Bailouts Won’t Fix Obamacare’s Fundamental Flaws

Senate Republicans are complaining about Obamacare again. But this time, they’re upset that the federal government isn’t spending enough money to prop up the health law’s insurance exchanges.

Over a dozen GOP senators, nearly all of whom repeatedly campaigned on repealing and replacing Obamacare, tried to include a $60 billion bailout for exchange insurers in the recent omnibus spending bill.  The bailout was ultimately stripped from the bill because Democrats and Republicans couldn’t agree on language to prevent the funds from subsidizing abortions.

But the GOP’s efforts to shore up Obamacare are disgraceful. Premiums on the exchanges are soaring because of the health law’s onerous mandates and regulations. Throwing more taxpayer dollars at the exchanges won’t fix this fundamental problem.

The bailout package, championed by Sens. Susan Collins, R-Maine, and Lamar Alexander, R-Tenn., would have provided states with about $30 billion over the next three years to establish “reinsurance” programs for their exchanges. In essence, states would reimburse insurers for claims submitted by the highest-cost exchange enrollees. Private insurers would profit off the healthiest enrollees, while taxpayers would be stuck with the tab for the sickest ones.

The goal of the reinsurance program is to minimize insurers’ losses on extremely sick individuals — and thereby enable them to offer lower premiums to the general population.

The bailout would have also provided funds for “cost-sharing reduction” subsidies. Obamacare requires insurers to reduce co-pays and deductibles for mid-level “Silver” plan enrollees who earn less than 250% of the poverty level, or $62,750 for a family of four.  This mandate causes insurers to lose money.

Congress never appropriated money to cover these CSR subsidies, but the Obama administration made the payments to insurers anyway. In 2017, the subsidies were projected to cost about $7 billion. Last fall, President Trump cut off those CSR payments. The bailout would have restored them for three years.

But nothing in the bailout package would have fundamentally changed the regulations that have caused premiums to skyrocket.

Obamacare’s “guaranteed issue” mandate forces insurers to sell plans to all customers — even sick ones they’re guaranteed to lose money covering.  The “community rating” mandate prohibits insurers from charging sick patients more than healthy ones — and forbids them from charging old people any more than three times what they charge younger ones.

Obamacare also made it illegal to sell health plans that don’t cover a long list of “essential health benefits,” which include everything from pediatric eye care to psychotherapy.  Patients who don’t want such generous benefits — and would prefer a cheaper, less comprehensive plan — no longer have that choice.

These regulations are the main reason double-digit — and sometimes triple-digit — premium hikes have become the norm. Average 2017 rates on the federally administered exchange were more than double average individual-market rates in 2013, the year before the marketplaces opened.

More pain is in store for enrollees. Next year, premiums could jump as much as 32%, according to an analysis released this March by California’s exchange, Covered California.

Despite hiking premiums repeatedly, insurers have lost hundreds of millions of dollars on the exchanges. Many have scaled back their exchange offerings or abandoned the marketplaces entirely.

The Trump administration is trying to offer relief to consumers. Earlier this year, the administration proposed a rule to expand access to short-term health plans. These policies aren’t subject to Obamacare’s mandates, so they’re much more affordable.

The administration’s proposal would enable people to use short-term plans for up to 364 days. That would provide Americans with a welcome escape from sky-high premiums on the exchanges.

However, short-term plans aren’t appropriate for all consumers. There’s a limit to how much of Obamacare the administration can roll back via executive action. Only Congress has the power to scrap major portions of the law.

GOP lawmakers won in 2014 and 2016 by promising to make health insurance affordable again. Fulfilling that promise has never been more important. According to a recent Gallup poll, the “availability and affordability of health care” is Americans’ number-one concern, with more than half of respondents saying they worry about it “a great deal.”

If Republicans are serious about addressing voters’ concerns, they should stop trying to bail out Obamacare and recommit themselves to repealing the law.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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