Pre-Existing Conditions Provisions in the AHCA
- Under the American Health Care Act, no one will be denied coverage because of a pre-existing condition.
- No one who keeps their insurance continuously will be charged more because they are sick or get sick. Only people who avoid purchasing coverage until they need it will be charged more, and the higher premiums are only allowed to last for one year.
- The bill provides up to $123 billion for states to offset the higher costs these people face.
Democrats have been flooding the airwaves with Pinocchio-worthy claims about the American Health Care Act that passed the House last week. Some of the most misleading have to do with how the bill deals with people who have pre-existing health conditions. Democrats sowing misunderstanding on this subject helped propel Obamacare to passage in 2010. It should not be what prevents us from repealing Obamacare in 2017.
Obamacare’s sweeping Response to a specific problem
When Obamacare was being debated, President Obama made sweeping claims that as many as 129 million people had pre-existing conditions. He promised that his law would offer them new protections. Democrats’ solution was new Washington-mandated insurance requirements and an individual mandate.
In reality, the number of people who were denied health insurance because they were sick was far smaller than what Obamacare’s supporters claimed – then and now. Obamacare set up a subsidized high-risk pool, called the Pre-existing Condition Insurance Plan, before the law was fully implemented. Only 134,708 people enrolled from July 2010 to January 2014.
Prior to Obamacare, in the employer group market – where about 90 percent of Americans with private health insurance get their health coverage, there were reasonable rules limiting the application and duration of pre-existing condition exclusions. For those with employer coverage, a pre-existing condition exclusion could only be imposed if a person had less than 12 months of prior coverage; and any coverage exclusion could not last more than 12 months – or 18 months if the person did not enroll in an employer plan when he or she was first eligible.
Instead of implementing similar regulations to govern the individual market – where people could still be denied coverage – Obamacare created sweeping new insurance rules. These included regulations like “guaranteed issue,” “community rating,” and the individual mandate. Now, insurers are prohibited from applying exclusions for people with pre-existing conditions under any circumstance. If people wait to sign up for coverage until they are sick, Obamacare prohibits insurance companies from charging them higher premiums.
Under these Obamacare rules, there is an incentive for healthy people to wait to get coverage until they are sick. If insurers only cover sick people, premiums dramatically increase. To offset this, Obamacare included the controversial individual mandate, to force healthy people to buy coverage. We now know that this mandate penalty has not worked very well. A lot of healthy people have decided they would rather pay the IRS a penalty than buy Obamacare coverage. For 2015, 6.5 million people paid the individual mandate penalty. Another 12.7 million claimed one of the various exemptions from paying the penalty. This is one big reason for Obamacare’s current dilapidated state, with premiums increasing and coverage options decreasing.
The American Health Care Act
The House’s health care bill tries to fix this problem. First, the bill repeals Obamacare’s individual mandate by making the penalty zero. The bill retains the guaranteed issue rule that requires insurers to offer a policy to all applicants. It also retains Obamacare’s community rating, meaning insurers can charge higher premiums based on ZIP code and age but not health condition.
To encourage people to buy insurance without a mandate, the House bill includes a 30 percent penalty on anyone who does not maintain health coverage. If, over the previous 12 months, someone looking to buy insurance had a coverage lapse greater than 63 days, the insurer will charge them their community-rated premium plus 30 percent. This 30 percent penalty can only be applied to their premiums for the following 12 months. People have an incentive to sign up for coverage before they are sick. The penalty is aimed at people who try to game the system by avoiding the premiums when they are healthy and only signing up for coverage when they need it.
In addition, a state may obtain a waiver from the continuous coverage penalty. Instead, it can allow insurers in the state to charge more for people without continuous coverage, based on their health status. This type of insurance premium rating was in place in most states prior to 2014, when Obamacare was first implemented. Under the House bill, a state may only exercise this option if it participates in one of several types of risk programs. The bill provides money to states to offset the cost of caring for these people.
Neither of these policies would take effect until after the 2018 open enrollment period. Everyone would have the opportunity to purchase health coverage for 2018 without any penalty.
In addition, the House bill includes a new tax credit to offset the cost of premiums for those who buy coverage in the individual market. The bill also gives states $23 billion – $15 billion for the Federal Invisible Risk Sharing Program and $8 billion for states that obtain a waiver – specifically to offset the cost of caring for high-cost patients. There is another $100 billion that states can also use for this purpose, including:
- Financially helping high-risk people in the individual market to get health coverage
- Providing incentives to appropriate entities to enter into arrangements with the state to help stabilize premiums in the individual market
- Reducing the cost of providing health insurance to high-cost users in the individual and small group markets
- Providing payments, directly or indirectly, to health care providers for services specified by the administrator
- Providing assistance to reduce out-of-pocket costs for people enrolled in health insurance
Under no circumstance will anyone be denied health insurance coverage under the reforms in the House bill. People who choose to enjoy the benefits of health insurance coverage, and who buy and keep coverage, will never be charged more because of their health condition. People who try to game the system – by avoiding paying into it while they are healthy and then seek coverage only when they need it – can be charged more to compensate for their high costs. Even for the “game-players,” the penalty only lasts one year, and it can be mitigated by tax credits and billions of dollars granted to the states.
Under Obamacare, the uninsured can be required to pay an individual mandate penalty of $695 or 2.5 percent of income a year, whichever is greater – up to $2,085 per family. Obamacare’s penalty is assessed each year someone remains uninsured. Under the House bill, the 30 percent premium increase or health status rating can only last 12 months once a person gets insurance.
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