Repeal And Delay Will Collapse The Health Insurance Market Before The Midterms

Trump advisor Kellyanne Conway ’s response, “We don’t want anyone who currently has insurance to not have insurance,” on yesterday’s MSNBC’s Morning Joe might just become the biggest lie of the 115th Congress.

GOP policymakers argue that the prospect of an Obamacare replacement plan under a “repeal and delay” strategy will give insurers enough time and confidence to adapt to whatever replacement plan Congress passes within the next four years. Instead of speculating, politicians would be better served paying closer attention to historical dynamics between uncertain regulatory policy and business growth and take notes from a recent, analogous, situation: the commercial impact of cyclical energy policy over the past decade.

A Renewable Energy Case Study

The Production Tax Credit (PTC), established as part of the Energy Policy Act of 1992, was passed in extensions of just one or two years until December 2015, where it received a four-year extension to December 2019. The PTC is an inflation-adjusted tax credit for electricity generated by qualified energy resources, such as wind and geothermal, and sold by a taxpayer to an unrelated person during the year.

The perception of instability in the wind sector scared the investors that the industry relied on and thus dissuaded company executives from increasing capital expenditure for long-term projects, which are functionally a necessity for the commercial viability for cost-competitive renewable energy collection and storage. As a result, from 1999 to 2014, the wind industry underwent a boom-and-bust cycle of production, even dropping 92 percent in some years over the prior year. It was difficult to drive investment, production, or growth when the perception of stability was cyclical and the industry was unsure about the government’s commitment to renewable energy production.

Uncertainty In Health Policy

A similar commercial confidence dynamic is true in the health insurance marketplace. Health insurance carriers knew that government programs that provided a cushion to potential losses on the individual market, including reinsurance and risk corridors, were set to expire at the end of 2016, and were able to prepare for that by increasing premiums—by a larger percentage relative to the increases of prior years—to protect margins. However, the result of the presidential election and the now very real threat of budget reconciliation to repeal the foundation of the ACA marketplaces was a black swan, a surprise to the entire industry.

In a piece last month, I wrote about the long-term consequences of a budget reconciliation bill that Republicans are currently negotiating:

Budget reconciliation legislation would, among other things, allow Republicans to repeal premium tax credits, the individual mandate, and the expansion of Medicaid coverage for adults with an income up to 138% of the federal poverty level ... Congressional Budget Office officials have admitted that this reconciliation bill would send individual insurance plans into a ‘death spiral,’ in which patients no longer able to afford insurance without the help of federal subsidies would drop carriers and leave insurance plans filled with only the sickest patients. This would in turn further raise medical costs, which would raise premiums. This cycle will continue to push people out of plans and raise premiums so that eventually only very few people could afford to have them, leaving an additional 20 million Americans without any form of coverage.

Republicans are now arguing to delay these measures until after 2020 , no doubt to block the consequences of a repeal bill from impacting the result of the 2018 midterm and 2020 presidential elections. It’s curious that, for all the Congressional rhetoric of how “terrible” Obamacare is, GOP lawmakers seem to be afraid to put their own skin in the game by implementing their “better” replacement plan sooner.

Even if the policy effects of reconciliation are delayed to after 2020, without the guarantee of a replacement and the loss of cushioning programs to preserve some semblance of financial viability in the individual marketplaces, insurance companies will follow the lead of carriers like Aetna and UnitedHealthcare and leave the majority, if not all, of the ACA exchanges at the end of 2017. These carriers don’t know how much financial help “replacement” will give patients compared to that of the ACA, which shapes whether or not those markets will still even exist after a few years.

More bluntly, it’s difficult for insurers to convince themselves that the Republican politicians currently leading the Congressional push to repeal Obamacare ran for office with even a marginal political goal of providing universal health insurance coverage. Without any guarantee of long term stability and short of receiving a bailout, there’s no commercial reason for insurers to continue investing capital, infrastructure, and time into designing individual plans, courting potential individual exchange consumers, and negotiating deals with health care providers.

Within the current political climate and rhetoric, it’s much more financially viable for insurers to double down their efforts on selling employer plans because employer-sponsored insurance market dynamics are unlikely to significantly change as a result of repeal or current drafts of GOP replacement plans (other than a possible cap on the tax exclusion for employer-sponsored coverage that will make some health plans more expensive). Republicans have argued for decades about the consequences of uncertainty in regulatory policy on the performance of the private sector. They should realize that because of the longitudinal nature of health care, optimizing the cost and large-scale coverage of health insurance requires time, and thus political stability for the long haul. If Congress truly wants Americans to keep their existing health insurance, they would be better served to ditch “Repeal and Replace” in favor of “Reform and Rename.”