The CBO Thinks the Individual Market Will Remain Stable. I’m Not So Sure.

I’ve been warning for a while that the Republican health care bill could end up destroying the individual market completely. It turns out, however, that the Congressional Budget Office isn’t all that concerned. Jordan Weissmann explains:

There are basically two reasons why: First, the Republican plan would nudge a lot of old, costly customers off insurers’ rolls. Second, it would fork over a lot of government money to make sure carriers don’t lose too much on the extremely sick.

Trumpcare is designed to lower the cost of insurance for young adults while increasing it for older Americans….As a result, the CBO essentially thinks a lot of 60-year-olds will get priced out and replaced by younger customers lured by cheap coverage. The result is a smaller, healthier, more profitable customer base. The Republican proposal would also give states billions of dollars each year for “stabilization funds”—which they could use to compensate insurers for the cost of covering particularly ill customers.

….It’s not an absurd theory of the case. But it is a depressing one. Congress’s official forecaster thinks that Trumpcare would create a steady market where insurers are happy to sell coverage by making it unaffordable for the older Americans who need help most, while supplementing the system with government cash.

Well…maybe. But Obamacare had stabilization funds too, so that’s not really a difference. The big differences boil down to:

  • On the plus side: old people get priced out of the market.
  • On the negative side: old sick people will do whatever they have to in order to remain insured. Basically, this means they’ll end up with a lot of financial stress, while old healthy people will skip health insurance and end up with a lot of medical stress. That’s quite the win-win for Republicans, isn’t it?

So I’m still skeptical. The Republican plan creates a health care market that forces insurers to cover everyone at the same price—even the very sick—but doesn’t provide much incentive for healthy people to get coverage. Lowering premiums by a few hundred dollars for young people won’t prod them to buy insurance if an $800 penalty didn’t do the job.

It’s really hard to see how this stays stable. CBO may think that a lot of us oldsters will get priced out of the market, but speaking as an oldster with a $100,000 annual medical bill, there’s literally nothing that would stop me from buying insurance. If I were in the individual market and my premium skyrocketed from $5,000 to $15,000, I’d still find a way to stay covered. Even at the higher price it’s $85,000 cheaper than going without, and the other alternative is to die. That’s a pretty big incentive.

Obviously there are folks at the margins for whom the incentives are different. But if I were a health insurance company, I’d be very, very skeptical about the continued viability of the individual market under the Republican plan.