Pre-Existing Conditions
The Problem
One of the central themes President Obama used to sell the Affordable Care Act to the American people was that his plan forced insurance companies to accept patients with pre-existing conditions. This means that insurance companies must accept every patient applying for coverage—even if they have a costly medical condition.However, there are only two ways for insurance companies to pay for the considerable immediate medical needs of these patients:
- Increase premiums on the patients they already insure, and
- Get more young, healthy (low cost) patients to purchase insurance.
Americans have already seen insurance premiums skyrocket. To enlist support from the insurance industry, President Obama promised his “individual mandate” would accomplish the second.
However, the Affordable Care Act contains no real mandate. As a result, not enough young, healthy people will purchase insurance to cover the cost of those patients with pre-existing conditions. This means that, in the end, the Affordable Care Act will fail.
Obamacare’s Fatal Flaw—There is No Mandate
The fatal flaw of the Affordable Care Act is that the “individual mandate” is largely a myth. The IRS can only not return a tax refund, they cannot collect the penalty directly.
As John Hinderaker from Powerline notes:i
But [the uninsured] don’t have to pay the penalty. The mandate is a sham, and always has been. Theoretically, someone who chooses to be uninsured owes the government money, but the government is prohibited by the ACA from trying to collect it. What kind of a debt is it that can’t be collected?The Joint Tax Committee prepared a summary of Obamacare that includes this discussion of the mandate:
The penalty applies to any period the individual does not maintain minimum essential coverage and is determined monthly. The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner.
As I understand it, the only way the IRS can possibly collect the penalty is by withholding your tax refund. No problem: if you arrange your taxes so that you don’t overpay, the penalty can never be collected from you.
Which is to say that there is no penalty for failing to comply with the Obamacare “mandate.”
What this Means for America
As soon as young, healthy Americans discover they can simply rearrange their tax withholdings to avoid the President’s healthcare penalty, the system will collapse.
Exchange enrollment numbers already indicate not enough young healthy people are purchasing insurance. And why would they? With the President’s much-hyped “no pre-existing conditions” policy, the young know they can ignore the mandate and simply buy insurance if they get sick.
When young, healthy Americans discover they can simply rearrange their tax withholdings to avoid the President’s healthcare penalty, fewer of them will purchase insurance, the cost of health insurance will rise, employers will be increasingly unable to provide insurance as part of their benefits package, and even more Americans will be left without healthcare coverage.
This still leaves the problem of the pre-existing condition. President Obama did not solve it with his “no pre-existing conditions” mandate. So if the problem remains, how do we truly help Americans who have pre-existing health problems?
Another Flawed Solution: State-Run, High-Risk Pools
The most common conservative reply to the problem of pre-existing conditions is to recommend state-run high-risk pools. One of the primary arguments for creating state-run pools for high-risk patients is that relatively few patients account for a significant amount of healthcare costs. Removing these patients from the traditional insurance pool would significantly reduce the cost of insurance making it easier for both employers and individuals to purchase insurance. This in turn makes it easier for more people to purchase insurance further spreading risk and further reducing costs. This positive spiral is what we hope to create… however…
A state-run high-risk pool adversely impacts free market forces. Insurers are given a mechanism to move their most expensive patients into a taxpayer-funded system. For every "most expensive patient" moved to the high-risk pool there will always be a "next most expensive patient" the insurer will want to slide to the taxpayer. A taxpayer supported high-risk pool creates a breeding ground for yet another bloated government program destined to drive states into bankruptcy.
A Real Solution for a Real Problem
Ed Haislmaier of the Heritage Foundation proposed an alternative solution—the Risk Transfer Pool.
The basic concept of the Risk Transfer Pool is to keep the cost of high-risk patients inside the free market. Under this system, high-risk patients are paid for by a pool of money supplied by every insurer in the state, not the taxpayer. The Risk Transfer Pool adjusts for more expensive patients using a retrospective analysis of the insured population.
Essentially a state operating under this system requires every insurer in the state to put money into a pool. After a given amount of time (monthly, quarterly…) the data is analyzed for each insurer. Any insurer who received a disproportional number of expensive patients would receive an allotment of money from the pool. This acts as a mechanism to distribute high-risk patients over the entire population.
The "pre-existing condition" problem is dealt with by having open enrollment once or twice a year. Risk is mitigated via the Risk Transfer Pool but patients are still forced to purchase insurance as insurance, with no "blanket waiver" for pre-existing conditions as we see under the Affordable Care Act (ACA). The "no pre-existing condition" policy of the ACA will inevitably lead to the bankruptcy of the private insurance industry and end in a federally run, single payer system.
Two key papers from the Heritage Foundation that explain this in great detail can be found here and here
[i] John Hinderaker, Powerline October 23, 2013. http://www.powerlineblog.com/archives/2013/10/delay-the-mandate-what-mandate.php
