(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.