Senate Republicans released their health bill on Thursday, and they do two things that try to appease the people’s will.
They keep one of the most popular parts of Obamacare, which is the ban on preexisting conditions. No matter how sick you are, insurance companies need to accept you.
And they get rid of one of the most unpopular parts of Obamacare — the individual mandate, which fines people who don’t have health insurance. This is the provision that keeps healthy people in the insurance pool, ensuring that costs stay low. The House Republican bill tried to do this with its “continuous coverage” requirement, which says that if you go without coverage for more than 63 days, you'll have to pay a 30 percent higher premium for one year to get back in.
But Senate Republicans don’t have any such provision, and this could lead the insurance market into a death spiral.
To understand why, let’s first go through how Obamacare works.
How Obamacare works
Imagine a group of people, ranging from healthy to sick:
Obamacare forces insurance companies to accept all these people, regardless of any preexisting conditions. So this raises costs for everyone — including healthy people.
Here’s how Obamacare deals with that. Keep track of those gauges on the top right of each panel that say how sick the pool is and how much insurance costs:
In short, it incentivizes healthy people to stay in the pool by a) giving subsidies based on income, and b) fining people for not having insurance.
The Senate Republicans got rid of the unpopular part, and this could lead to a death spiral
The Senate Republican bill gets rid of the individual mandate, and it doesn’t replace it with any incentive for healthy people to stay insured.
Here’s what could happen:
The House Republicans had a provision to replace the unpopular part
House Republicans had a few things in their bill to keep healthy people in the market and prevent a death spiral:
In order to keep costs reasonable, you need healthy people to stay in the pool.
The way House Republicans wanted to do this is: a) give you a subsidy, based on age. The older you are, the more you get. And b) if you leave the pool, you are punished for coming back, in the form of higher premiums for one year.
So what happens in a death spiral?
Let’s go back to this panel:
When healthy people leave the pool, it means the average cost for everyone goes up.
One way to incentivize people to buy insurance is to give them money to subsidize the costs. But even then, a substantial number of healthy people might decide it’s not worth it — and still decide to leave. That would make costs rise for everyone, and then slightly less healthy people might decide it’s not worth it and leave, which further increases costs for everyone.
And so on and so forth. That’s the death spiral.
That’s why Obamacare penalized people for not having coverage. It’s trying to make healthy people decide that having coverage is better than paying a penalty.
But in this bill, there’s nothing that replaces that part. There’s nothing that keep healthy people in the pool, which means costs could rise until only the sickest people keep coverage.