The Michigan Morsel
To corral some last-minute votes, the House leadership has endorsed the Upton amendment to the American Health Care Act. The legislative text was released late yesterday, giving members no time to understand what it does before they vote on it today. That’s a shame: the amendment works at cross-purposes with other parts of the AHCA, is arbitrarily structured, and is ambiguous on a key point. It’s another example of the perils of doing health policy on the fly.
Under the earlier MacArthur amendment to the AHCA, states can apply for waivers from some of the Affordable Care Act’s rules, including the rule that insurers can’t take health status into account when setting rates. In waiver states, insurers will be allowed to hike the premiums of people with preexisting conditions who have a lapse in coverage.
The goal is to encourage healthy people to maintain continuous coverage—a Republican-friendly substitute for the individual mandate. You want to go without insurance? Fine. But you’ll be fenced out of the insurance markets if you develop some terrible disease.
That’s a harsh policy, but it’s an explicable one. (Waivers might also undermine community rating for people without a coverage gap, as Matthew Fielder expertly explains. But let that pass for now.) What’s more, the policy responds to a genuine problem: without the individual mandate, and with savage cuts to ACA subsidies, the exchanges will have a hard time attracting healthy enrollees. The 30% continuous-coverage penalty is too small to make a difference. With a waiver, however, the states can pull out the big guns.
If you believe in the MacArthur amendment—if you believe in it so much that that’s what it took to secure your support for the AHCA—the last thing you’d want to do is dilute the penalty for going without coverage. But that’s exactly what the Upton amendment does.
The amendment appropriates $8 billion over five years and gives it to those states that allow insurers to discriminate against people based on their health status. The money must be used “for the purpose of providing assistance to reduce premiums or other out-of-pocket costs of individuals who are subject to an increase in the monthly premium rate for health insurance coverage as a result of [a] waiver.” In other words, the state will offer you some financial assistance when an insurer charges you more because of a preexisting condition.
As a policy matter, this makes no sense. If you think it’s cruel to withhold insurance from people with preexisting conditions, then you should retain the rule banning discrimination on the basis of health status. Instead, the Upton amendment tries to correct a problem that the AHCA itself creates.
And it’s an arbitrary correction. The new money can only go to waiver states, but we don’t know how many states will seek waivers. If only Wyoming gets a waiver, an extra $1.6 billion per year will be enough to fully subsidize coverage for everyone in the state. But if all the states with Republican governors opt for waivers, the $8 billion will dwindle into insignificance. (That’s why Dan Diamond dubbed the amendment “the Michigan morsel.”)
In other words, the degree to which you will be punished for having a lapse in coverage doesn’t turn on a finely calibrated judgment about incentive effects or how much responsibility you should bear for going without insurance. It turns on the number of states that sign up for waivers. In what world is that good policy?
The Upton amendment could even exacerbate the problem it aims to address. By dangling money, the amendment encourages states to sign up for waivers. But if more waivers are granted, more people will be subject to discrimination based on their health status. At the same time, every new waiver means less money for all the other waiver states—meaning less money, per capita, to support those who can’t afford a risk-rated premium. With less financial support, more people will find it impossible to afford insurance. The amendment could thus increase the overall number of people who lose coverage because of their preexisting conditions.
There’s more. Some reporting has suggested that the $8 billion could go toward state high-risk pools. But the amendment’s text is squirrelly about whether that’d be permitted. High-risk pools do offer “assistance” in the abstract. But is it “assistance to reduce premiums or other out-of-pocket costs” for people who are “subject to an increase in the monthly premium rate for health insurance coverage”? The Upton amendment seems to anticipate that states will defray the cost of exchange plans for people with preexisting conditions—not shunt them to a high-risk pool.
If that’s right, the amendment will introduce another layer of complexity to the enrollment process. If you’ve had a gap in coverage, you’ll need to submit a big packet of health information. After reviewing your information, the insurer will then give you a risk-adjusted rate. Only then will the state step in to subsidize your coverage, with the amount of any reduction depending on how many states have signed up for waivers and how many other people in your state also need financial support. Instead of quick and relatively painless on-line process, enrolling for coverage will be intrusive and protracted.
It’s crazy to adjust the basic structure of the American Health Care Act the day before House members are expected to vote for it. It’s crazier still to do so when the change is incoherent, arbitrary, and technically complex.