Health care economist John C. Goodman once asked a great question in his discussion of health insurance regulation and Obamacare: "Would you want to eat at a restaurant that doesn't want you as a customer?" John applied that to proposals to require a combination of guaranteed issue and a ban on pricing for pre-existing conditions. The two are both major parts of Obamacare. Together, they mean that insurance companies can't legally charge higher prices to higher-risk people and can't turn them away. This means that unless they figure out ways around this, they will know that they will lose money on high-risk people.
Sure enough, as Cato Institute economist Michael Cannon discussed last year--see my blog post on this last year--insurance companies have figured out how to deal with this: make their insurance unattractive to high-risk people. He reported on an NBER study, since revised, by Michael Geruso of the University of Texas, Timothy J. Layton of Harvard Medical School, and Daniel Prinz of Harvard University that finds just that.
Since then, Cannon has posted more on this. In a January 4 article in Health Affairs, Cannon reports interesting survey data whose bottom line is that when people think that the ban on pricing for pre-existing conditions results in what it actually does result in, the public's view on the ban switches from strongly positive to strongly negative.
In a January 5 article in Health Affairs, Cannon considers how to deal with this problem, short of completely repealing Obamacare. Here's a key paragraph:
Congress can make coverage more affordable and access to care more secure by repealing or letting consumers opt out of Obamacare's preexisting conditions provisions and other health-insurance regulations. A study conducted by McKinsey and Company for the Department of Health and Human Services estimated that the preexisting conditions provisions are the primary reason individual-market premiums are rising so rapidly. Repeal or an opt-out would free the vast majority of exchange enrollees to purchase low-cost, guaranteed-renewable coverage--or even lower-cost preexisting conditions insurance--at any time of year. In addition to greater freedom, those consumers would gain something else they currently lack: sustainable, long-term protection against the cost of illness.
Will his solution be great for everyone? No, for obvious reasons. People with serious pre-existing conditions will find their premiums rising by a lot. So here's Cannon's next paragraph, in which he deals with that problem:
A minority of exchange enrollees would be unable to find or afford coverage at actuarially fair premiums. As a matter of political reality, reform will include some form of subsidy for this group. One option is a high-risk pool. High-risk pools likewise exhibit quality and affordability problems--in part because they too suffer from government pricing errors. Yet, a voluntary insurance market combined with government high-risk pools need not be perfect to outperform Obamacare. The more direct, transparent, and equitably financed a high-risk pool's subsidies are, the more politically sustainable those subsidies will be. Moreover, any imperfections of a high-risk pool are as much a feature as a bug. To the extent that government pricing errors lead to suboptimal quality in high-risk pools, they create incentives for people to purchase insurance in the voluntary market.