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Atoning For Obamacare’s Original Sin

Human logo on a display, with then-Deputy Secretary of Labor Chris Lu
photo courtesy the U.S. Department of Labor

It took a full eight years for Democrats to create the mess widely known as Obamacare, from the ideological rush at the peak of the Pelosi-Reid Congress to last week, when Humana became the first major insurer to completely abandon the law’s consumer exchanges.

Judging from the barrage of partisan emails I receive from Democrats (because of my past support of a friend who sits in the Senate), you would think Republicans are guilty of gross dereliction of duty for not having cleaned up the wreckage in the four weeks or so since President Trump was sworn in. It is true that, as yet, there is no GOP consensus on what would follow repeal of the Affordable Care Act – and how could there be, when until just recently Democrats stalled the confirmation of Tom Price, the administration official tapped to lead the overhaul effort. Despite this, the administration made a constructive start by announcing a set of policies meant to dissuade insurers from pell-mell flight before a replacement system can get up and running.

Yet Republicans are not aiming directly at the correct target. The Affordable Care Act’s original sin – the flaw that makes it irredeemable in its current form – is the idea that anyone should be able to sign up for health insurance at almost any time, regardless of pre-existing conditions. It really doesn’t matter if the annual sign-up period is strictly enforced, as the current administration is hinting will be the case going forward, or if it is riddled with exemptions, as in the current implementation.

Insurance companies recognize that the proposed rules, while helpful, will not be enough. Mark Bertolini, the chief executive officer of Aetna Inc., called them “good initial steps,” noting that Aetna has not yet decided about its participation in the exchanges for 2018. But insurers were also quick to point out that Congress and the Trump administration have not yet addressed the individual mandate and the reality of a lopsided “risk pool” that includes a disproportionate number of sick policyholders.

The fundamental problem with the Affordable Care Act is that the law lets people wait until something bad happens, and then obtain insurance to make someone else pay. We don’t permit this behavior with life insurance, or disability insurance, or fire insurance, or any other type of insurance, for the simple reason that this is not “insurance” at all. Insurance involves a conscious decision to share risk and the associated costs. After-the-fact coverage permits the shirking of both risk and its cost at the same time. This model doesn’t work because it can’t work.

But there is a route out of the problem that the Affordable Care Act created, and taking it would provide the best possible encouragement to insurers to remain in the program during a transition period. At the earliest possible moment, Congress and the administration should make clear that under the Affordable Care Act’s replacement, anyone who signs up in 2017 for coverage in 2018 (and anyone who is born or otherwise first becomes eligible for coverage in 2018) will be able to renew their coverage in 2019 and indefinitely thereafter. Instead of offering an incentive to game the system by waiting to get coverage, the government would provide a powerful reason for even healthy people to sign up for coverage in 2018, in order to ensure they can still be covered in later years.

Of course, not everyone will sign up, even with such an incentive. Obamacare’s original sin grew out of a fundamental misreading of the uninsured population and how to induce “universal coverage.” Democrats and insurers fooled themselves into thinking that everyone would have health insurance if it was made available to them. In fact, there were two groups of uninsured people when the law was signed in 2010. One was those who were already sick and could not get coverage; they were thrilled that the Affordable Care Act gave them a retroactive benefit while shifting much of the cost elsewhere.

The other group, around 20 million judging from what has happened since, were people who might have taken coverage if it were free (which is how millions obtained coverage through expanded Medicaid) but were unwilling or unable to pay for it, especially at artificially inflated prices to cover those who were already older or sicker than themselves. These are the voluntarily uninsured. Their participation was both essential and assumed by the law’s advocates, but they have stayed away by the tens of millions.

The goal should be to draw these people into the system. Changing from “guaranteed issue” to “guaranteed renewability” would be an excellent way to do this. Still, not everyone will sign up, just as not everyone who ought to buy any other form of insurance will choose to do so. But guaranteeing renewability in case of a future health crisis or the development of a chronic condition would be a powerful motivator to secure insurance while one is healthy, in order to make sure it is accessible to deal with illness or injury later.

The mess that took eight years for the Affordable Care Act to accomplish will not be fixed in eight weeks, or even eight months. Whatever follows will not be perfect, either, because humans don’t do anything perfectly. But there is a lot of room for improvement, and that is what we can and should expect. Recognizing and atoning for Obamacare’s original sin would be a great way to begin.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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