I want to provide a brief update on the American Health Care Act bill in the House. I also want to add a bit more analysis. Currently the bill has been passed out of two House committees. Democrats are trying to slow it down but aren’t likely to be successful. But if it makes it to the Senate, it faces stiff opposition from Democrats and from more conservative Republicans who see the bill as a compromise and not what was promised to the American people. My prediction is that without some amendment in the Senate and agreement in the House on reconciliation in Conference, the bill is dead. I believe the conservative Republicans and President Trump will compromise I believe–and if so, and if the House concurs, will make everyone better off.
Now I will say that upon reflection I don’t hate the bill, IF, as the House leadership says, it is the best we can get in the first (of three) phases. Here is what will cause the most trouble.
First, the pre-existing condition provision will be insurmountable. To continue to pay for pre-existing conditions only incentivizes people not to purchase insurance until they are sick. But that reduces the insurance pool necessary to have enough money to pay for everyone who needs it. The bill states also that if a person drops their insurance and then wants to get it after getting sick, the insurance company can raise the premium cost by 30% as a kind of penalty. But if a person discovers that his illness will likely cost more than the 30% increase in insurance cost, he or she will still opt back into insurance. Again this will strain the capability of the insurance companies to pay. Premiums then have to be raised to pay for coverage, but that forces more people out of the market. This is the “death spiral” of insurance. This spiral is even more pronounced without a mandate, as we would expect.
Second, the bill does little to actually encourage competition by insurance companies. It does not allow or mandate insurance companies to cross state boundaries to compete with other companies. In 2017, the number of people who had access to three or more insurance companies dropped to 57% from its 2016 level of 85%. The market is shrinking. Prices can only be brought down in a market setting by competition. Government forcing prices down artificially will cause more problems than it would solve.
The third problem is Medicaid. What do we do if we reduce Medicaid expansion that was enacted under Obamacare. Conservatives don’t like such expansion–and they are rightly suspicious of an entitlement program. But other fear that if Medicaid is “tinkered with” perhaps 10-11 million people might be cut off. What do we do? To cut them off with no replacement is politically unwise and even a bit unfair to expectations built up over many years.
Finally, refundable tax credits might not be enough to match their costs of on-demand health care. Now arguably the demand for health care may be impossible to satisfy. It might be overstated, especially since actual full costs are rarely seen by the recipient, and often not even known by providers. But our overinflated demand for health care is still a political fact. If people want it and it is too expensive, what do politicians do?
All these issues have to be addressed. They can’t be ignored. The present bill ignores some of them. And on some it does not address them the best way. The first thing we have to do is separate a health care problem from a poverty problem. We should not distort an entire market (for health care) by trying to insert solutions to a poverty issue. Take out those who can’t afford health care and treat them separately with some sort of subsidy/payment. It’s not ideal but it is better. Then take government out of health care–except for minimal regulations–and allow the market to provide it, which it will then do quite well. The pre-existing condition issue cannot be solved through insurance. It can only be addressed separately. If it isn’t the insurance market will collapse and then everyone will be clamoring for socialized medicine, an even worse problem. Drop the tax credits, introduce aggressive competition and let the market go. Then help the poor through other programs that don’t interfere with health care markets.
I am sure I will have more to say later.