Pursuit of Truthiness

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Posts Tagged ‘guaranteed issue

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

Romneycare vs Obamacare

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Back in the 2012 election, Mitt Romney was in the unenviable position of trying to attack the Affordable Care Act without implicating his own reform in Massachusetts. At the time, like most people, I assumed this attempt to differentiate the two was pure cynical politics. Johnathan Gruber worked on both bills and famously said “Its the same damn law”.

But recently, and actually thanks to the same Johnathan Gruber, I’ve realized there is one very important difference. First, there are some quantitative differences. Some of the ACA’s penalties are much larger, which may lead to more substantial disemployment effects. Also, Massachusetts had a much higher rate of employer-based insurance than the rest of the country to start with, so they had a smaller gap to close with government subsidies (making their reform the cheaper one).

The biggest difference though, and the one I hadn’t thought about until I saw Gruber talk at the American Economic Association meetings, is that Massachusetts had a guaranteed issue law for years before Romneycare. Guaranteed issue means that insurers must cover anyone, regardless of pre-existing conditions or expected costs.

By itself, guaranteed issue ruins health insurance markets. It allows people to go without insurance and pay no premiums until they get sick, then sign up and get huge benefits, then drop insurance again once they are recovered. For guaranteed issue to work, it needs an individual mandate to prevent people from gaming the system; for the individual mandate to work we need subsidies, so that poor people can actually get the insurance they are required to. This trio of reforms- guaranteed issue, the individual mandate, and subsidies- is what Gruber calls the 3-legged stool. Massachusetts only had one leg, and this means individual premiums were sky-high until Romneycare brought the other two legs.

Almost no other states, though, had their own guaranteed issue laws before the ACA- their individual health insurance markets were not nearly as broken as Massachusetts’ was.

Consider 3 policy packages:

1. No Reform

2. Guaranteed issue, individual mandate, subsidized exchanges

3. Guaranteed issue only

Before 2006, most states were at 1, but Mass was at 3. 3 is clearly inferior to both 1 and 2; the choice between 1 and 2 is a tougher one. Romneycare moved Mass from 3 to 2, clearly an improvement that fixed a totally broken individual market. Obamacare moved the rest of the country from 1 to 2, which is much more of a mixed bag. So for once, I think I overestimated the cynicism of a politician; the two laws in effect really were different.

Written by James Bailey

January 20, 2015 at 5:58 pm