House Speaker Paul Ryan says the Affordable Care Act is in a “death spiral,” but his own repeal legislation could, in fact, be the spark that causes insurance markets to unravel in certain areas of the country, according to a new analysis.
In the insurance industry, a “death spiral” happens when people begin to drop their individual coverage because they can’t afford it, leaving behind mostly sicker plan members whose higher medical costs then drive up premiums even more.
Insurers, left with fewer and more costly plan members, would ultimately stop offering coverage, which increases the numbers of uninsured — and so on as the pattern spirals out of control.
The changes that the Republican bill does to the individual market, actually really does put many, many markets across the country in real danger of what Speaker Ryan and the president actually talk about as a ‘disaster.’
Ellen Montz of The Century Foundation
Despite Republican claims to the contrary, health experts say this scenario isn’t playing out in the individual insurance market under the Affordable Care Act.
However, provisions in Ryan’s GOP legislation to repeal and replace Obamacare could, in fact, cause insurance markets to unravel in certain areas across the country, according to an analysis by Jeanne Lambrew and Ellen Montz of The Century Foundation, a progressive think tank.
That’s because the Republican bill repeals the Affordable Care Act’s individual mandate and doesn’t use income and cost of coverage to determine the amount of premium of tax credits that people get to help pay for coverage.
“What the Republican bill does is take away, with insufficient substitutes, the (insurance market) stability that the Affordable Care Act provides through those two key policies,” Montz said. “The changes that the Republican bill does to the individual market, actually really does put many, many markets across the country in real danger of what Speaker Ryan and the president actually talk about as a ‘disaster.’”
House Budget Committee chairwoman Diane Black of Tennessee, whose committee will work to finalize the legislation next week, praised the GOP proposal on Friday.
We promised that we would repeal and replace Obamacare with a patient-centered health care system that reduces costs and we’re one step closer to keeping our promise.
House Budget Committee chairwoman Diane Black
“We promised that we would repeal and replace Obamacare with a patient-centered health care system that reduces costs and we’re one step closer to keeping our promise,” Black said. “It puts health care decisions back in the hands of patients where they belong.”
In response to criticism that the bill would leave many low-income people without coverage, Black said the bill “protects the most vulnerable Americans.”
Here’s how the death spiral under the Republican proposal could happen, according to Lambrew and Montz’s analysis:
1. The GOP bill would likely lead many people to simply drop their coverage because it would get rid of the individual coverage mandate.
The Congressional Budget Office and the Joint Committee on Taxation estimate that about 6 million people would do so by 2026.
Eliminating the coverage mandate would lead to “larger reductions among younger and healthier people, thus increasing premiums” in the individual market by up to 20 to 25 percent in the first year after it’s enacted, the CBO reported.
To avoid people abandoning their coverage, the Republican legislation allows insurers to impose a 30-percent premium increase for people who let their coverage lapse during the previous year.
But Montz and others said this wouldn’t be enough to keep healthy people from enrolling in coverage only when they get sick.
2. The GOP’s bill doesn’t adjust its premium tax credits for geographic differences in health care costs.
Last year, the average marketplace premium in rural areas was nearly 7 percent higher than the national average, Montz reported.
That means people in rural areas wouldn’t get as much money under the Republican plan to offset their higher cost of coverage – which would average roughly $340 more a year for a 40-year-old in 2020, according to Montz’s calculations.
That large premium increase “would likely cause a disproportionate number of rural Americans – especially those that are relatively healthy — to drop their coverage, likely jump-starting the potential unraveling of the insurance market in sparsely populated areas,” Montz reported.
3. Low- and moderate-income people would lose coverage because the GOP bill doesn’t vary premium tax credit amounts by income.
Under the Affordable Care Act, people with low incomes receive larger tax credits and other cost-sharing subsidies to help them pay for coverage. The Republican repeal legislation would provide flat tax credits based primarily on age, and would be adjusted only for inflation.
The leaner GOP tax credits wouldn’t be enough for many low- and moderate-income people to pay for coverage, experts say.
Sixty-five percent of HealthCare.gov enrollees earned less than twice the federal poverty level in 2016 — $23,760 for an individual or $48,600 for a family of four.
These enrollees would end up paying several hundred to several thousand dollars more for the same coverage under the Republican bill, Montz and Lambrew estimate.
4. Fewer healthy older people would enroll under the GOP plan.
The Affordable Care Act limits insurers from charging older enrollees more than three times the cost of coverage for a 21-year-old with the same income. The Republican legislation would allow insurers to charge older people five times more than younger adults. But older people would only get a tax credit that’s twice the amount of a younger adult.
“Elder enrollees really get the short stick on this one,” Montz said.
Faced with higher coverage costs and less financial assistance, healthy older people in their 50s are likely to say ‘I can’t afford this increase.’ And that’s the exact thing you don’t want to happen,” Montz said. “You don’t want healthy people to drop out.”
5. Healthy younger people would also drop coverage over time.
The amount of tax credits under the Republican plan increase with age and would be adjusted annually for inflation. But health insurance costs typically grow faster than inflation – which means over time, “even many young adults who may have gained in the early years of the flat tax credit would end up paying more out of pocket for premiums,” Montz and Lambrew wrote. “Young adults, especially those that are healthy, would likely drop coverage rather than pay higher premiums.”