In my prior article, I tried to outline the pre-existing condition issue. I concluded the amount of people potentially affected by this issue ranged somewhere between 500,000 and 1.9 million and, due to political reasons, it is much likelier to be on the lower end of that spectrum.
So for this article, I will use 1 million people as my number. Based on this data from Avalere, it’s a pretty sensible estimate, if you only count states that are solely Republican-run and therefore likely to seek a waiver.
This 1 million people are adults covered by the individual market, at the moment largely through the federal exchanges. People on group insurance are not affected by pre-existing conditions laws, as those plans do not do individual underwriting. People in government insurance such as Medicaid, Medicare, and Tri-Care are guaranteed issue upon meeting certain conditions. Children under 19 who aren’t covered by Medicaid are covered by the Children’s Health Insurance Program, which has no pre-existing condition exclusions. Futher, people in Maine, Massachusetts, New Jersey, New York, Vermont, and Washington have state laws that mandate guaranteed issue.
So our at-risk people are made up of the remaining 7 million or so people in the other 45 states who choose to self-insure, have pre-existing conditions that stop them from getting insurance, have states granted waivers under the American Health Care Act (AHCA, if it passes Congress in its current form), and have failed to keep continuous coverage.
Assuming your eyes glazed over a quarter of a way through that sentence, that shows just how many safety nets one has to fall through to be at risk of being denied coverage at the market rate, or any rate, for pre-existing conditions. Recall that just because someone has a pre-existing condition or is denied by an insurance company for one, doesn’t mean he will be denied by all. So that is why my numbers are lower than many others being reported.
Let’s Pin Down How Much These Folks’ Health Care Costs
So let’s go with that 1 million number, which is still a lot of people needing help. What can we do with them? That is the challenge. When enrolling a random assortment of 1 million Americans in a pool, theoretically about 27 percent could have some sort of ailment requiring immediate treatment. Depending on the mix of other people, it’s possible to make that pool actuarily sound.
But high-risk pools don’t work that way. In that pool, 100 percent of enrollees have pre-existing conditions. Therefore, it’s impossible to provide them insurance and keep a stable pool. You can’t insure someone for a condition he already has any more than you can insure a house that is already on fire or a car that has already crashed. There is no ability to pool risk.
So this group of people is very expensive to cover, as they are already sick and use a lot of health care. Average costs in the PCIP federal high-risk pool, the one the Affordable Care Act set up as a bridge to the exchanges, averaged more than $32,000 per enrollee per year. Based on those numbers, at 1 million enrollees, we’d be looking at more than $32 billion annually in costs for high-risk people. That $8 billion that got Rep. Fred Upton to vote yes on House Republicans’ Obamacare tweaks? That would cover only three months of expenses at full enrollment.
If the entire amount appropriated in AHCA were applied to pre-existing conditions, a whopping $123 billion, we’d only have enough to make it through four years if that cost were accurate.
Luckily, That Cost Is Likely Overstated
Reading deeper into the report, you find that, fortunately, it may not be. Not all people with pre-existing conditions are created equally: “4.4 percent of PCIP enrollees accounted for over 50 percent of claims paid, while approximately two-thirds of enrollees experienced $5,000 or less in claims paid over the same period.” So while Avalere used the $32,000 figure, it probably vastly overstates the cost of a program like this. That’s because the people most likely to have been enrolled in PCIP would be the sickest, who need the most care immediately.
Someone with early-stage diabetes with no side effects, like myself, who may currently be tough to insure may ignore a high-risk pool like this since it costs more than I spend on treatment, while someone with advanced cancer requiring frequent doctor visits, expensive medication, and consistent chemotherapy would seek something like this out. Therefore, if the pool of 115,000 enrollees in PCIP were expanded to the 1 million people who have pre-existing conditions but couldn’t be insured, we’d likely see many more costing about $5,000 per year than the ones costing $100,000 and up.
Therefore, I prefer the number $12,000 as the cost per additional enrollee. This uses the average benefit used by a person enrolled in Medicare based on the total benefits paid divided by the total people covered. Since these people are older, sicker, or disabled and have high health utilization, I think it makes a good proxy for the sort of person likely to seek a high-risk pool who would not have jumped at the opportunity to sign up for PCIP.
Adding 900,000 people at that cost to the 100,000 people at $32,000 in PCIP gives us a total annual cost of $14 billion. That means if people in these pools were to cover about 10 percent of their own health-care expenses, the money AHCA appropriates could cover the entire affected population of the high-risk pools for the entire 10-year budget window.
This Is Still a Lot of Money
So now we’ve seen the numbers. About a million people may need help. Pooling them with the healthy has real costs to a lot of people to help a few. But we have decided as a society that we can’t just let those few suffer. Yet helping pay for their care will be staggeringly expensive. Even in my example, with this smaller pool and smaller assumed costs, we would burn through the entire pool of $123 billion in a decade. These people will still need help at the end of that decade. How do we take care of our sick population into the 2030s without busting our budget?
That is why people argue we should keep the Affordable Care Act provisions regarding pre-existing conditions, which are community rating and guaranteed issue. The benefits are obvious, as they have been blasted all over the media. People getting operations they might not otherwise have had, seeing doctors they couldn’t otherwise see, getting care they wouldn’t have otherwise received. Who would be so heartless as to take that away?
This is a classic example of concentrated and observable risk and diffuse and hard to see benefits. Remember what has happened to premiums since ACA was implemented. All these people were not covered without a cost. That cost comes out of the pockets of everyone else in the exchanges. While much harder to see, and much less heart-wrenching in a soundbite or a video or a tweet, those costs did make a difference.
Adding a few hundred dollars a month to health premiums can mean the difference between eating terrible food and eating healthy, not working out and a gym membership, scrimping and stressing over every dollar and rationing essentials which adds mental and physical health costs, or a budget that more comfortably covers your fixed expenses.
More severely, higher premiums for lower-quality policies may mean that some people who may have formerly been able to afford some form of insurance now are going without, causing exactly the sort of problem ACA was supposed to fix. To act like the days, weeks, months, and years taken off the lives of some people due to the costs ACA imposes to help others is without consequence is sadly mistaken.
When Compassion Is Cruel
Those realities aren’t purely speculative, either. Rates are rising year over year. Even with rising subsidies, the plans get more expensive to both buyers and the taxpayers. And there is no sign these rising rates will abate, as more people for whom insurance has a marginal value will choose to go without, leaving a sicker pool, causing not only rates to rise but insurance companies to lose more and more money on these policies.
That leads to insurers dropping out of markets entirely. This is why doing it the “compassionate” way has not only costs for people whose rates will rise, but also costs for those this is supposed to help, as this adverse selection will result in many of them also having no insurance options. Guaranteed issue and community rating do very little good if no one is willing to sell policies because the cost risk is too high.
That is why, whichever way you lean politically, both the ACA and AHCA seem to be just a band-aid. Neither are sustainable, needing significant federal money pumped into them to survive. ACA will need it to subsidize the cost of policies to get healthy people to sign up while also subsidizing the losses insurance companies suffer in an effort to keep them on the exchanges when they don’t.
AHCA will need massive continued subsidies to fund high-risk pools, all as health-care gets more individualized and potentially more expensive. This is in addition to the increasing burden Medicare will put on state and federal budgets as baby boomers retire and live to a ripe old age, while higher birth rates among poorer Americans, in addition to ACA expansion, should cause a massive increase in Medicaid spending.
This is why any comprehensive health insurance reform is doomed to fail. Americans want great quality care at cheap prices that is abundantly available. At best, we can get two of those three. At worst, we get very expensive plans that provide very little real health care for the most vulnerable while making things worse for everyone else. That is why our efforts should focus on ways to provide better health care for everyone, increasing the size of the pie of good-quality, available health care rather than locking in the worst parts of our current system and merely fighting about who should pay for them.
