Update on the American Health Care Act

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.

 

10 thoughts on “Update on the American Health Care Act”

  1. Let me ask you a question. What do you think the role of health insurance should be?

    Actually two questions. Do you believe health insurance should be considered a necessity that everyone should be able to afford or a privilege for the who can afford it?

    1. I think health insurance is a choice for each person or family. As such it should not be mandated. However that is all things being equal. There is an argument that if not for insurance, health care costs would be shifted to others anyway in the cae of the poor or even middle class. On the other hand there is an argument that insurance has actually helped drive up health care costs by “hiding” the true costs and incentivizing over-spending on health care and incentivizing insurance companies and health care providers to charge more. Insurance is not so much the problem as the issues underlying it.

      1. Dr. Clauson,

        I appreciate your response, but you didn’t answer my questions.

        By the way, I did mess up my second question. I meant to ask if health Care should be a necessity or privilege. Whoops.

        But back to the first question. In the overall delivery care what role does or should insurance play?

  2. Dr. Clauson,

    What would you propose as a remedy for high prescription drug costs? Some medicines out there are exorbitantly expensive. Is there any acceptable way to bring down these costs without some sort of price control or regulation of “big pharma”? It would seem to me that if the costs of the medicines themselves can be brought down it would reduce healthcare costs across the board. If insurance companies are not shelling out thousands of dollars for certain medicines or if someone gets sick and can afford to buy the needed medicine without insurance (because some of these medications out there are so expensive, insurance is the only way people can possibly afford them) wouldn’t that greatly help preexisting conditions and premiums, etc.

    1. Yes, pharmaceuticals also have to be made competitive. Part of that problem is patents, which, though I agree with, do create a pricing problem. But part of the problem is the government itself (FDA for example) which is so slow to approve different drugs that would compete with those already out there and drive down prices. In addition, I know with the EpiPen, there was apparently some effort to get schools to mandate it as the only brand–very bad move, and also very bad PR. They are paying for that now. Make drugs competitive by promoting aggressive competition, and take away any special privileges pharmaceutical companies might have. I don’t favor price controls as they make the problem worse by reducing available drug quantities.

  3. Good article that gives a thorough explanation of some of the key ideas behind the bill. This is an interesting topic where I can see many of the pros and cons of both a more expansive system for government regulated healthcare and a more privatized version.

  4. I also do not hate the bill but I do believe it will cause some trouble as you proposed in the article. However, like you said if it is our best option for the first three phases then we must live with it. I enjoyed reading this article and I feel much more educated on the main ideas behind the bill and exactly what it is all about.

  5. I really enjoyed reading this especially since I did not know much about it previously. I love that you say to “let the market go”, I think that’s exactly what needs to happen. Why has the insurance market shrunk so much recently? I do think it is smart that insurance companies will raise the premium if people get insurance for when they get sick because that will definitely incentivize people to have insurance all the time.

  6. Interesting, complex topic that will definitely not be solved in a way that pleases everybody in my opinion. What I don’t understand… what is the reason for not letting insurance companies cross state boarders?

  7. Not to mention the drastic dropped in people actually insured, the detrimental effect to the poor, sick, and the elderly, and the (you did mention this one) the increased premiums. I do greatly dislike this bill and hope that it is stopped so a better one will take its place. I also wouldn’t count on promises since the aforementioned issues are three things that Trump specifically promised and campaigned on.

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