Thanks to GOP vice-presidential nominee JD Vance, we finally know what Donald Trump’s “concepts of a plan” for replacing the Affordable Care Act might look like.
Unfortunately, those concepts would probably unravel the U.S. health-care system.
For nine years running, Trump has promised “something terrific” is in store for our health-care system. His secret plan was perpetually two weeks away yet somehow never materialized, even when he and his party spent most of 2017 trying to repeal Obamacare. Now, miraculously, Vance has breathed life into his running mate’s vaporware.
“We want to make sure everybody is covered,” Vance said Sunday on “Meet the Press.” “But the best way to do that is to actually promote some more choice in our health-care system and not have a one-size-fits-all approach that puts a lot of people into the same insurance pools, into the same risk pools. That actually makes it harder for people to make the right choices for their families.” His party’s objective, he emphasized, is to ensure Americans have “good choices.”
“Choice” is not something Republicans usually celebrate in health-care decisions. So let’s decode what Vance is saying here.
Vance is referring to letting insurance companies offer different plans and pricing based on whether patients have preexisting conditions or might need more medical care because of their age, health status, gender, etc., or perhaps even their genetic profile. Rather than spreading the insurance risk around to a larger group of people who to some extent cross-subsidize one another, Vance wants to segment riskier patients into their own “pools.” Sicker, higher-risk, more expensive people can “choose” to go into one pool; healthier, less risky, cheaper-to-insure people can “choose” to land in another.
“Now, what that will also do is allow people with similar health situations to be in the same risk pools,” he elaborated a few days later. “So that makes our health-care system work better, makes it work better for the people with chronic issues. It also makes it work better for everybody else.”
Allowing insurers to discriminate based on age or preexisting conditions has long been politically unpopular. But politics aside, the bigger problem with this design is that it would probably cause insurance markets to implode.
Higher-risk people require more medical care, which is expensive. Segregating these people into their own separate pool would drive up their premiums. This would lead to some relatively less-sick people in that pool dropping their coverage, while the very sick people would remain. This in turn would drive premiums even higher, prompting even more people to drop out.
And so on, and so on, until the system falls apart.
You can get this result even if you don’t deliberately segment people into high- and low-risk pools. It can happen if you simply allow insurers to discriminate based on patient risk and then allow consumers to sort themselves into more or less comprehensive plans based on pricing (or to skip insurance coverage altogether). When all the self-sorting is done, the insurance products left would probably look pretty cheap, but they’d cover basically nothing, and for no one. Anything that’s more comprehensive would become prohibitively expensive.
The technical term for this phenomenon is an “adverse selection death spiral.” This Goth-sounding result is a well-established problem in insurance markets, particularly in the pre-Obamacare days, when state marketplaces were less regulated and more dysfunctional.
There might be one way to prevent a system such as the one Vance proposes from unraveling: The government could kick in a ton of money to subsidize higher-risk patients, keep their out-of-pocket costs down and retain more people in the risk pool.
But this would be extraordinarily expensive, as states that had high-risk pools in those pre-Obamacare days can attest. Without enough money to sufficiently subsidize sick patients, many states imposed wait lists for entering the high-risk pool or otherwise limited how many very sick people could access coverage. Again, not popular — nor particularly humane.
In any event, Republican politicians have made clear that they’re unwilling to supply the subsidies necessary for the high-risk pool idea to work. How do we know? Because they refused to provide sufficient funds back in 2017, when they last tried to repeal the Affordable Care Act and replace it with high-risk pools.
What’s more, Republican lawmakers are now actively trying to kill much more modest premium subsidies that are already on the books. These subsidies are designed to hold premium costs down and keep lower- and middle-income people in the marketplaces. If Republicans won’t pony up the cash for these subsidies, it’s hard to imagine they would supply funds for the much more expensive system Vance appears to be proposing.
Remember this next time Vance or other Republicans promise you “choices” in your health insurance. The real choice they’re offering you is the option of never getting sick.
