Tuesday, July 17, 2012

The Insurance Industry Will Want a Fix, Not Repeal

Randy Barnett was ahead of the game when he invented the "action vs. inaction" distinction that almost took down the Affordable Care Act, but he's a bit slow when it comes to picking up the fanciful idea that if people think of the penalty for not buying insurance as a "tax", they'll be less likely to buy insurance than if they think it's a penalty. Even if nothing else changes.

Let's imagine that its... 2016? 2020? Something like that. We now have millions of people signed up for insurance through exchanges, or through individual policies that insurance companies can't refuse to to their pre-existing conditions. And let's imagine that the penalty for non-compliance is set at a level that's not inspiring enough people to sign up for insurance before they're actually sick. What's a poor insurance company to do.... I mean, other than raise their rates, which would be a pretty obvious response to increased costs.

But let's assume that Congress, faced with a choice between finding a way to increase the incentive to buy insurance and repealing the provisions that allow people with pre-existing medical conditions to obtain health insurance. Does Barnett imagine that Congress is going to allow insurance companies to dump clients who signed up for insurance because of their pre-existing conditions? That doesn't seem likely but, even if you say they don't have to accept new clients with pre-existing conditions, if you don't allow insurance companies to retroactively dump those clients their short-term financial position won't improve. And if things are so bad that the insurance companies can't sustain their profits, they won't be satisfied with, "Wait a few years, it will balance out in the end."

For that matter, why does Barnett believe insurance companies would want to dump expensive clients if they have another option - a way to keep those clients and maintain their profits? The goal of the insurance company, after all, is to make profits, and they will be very focused on the 80%/20% loss ratio. Getting rid of a client that has $800,000.00 in medical bills could cost them $200,000 toward overhead and profits. (Ain't free market capitalism grand? Or at some point are we going to admit how distorted and twisted the health insurance and healthcare markets have become?)

So really, Barnett should not be anticipating that insurance companies will clamor for repeal, any more than they wanted Medicare Advantage repealed when they couldn't compete as equals with the government. They will much more likely want an improved sanction for the non-purchase of insurance or, even better, a subsidy. Because, yay, free markets and all that.

I'm still of the position that Roberts' ruling will have no meaningful impact on how people respond to the mandate. I'll grant that with enough anti-mandate demagoguery more people may "opt out" than if they weren't actively being urged to do so by people who want to damage the ACA and its implementation, but that won't be because Roberts called the mandate a "tax". But really, once the ACA is firmly in place, even Republicans will be looking not to repeal it, but to fix it.

In fact, that's been their fear from day one.

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