During Paul Ryan’s health-care “TED talk” on Thursday, in which the House speaker attempted to sell the public on the GOP Obamacare replacement plan through Powerpoint slides, there was one moment that prompted many a double-take on Twitter.
“The idea of Obamacare is … that the people who are healthy pay for the people who are sick,” Ryan said. “It’s not working, and that’s why it’s in a death spiral.”
First, most would argue Obamacare is not in a death spiral.
Second, the payment model Ryan described—cross-subsidization between healthy and sick people— is how almost all insurance schemes work, as was pointed out repeatedly by health wonks on Thursday afternoon:
Paul Ryan says insurance can’t work if healthy must pay more to subsidize the sick. But this is exactly what happens in every employer plan.— Jonathan Cohn (@CitizenCohn) March 9, 2017
Ryan represents the “sick” people in his model with a small red triangle that looks to be about an eighth of the population. He calls them “people with pre-existing conditions.” But, according to the Kaiser Family Foundation, more than a quarter of Americans have pre-existing conditions that would make them uninsurable. So the red triangle either should be much larger, or it doesn’t represent what Ryan says it does.
The solution, to Ryan, is to separate out sick people, the red-triangle people, and have states take care of them separately. The GOP health-care bill, the American Health Care Act, would give states $100 billion over 10 years in order to help them deal with the cost of these “high-risk” people. They could set up high-risk pools, or separate insurance plans for sick people, or they might use reinsurance, in which the federal government pays insurers back for their very costly customers.
Brendan Buck, Ryan’s counselor, said on Twitter that what Ryan actually meant was that not enough young, healthy people were signing up for Obamacare.
Why is this so hard. He's saying the mix is trending in the wrong direction. The mix of the pool matters if it's going to be sustainable. https://t.co/zG21fPvyLx— Brendan Buck (@BrendanBuck) March 9, 2017
And this might be true, but many health experts doubt that segregating people into high-risk pools is the best remedy.
There’s nothing inherently wrong with high-risk pools, but they have to be adequately funded in order to work properly because the people in them are so expensive to care for. Many states had high-risk pools before Obamacare was enacted, but they charged much higher premiums than normal and excluded coverage for certain services. The federal government also had a high-risk pool temporarily, but it grew too expensive and had to cap enrollment. According to some estimates, the $10 billion a year allocated in the AHCA would still not be enough.
What’s more, the money to adequately fund the high-risk pools would have to come from taxes, says Josh Bivens, the director of research at the Economic Policy Institute. In other words, even then, the sick people would be cross-subsidized by the healthy people.
“I don’t care if the cross-subsidy comes from taxes that go into a state stabilization fund for high-risk pools, or if that means the premium that I have to pay is higher,” Bivens said. “If we are seriously going to take care of the high-risk people, we are going to pay either way.”
And if states opt to go with reinsurance programs, instead of high-risk pools, the same general principle would apply—though the transfer from healthy to sick would be less pronounced, since premiums would go down for everyone. (Obamacare included a similar provision, but conservatives dismissed it as an “industry bailout.”) As the Kaiser Family Foundation’s Larry Levitt points out, “reinsurance is a form of cross-subsidization, in that taxpayers are covering the cost of people with high health costs, lowering premiums for everyone in the insurance pool.”
That’s the problem with insurance: At some point, we all end up paying for someone sicker than ourselves. Until, that is, one day we get sick.