Likely to fail....

Why Republican health reform ideas are likely to fail

I tried many of those ideas as Rhode Island's health commissioner. Here's what I learned.

By Christopher Koller

Obamacare is squarely in the cross hairs of the incoming Orangutan administration and congressional Republicans: Both the president-elect and Republican congressional leaders have said they plan to repeal and replace the sweeping health care law. What comes next? They’ve assured the public there will be an orderly transition, and that Americans who don’t have insurance through an employer will still have choices of stable, affordable, high-quality coverage.

Republican leaders have suggested a few ideas, including creating high-risk pools for people with pre-existing conditions, allowing interstate health plan competition, expanding the availability of health savings accounts and providing tax subsidies for individuals with low incomes. President-elect Donald Orangutan also has said he wants to keep Obamacare’s requirement that insurers cover those with pre-existing medical conditions. Most important is what Republicans say won’t be in their plan: a mandate for Americans to purchase health insurance.

This set of policies is highly unlikely to result in stable, affordable, high-quality coverage choices. I should know: As Rhode Island’s health insurance commissioner from 2005 to 2013, I was responsible for trying to implement a system that made many similar promises. What we found, in the end, was that without a requirement to buy, many healthy people opt out of insurance, resulting in an unstable market that requires heavy regulation with limited choices. Republicans are likely to face the same challenges with their favored reforms in the years ahead.

For eight years, during my tenure as health insurance commissioner, my office was statutorily charged with “directing health insurers towards policies that improved the health system” in the state. The individual insurance market — the market for those who do not receive insurance through an employer — was perhaps our biggest challenge.

We had all the elements Republicans are considering in “repeal and replace” proposals. Insurers could not exclude benefits or deny coverage based on pre-existing medical conditions. We had a de-facto high risk pool for sick people, paid for by the healthy enrollees. Enrollment in this “sick pool” was limited to one month a year so people could not enroll and dis-enroll based on medical needs. Older enrollees could be charged a maximum of three times more than younger people. The local nonprofit Blue Cross and Blue Shield plan even provided a small amount of subsidies out of its own reserves for low-income people. To attract more healthy people, catastrophic-only, high-deductible coverage was available — with and without health savings accounts.

With the legislature, we regularly considered less comprehensive benefit requirements. State-mandated benefits, however, were found to comprise only 10 percent of premium costs, and half of that amount was for mental and substance-use-disorder services now required by federal statute. Services comprising the other 90 percent were what most people consider essential — pharmacy, hospital and physician care. We worked to limit sales of “telephone pole insurance” — coverage with annual, lifetime and condition-specific limits marketed with plain white signs and purchased by unknowing consumers who would call us distraught when they tried to file a claim.

Paired with this was a Medicaid program that offered coverage to families making up to 185 percent of the federal poverty line. Pregnant moms and kids in families with income up to 250 percent of the poverty line were eligible.

In short, we did all we could in Rhode Island to create a market where those without access to affordable employer insurance could choose from an array of affordable comprehensive health insurance choices, and families from lower-income households could get public coverage through Medicaid. And we did so without a mandate. In other words, our proposals look awfully similar to what Republicans are proposing to replace Obamacare.

How did our efforts work out? We did have some successes. With the committed partnership of the local Blue Cross and Blue Shield plan, rates for individual insurance in Rhode Island were less expensive than in other states in the region, after adjusting for risk and benefit level, and the pool was relatively stable; annual rates increases were “only” about 5 percent to 10 percent. Subsequently, this structure provided the basis for one of the more successful individual insurance markets under the Affordable Care Act, with relatively low premiums and low rate hikes.

But those successes came at a significant cost. To maintain the right balance between rates in the sick pool and the healthy pool, our office had to conduct extensive rate reviews and regulation, including forcing insurers to limit their rate hikes. The local Blue Cross plan, obligated by charter, was the only insurer to offer products; other carriers in Rhode Island found the market overregulated and too small. Only about 15,000 people bought coverage, and consumer dissatisfaction with this model was high. Approximately 100,000 people in the state — or about 10 percent of the population — either could not afford coverage or elected to go uninsured.

We knew why the market wasn’t working: Young, healthy people weren’t buying insurance. But there was no easy fix. Imposing artificially low rates for everyone with the hope of attracting these people would force Blue Cross to lose money on this business and put it at a competitive disadvantage in other lines of business. Wider rate bands — charging lower rates for young and healthy folks and higher rates for older ones — might have helped a little, but at the political cost of an irate and vocal older constituency. Taxing a broader base for our high-risk pool may have allowed for lower rates in our healthy pool, but, historical experience with high-risk pools has shown that maintaining political support for an adequate tax base for a segregated pool of sick people is very challenging.

Increased insurer competition would likely have limited rate increases but would not have lowered average premiums enough to attract more enrollees because national, out-of-state carriers could not negotiate sufficient discounts with dominant local providers.

In Rhode Island, as elsewhere, our sought-after healthy population comprised the majority of the uninsured, and they were taking an economically rational risk to forgo coverage — at the expense of the older and sicker people left in the pool and insured populations who paid for their uncompensated care when they incurred it. No amount of tweaking of benefits and cross subsidies would cause them to reverse their decision. As Mitt Romney, then governor of Massachusetts, and his colleagues were teaching us, a combination of premium subsidies, an individual mandate, and aggressive outreach were needed to persuade these “young healthies” to purchase insurance.

The big lesson here is quite simple: Voluntary insurance is hard to do. There is a reason banks compel mortgage holders to buy homeowners insurance and states compel car owners to purchase liability insurance. Insurance pools cannot be comprised solely of those who think they will need to use coverage. As many individual insurance markets experience large rate hikes and insurer exits, criticism of Obamacare may be right — partially. The problem may indeed be the individual mandate — not its existence, however, but low penalties that encourage healthy people to pay the resulting fine and go without insurance.

Republicans are currently considering additional ideas that were not available to us in Rhode Island to encourage — but not mandate — young and healthy people to purchase insurance. One idea would require insurers to cover people with pre-existing conditions as long as they had continuous coverage beforehand. Another idea is to auto enroll people in a basic insurance plan, requiring them to proactively opt out of coverage.

These ideas are unlikely to work. One could argue automatic enrollment is a greater infringement on personal liberty than an insurance mandate. Moreover, our experience in Rhode Island shows that when given an option to forgo coverage, a segment of the healthy population most needed will seek it.

At best, these requirements will be only partially successful: A small portion will retain coverage, and regulators will struggle, as we did in Rhode Island, to keep the market stable and affordable. But at worst, market regulation will be insufficient and the reforms will set off a so-called death spiral where higher rates cause relatively healthy people to forgo coverage, leading insurers to raise rates even higher and more people to forgo coverage.

As Congress prepares to debate the repeal of Obamacare, it should be very careful with the design of the replacement. As our experience in Rhode Island shows, attempts to build an individual insurance market with stable, affordable and high-quality coverage choices based on voluntary participation will not succeed and could leave many people wishing for the good old days of the Affordable Care Act.