Obamacare requires insurers to cover all pre-existing conditions and to issue health insurance to anyone who applies, no matter how sick they are when they first apply or how costly they may be to cover. This policy is known as guaranteed issue.
The Act also prohibits insurers from varying their rates based on the medical condition or illnesses of applicants. Insurers can only vary rates within a limited range for age, geographic location, and family size. This regulatory requirement is known as modified community rating.
Guaranteed issue and community rating have proven to raise insurance premiums sharply at the state level every time they have been tried. That should be no surprise. The policy is like requiring fire insurers to grant coverage to those who apply after their house is already on fire.
Insurers can charge no more to such applicants than to anyone else. Under such requirements, no one would ever get fire insurance until their house caught fire. Fire insurers would then have a “risk” pool of all burned down houses, which would require very high premiums for coverage.
This is exactly what happens in health insurance. Younger and healthier people delay buying insurance, knowing they are guaranteed coverage at standard rates after they become sick. But insurers are legally required to cover and pay for sick people with very costly illnesses, such as cancer and heart disease.
This means the covered risk pool will include more sick people and fewer healthy people, so the costs per person covered soar. The insurer has to raise rates sharply to be sure to have enough money to pay all of the policy’s benefits.
The Freedom Caucus’s objections to the original Ryan healthcare reform bill have been largely resolved. The holdup now is Republican “moderates” who apparently don’t understand that Obamacare’s guaranteed issue and community rating are what is causing health insurance rates to soar unmanageably. They also do not understand that there are better solutions to assure coverage for costly pre-existing conditions: High Risk pools.
Such High Risk pools are a last resort for health insurance coverage for the uninsured who have developed very costly health conditions without coverage to help pay for their essential care. The risk pools would charge these uninsurables a premium based on what they can pay, so the pools can serve a safety net function.
But those premiums would never cover the full cost of the High Risk pools. So taxpayers would subsidize the pools to make them viable. This would ensure coverage for the most dangerous and costly pre-existing conditions without ruining the insurance market for everyone.
Health insurance expert Betsy McCaughey has calculated that high risk uninsurables are causing 50% of the costs for individual health insurance, which are spread only among the 15% of the market with such insurance. The only proven solution for that is a separate pool for those High Risk uninsurables.
That would cause health insurance premiums to decline sharply, which would be highly popular, solving one of the most intractable failures of Obamacare: The dramatic breach of the promise that Obamacare would reduce health insurance costs.
Republican “moderates” owe it to the House Republican majority, whose very survival they are currently threatening, to study the issue and learn how to explain it to their constituents. High Risk pools are an economically and politically viable solution to the critical problem of assuring coverage for the uninsured with costly pre-existing conditions.
Lewis K. Uhler is Founder and Chairman of the National Tax Limitation Committee and National Tax Limitation Foundation (NTLF). He was a contemporary and collaborator with both Ronald Reagan and Milton Friedman in California and across the country. Peter Ferrara is a Senior Fellow with the Heartland Institute and NTLF. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.