Wonkblog | Analysis
March 22, 2017 at 8:55 AM
It took Republicans seven years to decide on an Obamacare replacement, but only a little more than seven days to decide that they needed to replace parts of that with something that wouldn't hurt their voters quite so much.
If they're serious about fixing their plan, though, there's already one that does just that. It's called, well, Obamacare. And it's the only "replacement" option that would work.
Now, from the Republican point-of-view, one of the biggest stumbling blocks with their own plan is that it would make a lot of the blue-collar 50- and 60-somethings who propelled Trump to the presidency lose their health insurance. That's because the GOP proposal would let insurers charge older people 67 percent more than they can now at the same time that it would cut the subsidies many of those people receive. How big a difference would this be? Well, according to the nonpartisan Congressional Budget Office, a 64 year-old making $26,500 would see after-subsidy premiums go from $1,700 under Obamacare to $14,600 under Trumpcare. Which is why Republicans hinted they would add an $85 billion magic asterisk — basically a plan to have a plan — supposedly to make coverage more affordable for low-income people nearing retirement.
There are only two problems. The first is that it's a lot harder to actually have a plan than it is to say you'll have one. Indeed, it turns out that the initial version of this magic asterisk — letting people deduct more of their medical expenses — wouldn't really help the people who need it most, since they don't have any income tax liability to even deduct from. The second is that, assuming Republicans do change this to something useful, the more older people it covers, the more destabilizing it could be to the individual insurance market.
This has to do with what's known as a death spiral. Think about it 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.
Trumpcare, for its part, would manage to keep the insurance market from imploding for the reverse reason. 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 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.
Perhaps you can see the problem here. 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. Whether that turned into a full-fledged death spiral would depend on just how many 50- and 60-year-olds the magic asterisk covered.
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, 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. As Paul Krugman has explained over and over and over again, the inescapable logic of health care reform is that you have to do those two things if you want to stop insurance companies from discriminating against sick people. Well, unless you're okay with taking health insurance away from tens of millions of people. Speaker of the House Paul D. Ryan certainly is, but Senate Republicans aren't, which is why they're stuck now.
The GOP's only hope is to replace their Obamacare replacement with Obamacare.