Can a Three-Legged Stool Stand on One Leg?

As Republicans in Congress twist themselves into knots over what to do about the Affordable Care Act (ACA), I thought it would be useful to go back to basics about the pillars of the law.  Contrary to the mythology perpetuated by many ACA opponents, it's not just a slapdash collection of requirements designed to boost government authority and crush individual freedom.  It actually was constructed in a logical fashion that addresses the reality of how insurance works.

Meet the proverbial "three legged stool."

The first leg is based on one of the most popular provisions of the law, one that even ACA critics have pledged to retain:  the prohibition against denying coverage or charging more to those with pre-existing conditions.  In insurance jargon this is known as "guaranteed issue."

Before the ACA, companies that provided insurance in the non-group (i.e., non-employer) market were free to pick and choose their customers.  Consumers who were considered high risk and likely to incur substantial costs (or sometimes not so substantial) could be denied coverage or charged more.  Sometimes they would be offered insurance that excluded coverage of their condition.  Illnesses that could block someone from coverage ranged from the serious (e.g., cancer or heart disease) to the commonplace (e.g., acne or asthma).

The ACA's prohibition on discrimination against the sick appeals to people's sense of fairness.  But it puts insurance companies at great risk.  If an insurer must sell a plan to anyone who applies, what's to stop a consumer from waiting to get sick or injured before buying a policy?  Companies that sell homeowners insurance can't survive if they allow customers to buy policies while their houses are on fire.  Likewise, health insurers can't afford to sell policies to people who buy them from the back of an ambulance. 

So, the second leg of the stool is a mechanism to compel people to buy insurance while they're healthy.  In the case of the ACA, it's the individual mandate.  It means that with some exceptions, everyone must buy a health insurance policy or pay a fine.

The mandate is the least popular part of the law.  Opponents point to it as the provision that most represents government overreach and an attack on personal freedom.  Nobody likes the government telling them what to do.  But if we want guaranteed issue, we must have healthy people in the insurance risk pool.  So the ACA includes a mandate.

But the mandate creates another problem. Health care is expensive, so health insurance is expensive.  The mandate requires that nearly everyone purchase a product that very few people can afford.

So, we have the third leg of the stool:  financial assistance, in the form of tax credits and subsidies, to help people buy insurance.  This financial assistance requires hundreds of millions of federal dollars and is the primary reason for the high cost of the ACA.  As a result, it too is unpopular with the public.

Faced with a law that includes both popular and unpopular provisions, President-elect Trump and many in Congress have promised to keep the good parts and get rid of the rest.  But that would leave the three-legged stool with only one leg.  And even ACA opponents know that such a stool is a couple of legs short.

As a result, every policy proposal that includes guaranteed issue, including those floated by Congressional Republicans, also includes a form of mandate and some level of financial assistance (I'll write about the details of these proposals in a future post).  They may not be Obamacare, but they're Obamacare-lite.

Because you can't repeal reality.