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Relax. Nobody Will Drown In Trumpcare’s High-Risk Pools


The trouble with hysteria is it’s easy to start and hard to stop. It took New York Magazine a few minutes to write a (since-corrected) story about how the American Health Care Act (popularly “Trumpcare”) will let insurers deny coverage to rape survivors. It took Reason ten times longer explain why that’s absurd.

It took maybe an hour for a columnist to find a handful of left-wing analysts who claim the AHCA’s high-risk pools endanger people with pre-existing conditions. It took me a couple weeks to work out the complex reality of that part of this bill, and that reality doesn’t fit into a short article with a sexy headline like “How Many People Will Die Under Trumpcare?

One loud lie can start a panic, but ending one means explaining a hundred things, starting at square one.

So Here’s Square One

In the pre-Obamacare world, people with pre-existing conditions like diabetes and AIDS often struggled to get coverage on the individual insurance market. Insurers recognized these customers as having greater costs, and charged them higher premiums—sometimes much higher premiums—in the same way that an auto insurer charges a customer more if he’s recently received a speeding ticket. This priced sick people out of the market, often through no fault of their own. Too often, it sent innocent people into medical bankruptcy.

The Affordable Care Act (or “Obamacare”) forbade insurers from charging people different prices based on their individual medical histories. This is called “community rating.” Unfortunately, this meant that sick people became very likely to sign up for insurance on the Obamacare exchanges, which drove up premiums for everyone, which drove healthy, unsubsidized customers out of the exchanges even as insurers lost lots of money, driving up premiums even further.

Whether you want to call it a “death spiral” or not (and plenty of apologists will bend over backwards not to), the Obamacare system is now collapsing, because, lacking a strong individual mandate to force healthy people to buy insurance, its economics fundamentally do not work. Ultimately, this will leave people with pre-existing conditions worse off than before: it doesn’t matter if insurers have to offer you the same price as everyone else if there are no insurers left!

Trumpcare largely preserves this Obamacare system. The American Health Care Act (AHCA) shuffles the individual mandate out of your tax return and into your insurance premium. It adds price controls that could make the basic Obamacare framework even less stable, but it’s basically the same model as Obamacare, with the same fundamental economic problems. Obamacare has recently become popular, and its most popular provision of all is, yes, community rating. With Trumpcare, Congress has gone along with the popular will, however economically foolish.

Saved by the Waiver

However, in what may be its saving grace, Trumpcare allows states to apply for waivers from the Obamacare framework. States are permitted, under Trumpcare, a little bit of freedom to configure their own insurance markets. This may, in a state that specifically requests it, include allowing insurers to cancel community rating and charge customers differently based on their medical histories (known as “medical underwriting”).

But the waivers are a far cry from returning to the pre-Obamacare days. Even in states that request and are granted waivers, Trumpcare establishes a number of unwaivable protections for customers with pre-existing conditions. The “moderate” Senate proposal, Cassidy-Collins, is actually more flexible, more federalist, and thus more conservative in this respect.

First, under the AHCA, anyone who gets and maintains coverage continuously (going no more than 62 days uninsured after the bill becomes law) is protected, period. If you become unhappy with your insurer and decide to switch to a new one, the new insurer isn’t allowed to base your premiums on your medical history.

Under Trumpcare, you can be in the middle of a million-dollar course of chemotherapy and, if you switch insurers, your new insurer has to charge you the same as a healthy person your age—as long as you’ve maintained coverage continuously between insurers. To help people maintain continuous coverage throughout their lives, Trumpcare preserves Obamacare’s health care vouchers, now in the form of a refundable tax credit. These credits should ideally give all Americans the ability to purchase and maintain basic insurance coverage.

The continuous coverage provision is intended to cover the great majority of people with pre-existing conditions, even in waiver states. As long as the vast majority of healthy people actually buy insurance—which the continuous coverage provisions give them a strong incentive to do—the economics of this should work, all without imposing an individual mandate on every American.

Waiver States Must Include High-Risk Pools

Second, Trumpcare mandates that every waiver state must establish a backstop for people with pre-existing conditions who fail to maintain continuous coverage. These backstops are known as “high-risk pools.” A high-risk pool is, essentially, an insurance plan that only really sick people can sign up for. Because it is economically impossible to turn a profit operating a medical insurance plan for sick people (it would be like operating a home insurance plan for people whose houses were actively on fire), the government heavily subsidizes high-risk pools to make it feasible for insurers and customers alike.

Conservatives sometimes wrinkle their noses at this point, because running a high-risk pool is expensive. Historically, high-risk pools run by states and even Washington have been underfunded, with dire consequences for patients and premiums alike. However, as James C. Capretta and Tom Miller explained in a (brilliant) 2010 policy blueprint, cordoning off these otherwise-uninsurable patients doesn’t just help them. It also allows the rest of the insurance market to function much more smoothly, with lower premiums for all.

Running a high-risk pool is not cheap, but it is likely cheaper than the major alternatives: on the one hand, imposing a universal government system like Obamacare or single-payer, or, on the other hand, covering the costs of these patients through medical bankruptcies and emergency room visits.

The Progressive Critique

Under Trumpcare, high-risk pools function as a last-ditch backstop. They don’t exist at all in vanilla Trumpcare, only for states that request and are granted waivers. Even in waiver states, the pools are only intended to be used by very sick people who are no longer able to obtain coverage on the regular market because they (1) face an unusually large health threat and (2) failed, for whatever reason, to maintain continuous health care coverage, (3) despite direct financial assistance in the form of federal tax subsidies specifically to buy insurance. Oh, and all that assumes (4) that you’re not covered under a group rate through employer- or government-provided insurance, which the vast majority of Americans (84 percent in 2015) are.

In short, Trumpcare is designed to cover all Americans with pre-existing conditions, but only a fraction of a fraction of them are expected to end up in the high-risk pools. So, of course, liberal progressives are attacking the program as underfunded because the high-risk pools can’t pay for every American with a pre-existing condition. In recent weeks, a study from the Center for American Progress (CAP), an openly left-wing think tank, has been making the rounds—even in respectable outlets. The center concludes that Trumpcare’s high-risk pools face an astronomical funding gap:

The $13 billion per year that the AHCA provides for possible risk pool funding would leave a $20 billion shortfall annually. That gap is too big to be filled in by states, which would already be responsible for contributing to the stability fund. For example, we estimate that Maine would need $213 million each year to fund 10,000 high-risk enrollees, while the AHCA could provide only $84 million… The funding that the AHCA provides is inadequate to sustain even a small high-risk pool.

The center concludes that Trumpcare’s high-risk pools would cost $33 billion per year to run—far less than the AHCA allocates to them. (This estimate is even higher than the $25 billion estimate given last week by Larry Leavitt, a left-leaning senior vice president at the slightly left-leaning Kaiser Family Foundation.) But this number is wrong. The Trumpcare high-risk pools would cost much less than that.

CAP makes several assumptions, some fair, even generous. They assume, based on past data and regulations, that the average unsubidized premium for a high-risk pool would be $31,000, of which the government would cover $22,000. They assume that all of the $130-ish billion dollars Trumpcare allocates to state-level high-risk pools, maternity care, and federal invisible risk-sharing over the next ten years will ultimately be spent solely on the high-risk pools. This translates to $13 billion per year for the high-risk pools—a pretty big number, even by Washington standards.

However, CAP’s projected enrollments for the high-risk pools are even bigger. They expect 1.5 million enrollees in the pools. At a cost of $22,000 per enrollee per year, that adds up to an annual cost of $33 billion—far higher than the $13 billion (at most) the House has authorized! But don’t panic: the center’s enrollment estimate is inflated by an order of magnitude.

An Outlandish Estimate

Let’s start with the obvious: in its enrollment estimate, CAP assumes the high-risk pools will need to cover a certain percentage of high-risk individuals in every state. This is absurd. As we’ve discussed, the high-risk pools will only be set up in states that request and receive a waiver from Trumpcare’s most onerous elements. The only people who want waivers are small-government conservatives and federalists, who don’t even control the Republican Party right now, much less the country.

The total number of people Trumpcare’s high-risk pools will need to cover in California is zero, nada, zilch.

So CAP’s suggestion that Trumpcare’s high-risk pools will need to cover 196,000 people in California, at a cost of $4 billion per year, is nonsense. The total number of people Trumpcare’s high-risk pools will need to cover in California is zero, nada, zilch, because California’s far-left legislature will request a waiver from Obamacare’s medical underwriting regulations approximately the day Ayn Rand is given the Nobel Prize for Literature.

In fact, the number of states requesting Trumpcare waivers is likely to be quite small. Any Democrat-controlled legislature or governor’s house can be counted on to block any attempt to secure a waiver. It is difficult to imagine even many all-red states taking the leap. Ohio, for example, is completely controlled by Republicans, but many are moderates, and thus quite satisfied with Trumpcare’s “Obamacare-lite” approach. However, we shall be generous here and assume that all of the 25 states where Republicans have a “trifecta” (governor, senate, house) will obtain AHCA waivers. Those states represent a little more than half the nation’s population.

This simple adjustment brings total enrollment in our high-risk pools down from 1.5 million to a mere 836,000. That lowers the total annual cost to a mere $18 billion, which is still more than the $13 billion allocated, but not all that far away from it. Yet this still pegs enrollment far higher than is likely, based on past experiences of high-risk pools.

Not Our First Rodeo

When Obamacare was passed in 2010, the bill called for a great many things that didn’t exist yet. It took several years to bring the ACA fully “online.” As a stopgap measure, the ACA established a national high-risk pool, the Pre-Existing Condition Insurance Program (“PCIP”), which operated from fall 2010 through the end of 2013.

Even though it was expected to cover at least twice as many people as Trumpcare with no more than half the money nobody in the media created a firestorm.

Unlike Trumpcare high-risk pools, PCIP actually was designed to enroll everyone in the country who had a pre-existing condition. It was laughably underfunded: Democrats appropriated less than $1.7 billion per year to the program. Sure enough, it ran low on money by 2012, and barely limped through to its January 2014 termination date. Of course, this was a program run by Democrats, so even though it was expected to cover at least twice as many people as Trumpcare with no more than half the money nobody in the media created a firestorm about how the Democrats were killing single moms.

But that’s all water under the bridge now, right? What we really care about are PCIP’s enrollment numbers. At its peak, PCIP—a national high-risk pool designed to insure every single American who was unable to obtain coverage on the individual market due to a chronic condition—had 110,000 members, far less than projected.

Now, to be fair, some 35 states also ran high-risk pools until Obamacare took over, and they were a bit more successful, with a peak combined enrollment of 230,000. On average, this amounted to 2.2 percent of the individual markets. If we assume this pattern would hold nationally, where about 16 million adults depend on individual-market health care, a little math tells us that a national pool might expect enrollments as high as 352,000.

Let’s round that up to 400,000. That’s still a lot lower than CAPs’s initial estimate of 1.5 million enrollees! Plus, as we’ve seen, Trumpcare will only establish high-risk pools in at most half the states, representing at most 55 percent of the population. So, actually, if we use history as our guide (as CAP suggests in its report), the upper-bound estimate for the number of people who will need access to the high-risk pools is about 220,000 people.

Now It’s Simple Arithmetic

Now, 220,000 people at a cost of $22,000 per enrollee works out to a total cost of just under $5 billion per year, even with our fairly optimistic assumptions about how many states will actually seek waivers. Congress has appropriated as much as $13 billion per year to run the high-risk pools. You can figure out for yourself which number is bigger.

With such a large safety margin, the high-risk pools seem as safe as anything in Washington.

Health-care cost projections are notoriously difficult, but, with such a large safety margin, the high-risk pools seem as safe as anything in Washington. CAP started a panic based on bad, partisan analysis. I don’t blame them for doing it; that’s what they’re paid for. I do blame the media for uncritically spreading the center’s faulty talking points.

Now, I would like to see high-risk pool funding strengthened in various ways. PCIP and the state high-risk pools burdened their beneficiaries, both in premiums and deductibles, and often limited care options. I would like to see enough money in the AHCA put toward risk pools to alleviate those problems, at least for low-income Americans. It is not their fault they’re sick, after all.

I also hope that, someday, every state will see the wisdom in having a free market in insurance for most people, with high-risk pool protection for those who fall through the cracks. When that day comes, enrollment in pools will rise, and I hope funding will rise accordingly.

But the idea pushed by the Center for American Progress, that the Trumpcare high-risk pools will be crushed by demand far outstripping their supply, is not based on fact. In reality, the AHCA establishes one of the best-funded high-risk pools in history.