With the reveal of the American Health Care Act (AHCA) on Monday evening, Republican authors claim to have killed the “individual mandate”—the requirement that everyone who chooses not to purchase insurance pay a $695 annual penalty.
It’s true that the words “individual mandate” appear nowhere in the bill. So, since insurance works when many people—ideally all of them—buy in, how does the bill get young, healthy people to buy insurance instead of rolling the dice?
This is where the very important “continuous-coverage incentive” comes in, under Section 133. This is really a penalty for anyone who goes without insurance for 63 days. (Why the number is 63 is unclear to me.)
“The continuous coverage incentive is designed to limit adverse selection in health-care markets,” the House summary reads. Anyone who goes without health coverage for any reason has to pay “a flat 30-percent late-enrollment surcharge on top of their base premium” for the next year.
This is a one-time fee: The “surcharge” is the same whether you’re uninsured for 64 days or 64 years. It’s like once you’ve decided to park illegally and know you’re going to get a ticket, you might as well stay a while.
Avoiding the word “penalty” doesn’t make this not a penalty. And when there is a penalty for people without insurance, a person could reasonably say that insurance is “mandatory.” For individuals.
Semantics aside, this new approach to a mandate poses serious challenges to the viability of the law. Attempting to get rid of the much-maligned mandate—while keeping the much-loved provision where insurance companies cannot discriminate based on “preexisting conditions”—has created an untenable tension.
When people without insurance are penalized for buying—instead of being penalized for not buying, as is currently the case—that creates a perverse incentive. Once you’re off the wagon, there’s no financial incentive to get back on until you have to.
And instead of that penalty going to the government, now it would go to private insurance corporations, and it could be more than $695. As Senator Rand Paul put it bluntly on twitter this morning, “[The AHCA] keeps individual mandate but makes you pay the insurance companies instead of the government.”
This transfer of power and wealth from elected officials to insurance companies pervades the new bill. Seth Chandler, a professor at the University of Houston Law Center, notes that the continuous-care incentive actually “forces insurers to charge extra even to people who are, in fact, perfectly healthy, and even if the insurer does not see a need to do so.”
If human behavior under the Affordable Care Act and the rest of history is any indication, many people will wait to purchase insurance because they “aren’t sick.” They are young and invincible, the exception to the rule. Taking a chance and remaining uninsured has always been potentially dangerous, but the AHCA could make it more appealing to do so. Having such people remain outside the insurance pool would raise costs for everyone else. When people remain outside the health-care system until they are older and sicker, the practice of medicine changes from preventive to reactive. It becomes more difficult for doctors to keep people healthy and raises costs across the board.
Of course, the other alternative is that the new penalty (“surcharge”) is significant enough to make people “choose” to always buy health insurance. In which case, it’s a mandate for individuals.