This week, Republicans took the first step toward dismantling the Affordable Care Act: the Senate passed a budget resolution that says the best way to take a chunk out of the federal budget deficit is to defund Obamacare. The measure is set to come to a vote in the House today, and chances are it will pass there, too–even though the GOP has no clear replacement plan lined up. Which is not an ideal situation for health insurance recipients, or insurers themselves.
Here’s why. Obamacare has plenty of critics, but scrapping it in its entirety is rash and will benefit few–particularly not the over 20 million people who didn’t have healthcare coverage before it was enacted. But what seems to be in the process of happening now—cutting off the programs’ money without changing the underlying regulations–is kind of even worse. For all the talk of how they’d benefit from a truly free market, not even health insurance companies make out well on this one. No business likes an unstable market, and Republican lawmakers are in the process of creating just that: a sudden lack of subsidies could cause some healthy customers to opt out, leading to an insurance landscape flooded with (high-risk) sick people staggering under the burden of increased premiums. Advantage, nobody.
Why wouldn’t Republicans just wipe the legislative slate clean instead of gutting its funding mechanisms? Short answer: they can’t. “By using this strategy, they can change the law with a simple majority,” says Devon Herrick, a health economist at the National Center for Policy Analysis. “But only those elements that affect money.” If Republicans had gone for a legislative change, they’d need 60 votes to pass, and it’s hard to imagine that many Democrats crossing party lines to replace Obamacare with … something. More likely: Democrats would have just filibustered the crap out of it. So insurers are left in this no money, more problems mess.
Granted, this doesn’t mean that every insurance company in America is about fold. “The vast majority of health insurance is through employer-based plans, and those are not necessarily going to change a whole lot,” says William Dow, an economist at UC Berkeley’s School of Public Health. The insurers that will almost certainly feel the strain are those who provide a lot of coverage through Medicaid, which is subsidized. “Who knows what the replacement plan would look like, but most people would bet on less Medicaid coverage,” Dow says.
The other companies who should be registering concern are those carrying lots of individual health insurance policies. See, the individual market is subject to a decent crop of Obamacare regulations. First, the individual mandate, which requires that nearly all Americans have some kind of health insurance plan. Republicans aren’t fans, so it’s likely they’d get rid of it by dropping the tax penalty to $0. Then there’s the ban on denying coverage or charging higher premiums of people with pre-existing health conditions. Tricky: it’s not popular with free-market types, but it polls well with their constituents. And then there’s all the exchanges and associated subsidies, which are definitely facing extinction.
What will happen depends on what Congress repeals, and what the replacement plan looks like. “If they remove the subsidies and lower the individual mandate tax penalty to zero, it could lead the individual market to unravel,” Dow says. Why? It could lead to high rates of what experts call adverse selection, which basically amounts to having more sick people in your pool than healthy ones. “When the pool is less healthy, the premium is higher,” says Paul Ginsburg, a health economist at USC’s Sol Price School of Public Policy and Brookings. Under Obamacare, the insurance mandate and subsidized lower premiums kept healthy people on the wagon. If Obamacare’s replacement doesn’t deal with the adverse selection problem, insurers will have to raise their premiums to cover the risk posed by having a higher proportion of sicker, costlier people. “Healthy people will drop out,” Ginsburg says. “This is going to do an amazing amount of collateral damage.”
So this all seems pretty bad, even if Republicans just go back entirely to the way things were before the Affordable Care Act. Back then, most states allowed insurance companies to alter their premium rates based on a person’s health, which is arguably better for insurance companies because it allows them to minimize risk and potentially increase profits. But without the individual mandate, their client base is still going to shrink. “The overall losers here are the sick people,” Dow says. “Some people are talking about subsidizing high risk pools for people who have been rejected by insurers, but that would require a lot of government funding. So I’m skeptical.”
The insurance companies are equally hesitant and skeptical. “We’ll be waiting and watching like everyone else,” says Cigna spokesperson Joe Mondy. And that in itself another cost to business.
“Insurers, like other industries, want stability. They want to be able to make projections about the future. They don’t like unpredictability,” says David Jones, a professor of health law and policy at Boston University. “It’s really hard to know where Congress will end up, so it’s hard to know what to plan for.” Which means for now, insurers have little choice but to plow forward as if the status quo will continue. And for the sake of their bottom lines, it’s probably best if it does.