHCA critics seem to believe is that there is an alternative treatment analogous to taking a single pill — full repeal. Even if Senate Majority Leader [Mitch] McConnell went nuclear on the filibuster and, by some miracle, managed to get such a bill to the floor for a vote, he would never get 51 Republican votes. He’s having enough trouble with “moderates” on AHCA.

My concern isn’t with the strategy. Indeed, a three-pronged approach suggests that Congress is becoming more sophisticated at least when it comes to passing legislation. What concerns me, and should concern most Americans, is exactly what result does Speaker Paul Ryan (R-Wisc.) and other GOP leaders want to achieve with this strategy? If they really want an outcome that greatly expands liberty in health care, then why does the first prong—the AHCA—retain so many of Obamacare’s restrictions? If there is a good reason why the AHCA can’t repeal more of Obamacare than it does, no one has yet made that clear.

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That the AHCA doesn’t repeal Obamacare’s protections for pre-existing conditions suggests that the GOP leadership doesn’t have the stomach for this fight. Finally, it isn’t just Senate moderates that McConnell is having trouble with. In addition to Rand Paul (R-Ky.), conservatives like Ted Cruz (R-Texas), Tom Cotton (R-Ark.) and Mike Lee (R-Utah) are opposing the AHCA as well. If the AHCA is having problems with both moderates and conservatives, then Ryan really needs to go back to the drawing board. Regarding my complaints that the ACHA doesn’t remove Obamacare’s protections for pre-existing conditions, Catron writes:

What Hogberg has overlooked in the GOP repeal bill is the plan to remove chronically ill people and those with pre-existing conditions from the general insurance pool. As Paul Ryan explained in last Thursday’s press conference, the idea is to incentivize states to set up separate risk pools and reinsurance mechanisms to handle these patients. He offered successful examples of such programs in Wisconsin and Utah (both repealed by Obamacare). This would remove the “older and sicker” patients to whom Hogberg refers from the individual market.

What Catron is describing here is state governments setting up a “high-risk pool.” (For what that is, go here.)

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First off, let me say that I support this provision. What I don’t understand is why it is needed when insurers are still prohibited from denying coverage to people with pre-existing conditions under the AHCA. In other words, why would a person with a pre-existing condition sign up for a high-risk pool when he could still get coverage from a private insurer? The only reason he’d do that is if the high-risk pool offered better coverage, something that is not likely to happen. Otherwise, people with pre-existing conditions will only sign up for a high-risk pool if either insurers can deny them coverage or insurers can underwrite them (i.e. charge them higher premiums). The AHCA doesn’t allow insurers to do either of those. It seems that Ryan and others have put this provision in the AHCA in hopes of mollifying conservatives. Otherwise, it doesn’t make much sense to have it in there. Regarding Obamacare’s individual mandate, Catron states that it “is a crime against democracy” and “utterly incompatible with individual liberty in a free society.” He says he “would favor repeal of this abomination, even if AHCA contained no incentive at all for individuals to buy coverage.” I agree with that. My concern regarding the individual mandate isn’t that the AHCA repeals it; it’s that the AHCA repeals it without also repealing the prohibition against insurers denying coverage to those with pre-existing conditions. That prohibition is the main cause of the death spiral that the exchanges now find themselves in. The individual mandate and the premium subsidies are the only incentives (albeit very weak ones) that young and healthy people have to get insurance on the exchanges. Unless you repeal the prohibition on pre-existing conditions, there will be no individual insurance market. Under the AHCA, insurers are allowed to impose a 30 percent surcharge on people who have let their coverage lapse for more than 63 days. This is what Catron says about my criticism of it:

I agree that the 30 percent surcharge is not the best feature of AHCA, but it is nonetheless a financial incentive to make personal decisions rather than an assault on individual liberty. And it isn’t quite as outlandish as Hogberg makes it sound. If you buy life insurance at age 21, your premiums will be far lower than they will be if you wait until 40 to buy the same coverage. Likewise, your premiums will be exponentially higher if you wait until you are 60. That’s just the way insurance works.

Yes, that is how insurance works. But it won’t work with the 30 percent surcharge. The surcharge makes it much less expensive for a person to forego insurance until he comes down with a serious illness. In a normal market, a person with a serious illness who is uninsured would either have to pay a much higher premium to get insurance or would be denied insurance in which case he’d have to figure out how to pay for treatment on his own. Both of those are far, far more costly than paying a one-time 30 percent surcharge. Thus, the surcharge gives young and healthy people a very big disincentive to buy insurance until they have a serious illness. Perhaps there is some way that health insurers can make money when consumers have those kinds of incentives, but one doesn’t occur to me. Finally, Catron states that my claim that the AHCA will make the individual insurance market worse than it currently is “simply isn’t accurate.” We’ll just have to agree to disagree. The AHCA repeals one of the few incentives to purchase insurance (the individual mandate) and replaces with a big disincentive to buy it (the 30 percent surcharge). With the present system there will be at least a shell of an individual market. Under the AHCA, there won’t be one at all.