(Bloomberg View) — After talking about it endlessly, Republican presidential candidates are finally starting to get specific about how they intend to replace the Patient Protection and Affordable Care Act (PPACA). Wisconsin Gov. Scott Walker released his plan last week. As the reaction to it shows, Republicans have to be ready with answers to a lot of hard questions.
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One of the most crucial: How would they protect people with pre-existing conditions? Left to their own devices, after all, insurers have an incentive to charge higher premiums to potential customers who already have chronic health conditions — or not to offer them coverage at all.
Obamacare simply bans such discrimination. But Republicans seeking to replace the law want to protect people with pre-existing conditions while also freeing up health-insurance markets. The vexing question is how to do so without creating bad incentives for customers. If insurers can’t discriminate between the healthy and the sick, healthy people might just go without insurance until they get ill and then sign up for it at the same rate as everyone else. If all healthy people did that, only the sick would have insurance and prices would soar. That’s why Obamacare combines the ban with a mandate that people buy insurance. One of the law’s most popular features, in other words, is a package deal with one of its least popular.
If you want a health care market that doesn’t rely so heavily on coercion — on just telling people to buy something whether they want it or not — you’ll have to try a different approach. Walker’s plan, in line with other conservative proposals, has three features that help people with pre-existing conditions. It provides tax credits to help those who don’t have employer coverage buy their own policies. It requires insurers to offer the same terms for sick people as for healthy ones provided that they’ve kept themselves covered. And for anyone left over, it creates high-risk pools.
That second step, the regulatory one, is key. It sets up the right incentives: Healthy people have a reason to stay insured rather than an incentive to go without. And they have the means to do so, courtesy of that tax credit and the insurers who would like to benefit from it.
Critics say this approach hasn’t worked in the past: The Health Insurance Portability and Accountability Act of 1996 (HIPAA) imposed a similar protection for people with continuous coverage, and a lot of those with chronic conditions still had difficulty getting insurance. It’s hard, the critics add, to stay continuously covered.
But while Walker hasn’t spelled out all the details, conservative health reformers have explained how to improve on the 1996 law. That law left people looking for coverage on the individual market without effective protection: Insurers had to offer them policies if they had a health condition, but nothing stopped them from raising their premiums. And customers didn’t get the tax break that Americans with job-based coverage enjoy.
These problems can be solved. For one thing, the regulation could be written so that people who had kept coverage would be protected from premium increases. For another, conservative plans like Walker’s give tax credits to everyone in the individual market. Continuous coverage, meanwhile, should be defined reasonably rather than strictly. One possibility would be to protect anyone who hasn’t gone more than 90 days without insurance over the previous three years. That would probably be enough to keep healthy people from gaming the system.
These people, remember, would have help (the tax credits, the continuous-coverage protection) in staying covered. Insurers would have the freedom and the incentive to design catastrophic policies where the premium equaled the value of the credit, so that people could get and stay insured with no out-of-pocket premium costs. People could choose to purchase more comprehensive coverage and pay the additional premium out of pocket, but no one would have a financial reason for remaining uninsured. If they nonetheless failed to keep covered, they’d still be protected by high-risk pools.
This solution features more federal spending and regulation than conservatives would prefer in an ideal world. But it would be coupled with a major reduction in federal involvement in health care, and especially of federal micromanagement. Walker’s plan, for example, gets rid of the individual and employer mandates, the federal definition of essential benefits, and the favoritism for policies purchased through government-run exchanges.
Over time, one could expect the need for the high-risk pools and the regulatory protections to diminish. They address problems that in large part result from the way federal and state policies have stunted the growth of the individual market. Federal tax policy, for example, ensured that employer coverage became the dominant form of health insurance; people who lost such coverage or never had it in the first place have had to seek security in smaller and more fragmented insurance pools. Conservative health reforms — the ones Walker has in mind, and others — are aimed at allowing a more functional market to emerge.
In the interim, Republicans can and should promise to protect people with pre-existing conditions — secure in the knowledge that you don’t need Obamacare to do so.