Can lawmakers cover pre-existing conditions without a mandate?

Topics: Finance, Costs and Prices, Health Care Reform, Insurance, High-Risk Pools, Individual Mandate, Patient Populations, Politics and Policy, Federal Government, Health Care Legislation

By Sam Bernstein, Senior Staff Writer

The Affordable Care Act's (ACA) defenders say that keeping some of the law's most popular provisions—such as affordable coverage for people with pre-existing conditions—requires mandating that everyone have insurance. But some conservative lawmakers say the mandate is unnecessary. Who's right?

Fear of a 'death spiral'

If policymakers want to make coverage affordable for people with pre-existing conditions, the theory goes, they need to find a way to keep healthy people in the insurance market so that premium dollars paid by the healthy can subsidize sick beneficiaries' care.

The ACA tries to ensure that healthy individuals buy insurance by assessing a tax penalty on people who go uninsured—a provision known as the individual mandate. The law further incentivizes people to buy insurance by offering subsidies.

Absent an individual mandate, the argument goes, lots of healthy people would just wait to buy coverage until they get sick. That would leave fewer healthy people and more sick people in the marketplace, a phenomenon known as adverse selection—and as a result, the cost per person of coverage would skyrocket.

These high prices could drive even more healthy people out of the market, creating a self-reinforcing cycle commonly called a "death spiral." RAND Corporation defines a death spiral as a situation in which "premiums rise to the point where only the sickest, most expensive people opt to enroll and the market collapses."

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Prior to the creation of the ACA, insurers avoided "death spirals" by charging higher premiums to sicker people—or entirely refusing to offer coverage to people with preexisting medical conditions. But the ACA prohibited those practices.

Some research has indicated repealing the individual mandate would increase premiums and the number of uninsured. A Congressional Budget Office (CBO) analysis released in December projected that repealing the individual mandate would result in 15 million more uninsured Americans by 2026 and that premiums on the individual market would rise by about 20 percent.

And a 2015 RAND study estimated that repealing the mandate would increase premiums by about 7 percent and decrease the number of people covered in the individual market by about 20 percent.

Notably, both RAND and CBO say that even if the individual mandate was repealed, the ACA's insurance subsidies still would reduce the effects of adverse selection—and RAND specifically states the subsidies would significantly reduce the risk of market collapse. Even so, both projections paint a bleak policy picture, with fewer insured people and rising premiums.

Lessons from the states

These risks aren't just theory—there are some real-world examples to point to as well. Prior to the passage of the ACA, several states adopted community rating regulations and guaranteed issue requirements, which prohibited charging more or denying coverage to beneficiaries with pre-existing conditions, but without enacting a coverage mandate (and without some other key features of the ACA that help lower premiums, such as premium subsidies).

New Jersey did just that in 1993, and premiums skyrocketed. A 2004 study published in Health Affairs found that enrollment in the state's individual market declined by more than 50 percent between 1995 and 2001, and that premiums rose by as much as 350 percent over roughly the same period.

The state's story isn't unique. New York passed similar regulations in 1992, and by 2010 the state's individual insurance market covered few people and premiums were extremely high. Kentucky, Maine, New Hampshire, and other states faced the same problems when they passed similar reforms.

How conservative plans attempt to tackle the problem

The problem of adverse selection is a major reason why so many GOP proposals have provisions that would nudge healthy people to maintain insurance coverage—but in different ways than the ACA.

President Trump and House Speaker Paul Ryan (R-Wis.) have both called for imposing "continuous coverage" requirements, which would prohibit insurers from charging sick people more for coverage as long as beneficiaries maintain continuous coverage. This creates an incentive for healthy people to maintain insurance coverage. For those people who do let their coverage lapse and would be priced out of typical individual market coverage, both lawmakers have called for providing federal funds for high-risk pools.

Yet as Reed Abelson reported for the New York Times, high-risk pools in the past have "left many people uncovered or with strict limits to their coverage." Some have argued that's because the pools weren't adequately funded.

Meanwhile, Avik Roy, who served as a policy advisor on Sen. Marco Rubio (R-Fla.)'s presidential campaign, has released a plan that maintains the ACA's pre-existing conditions provision, while scrapping the law's individual mandate. Roy contends, "A replacement for Obamacare can quite easily guarantee coverage for those with pre-existing conditions. The key is to provide the right level of financial assistance to sicker people whose coverage costs more."

In an effort to reduce costs, Roy's plan would provide tax credits to low-income individuals, loosen the ACA's benefit design requirements, decrease the actuarial value of exchange plans, have open enrollment only once every two years, and institute late enrollment penalties, among other provisions.

Roy claims his approach would insure 12.1 million more people than the ACA, improve health outcomes, and significantly reduce the federal budget deficit.

Stephen Parente, an American Enterprise Institute scholar, performed the analysis that underpins Roy's conclusions. But Timothy Jost, a professor at Washington and Lee University School of Law and a member of the National Academy of Medicine (formerly called the Institute of Medicine), wrote in Health Affairs that he could find "no description of the methodology, or for that matter of the inputs, applied in [Parente's] analysis."

What's needed: A debate in specifics, that acknowledges trade-offs

There's a debate to be had over the individual mandate: what effect it has, and which alternatives might be workable.

But that debate needs to be rooted in policy and in evidence. A few things are clear:

  • There's a sizable body of research and real-world examples that point to potential negative implications of repealing the mandate but requiring insurers to cover everyone;
  • There are examples of high-risk pools leaving sick people uninsured, and a real need to look at what would constitute adequate funding levels.

And finally: All policy decisions have trade-offs. As the debate moves forward, that's something ACA proponents and opponents alike must openly acknowledge.