How Obamacare Hurts Millions Of Americans By Robbing Peter To Pay For Paul

Scott Ehrlich:

In my prior article, I tried to outline the pre-existing condition issue. I concluded the amount of people potentially affected by this issue ranged somewhere between 500,000 and 1.9 million and, due to political reasons, it is much likelier to be on the lower end of that spectrum.

So for this article, I will use 1 million people as my number. Based on this data from Avalere, it’s a pretty sensible estimate, if you only count states that are solely Republican-run and therefore likely to seek a waiver.

This 1 million people are adults covered by the individual market, at the moment largely through the federal exchanges. People on group insurance are not affected by pre-existing conditions laws, as those plans do not do individual underwriting. People in government insurance such as Medicaid, Medicare, and Tri-Care are guaranteed issue upon meeting certain conditions. Children under 19 who aren’t covered by Medicaid are covered by the Children’s Health Insurance Program, which has no pre-existing condition exclusions. Futher, people in Maine, Massachusetts, New Jersey, New York, Vermont, and Washington have state laws that mandate guaranteed issue.

So our at-risk people are made up of the remaining 7 million or so people in the other 45 states who choose to self-insure, have pre-existing conditions that stop them from getting insurance, have states granted waivers under the American Health Care Act (AHCA, if it passes Congress in its current form), and have failed to keep continuous coverage.

Assuming your eyes glazed over a quarter of a way through that sentence, that shows just how many safety nets one has to fall through to be at risk of being denied coverage at the market rate, or any rate, for pre-existing conditions. Recall that just because someone has a pre-existing condition or is denied by an insurance company for one, doesn’t mean he will be denied by all. So that is why my numbers are lower than many others being reported.

Let’s Pin Down How Much These Folks’ Health Care Costs

So let’s go with that 1 million number, which is still a lot of people needing help. What can we do with them? That is the challenge. When enrolling a random assortment of 1 million Americans in a pool, theoretically about 27 percent could have some sort of ailment requiring immediate treatment. Depending on the mix of other people, it’s possible to make that pool actuarily sound.

But high-risk pools don’t work that way. In that pool, 100 percent of enrollees have pre-existing conditions. Therefore, it’s impossible to provide them insurance and keep a stable pool. You can’t insure someone for a condition he already has any more than you can insure a house that is already on fire or a car that has already crashed. There is no ability to pool risk.

So this group of people is very expensive to cover, as they are already sick and use a lot of health care. Average costs in the PCIP federal high-risk pool, the one the Affordable Care Act set up as a bridge to the exchanges, averaged more than $32,000 per enrollee per year. Based on those numbers, at 1 million enrollees, we’d be looking at more than $32 billion annually in costs for high-risk people. That $8 billion that got Rep. Fred Upton to vote yes on House Republicans’ Obamacare tweaks? That would cover only three months of expenses at full enrollment.

If the entire amount appropriated in AHCA were applied to pre-existing conditions, a whopping $123 billion, we’d only have enough to make it through four years if that cost were accurate.

Luckily, That Cost Is Likely Overstated

Reading deeper into the report, you find that, fortunately, it may not be. Not all people with pre-existing conditions are created equally: “4.4 percent of PCIP enrollees accounted for over 50 percent of claims paid, while approximately two-thirds of enrollees experienced $5,000 or less in claims paid over the same period.” So while Avalere used the $32,000 figure, it probably vastly overstates the cost of a program like this. That’s because the people most likely to have been enrolled in PCIP would be the sickest, who need the most care immediately.

Someone with early-stage diabetes with no side effects, like myself, who may currently be tough to insure may ignore a high-risk pool like this since it costs more than I spend on treatment, while someone with advanced cancer requiring frequent doctor visits, expensive medication, and consistent chemotherapy would seek something like this out. Therefore, if the pool of 115,000 enrollees in PCIP were expanded to the 1 million people who have pre-existing conditions but couldn’t be insured, we’d likely see many more costing about $5,000 per year than the ones costing $100,000 and up.

Therefore, I prefer the number $12,000 as the cost per additional enrollee. This uses the average benefit used by a person enrolled in Medicare based on the total benefits paid divided by the total people covered. Since these people are older, sicker, or disabled and have high health utilization, I think it makes a good proxy for the sort of person likely to seek a high-risk pool who would not have jumped at the opportunity to sign up for PCIP.

Adding 900,000 people at that cost to the 100,000 people at $32,000 in PCIP gives us a total annual cost of $14 billion. That means if people in these pools were to cover about 10 percent of their own health-care expenses, the money AHCA appropriates could cover the entire affected population of the high-risk pools for the entire 10-year budget window.

This Is Still a Lot of Money

So now we’ve seen the numbers. About a million people may need help. Pooling them with the healthy has real costs to a lot of people to help a few. But we have decided as a society that we can’t just let those few suffer. Yet helping pay for their care will be staggeringly expensive. Even in my example, with this smaller pool and smaller assumed costs, we would burn through the entire pool of $123 billion in a decade. These people will still need help at the end of that decade. How do we take care of our sick population into the 2030s without busting our budget?

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