Pursuit of Truthiness

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Posts Tagged ‘Death Spiral

ACA Repeal- Is There Any Safe Way Out?

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It’s not the first time I’ve thought so, but it now looks like efforts to repeal most or all of the ACA are now well and truly dead, and Republicans are wondering what to do instead.

The option currently on the table is the so-called “skinny repeal” of the ACA that repeals only the individual and employer mandates, leaving the rest in place. I haven’t said much about the repeal efforts so far, partly because I don’t think the economics of the issue are likely to change minds on either side. But the “skinny repeal” is one case where the effects are a bit different than you might think at first.

It might seem like a “skinny repeal” is a compromise position between full repeal and no repeal, and so it would have effects on premiums, the number of uninsured, and other outcomes of interest that are in between the two. But in fact, it is likely that repealing  the individual mandate alone would be worse than either full repeal or no repeal, because it more likely to cause an adverse selection death spiral.

Basically, pre-ACA in most states, individual insurance was cheap if you were healthy but hard to get if you were sick. With the ACA insurers had to sell to everyone (sick and healthy) at the same price, so healthy people were forced to pay more but sick people benefited. Take away only the individual mandate but leave the other parts that make insurance more expensive and healthy people leave the market; when only sick people buy insurance then average costs go up, so premiums go up, so more healthy people leave… and soon insurers will just leave the market because they are losing so much money, so both healthy and sick people are worse off.

I can see the political appeal of doing guaranteed issue but dropping the individual mandate; it sounds like a compromise, and dropping guaranteed issue sounds mean (you must hate sick people) while dropping the mandate sounds nice (freedom!). But it is likely to be the worst of both worlds. Several states have found this out the hard way, including Massachusetts (in a fascinating political twist, this was actually why Romneycare really was different from and better than Obamacare).

If Republicans really want to kill off part of Obamacare in order to take a scalp and say with a somewhat straight face they kept their repeal promise, the employer mandate is much safer to repeal on its own; it might actually strengthen the exchanges by pushing more healthy people on to them, and it was a bit bizarre and counterproductive in the first place from the economist’s perspective. Just repeal the employer mandate, claim victory, and go home. Or, while I’m dreaming, turn to reforming the supply side of health care instead of messing around with insurance.

 

 

Written by James Bailey

July 27, 2017 at 4:14 pm