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The continuous coverage provision in the GOP health plan is a ticking time bomb

President Trump Holds Meeting On Healthcare Photo by Michael Reynolds-Pool/Getty Images

A key policy in the Republican health care plan — one crucial to making the bill work — is shaping up to be a big obstacle to the bill’s success, both in Congress and beyond.

The American Health Care Act includes a “premium surcharge” for Americans who have at least a two-month break in coverage. When those people return to the individual market, they would have to pay premiums 30 percent higher than everybody else.

This provision is meant to replace the requirement that all Americans carry insurance coverage or pay a fee, which the GOP plan repeals. Both are meant to give uninsured people a reason to buy health insurance.

A provision like this is crucial to making any health coverage bill work. Functional insurance markets need healthy enrollees to balance out the costs of the sicker patients.

But the premium surcharge faces an uphill battle that makes it difficult to see how it could survive into the final version of the GOP plan. It faces three big obstacles:

  1. Insurance experts are skeptical it would work. Some think it could have the unintended consequence of discouraging healthy people from buying coverage.
  2. Congressional procedure experts say it could get tossed out of the law due to arcane Senate rules. Republicans will use a procedure called reconciliation, which requires that all policies have a direct effect on the budget. They will need to argue that this provision — where individuals pay a fine to insurers, and the government is not involved — fits the bill.
  3. Voters hate the premium surcharge. We ran focus groups with Obamacare enrollees in late February, and this was consistently the least popular part of the GOP plan. They hated the idea of a penalty that could hit people who simply couldn’t afford coverage.

If anyone of these obstacles sink the premium surcharge, it will be a challenge for Republicans. This is a policy that is integral to making their health plan work. They can’t kill it off quietly, and would need to work quickly to come up with a replacement plan.

Insurance experts are skeptical the premium surcharge will encourage healthy people to buy insurance

The big concern with the continuous coverage provision is that it could have the unintended consequence of discouraging healthy people from buying coverage.

If there is a surcharge for people who have been uninsured and want to buy coverage on the individual market, only people who really need insurance — the people who have high medical costs — might end up paying it. Healthy people who don’t think they’re likely to need help with medical bills might be more comfortable staying out of the individual market for longer, perhaps until they get a job that offers coverage. That could drive up premiums for everybody.

Yuval Levin worried about this particular problem in a recent story for National Review:

It would create a disincentive for everyone who hasn’t been continuously covered to get coverage, by making insurance more expensive for them. But that disincentive would do more to drive away healthy people than sick people, since the added premium is more likely to be worth it to someone who otherwise would have higher costs than to someone just looking to get insurance for a rainy day. It would, in other words, exacerbate the problem it is trying to mitigate.

Health industry consultant Robert Laszewski has raised similar concerns:

The Republicans now want to create a scheme that doesn't require anyone to sign up. But when they get sick enough that they need insurance, they will be able to quickly do so by paying a paltry 12-month 30% premium surcharge.

For example, a person paying $5,000 for health insurance would pay a one-time total $1,500 penalty! A family paying $10,000 in annual premium would pay only a $3,000 penalty for any late enrollment!

Obamacare is so poorly constructed it is literally an anti-selection machine. The Republican proposal is worse.

The individual mandate created a cost to being uninsured. Each year, those without coverage would have to pay the government $695 or 2.5 percent of their income, whichever was greater.

The premium surcharge is different. It penalizes people when they decide to purchase coverage — but not during the time they’re actually uninsured. And that means the policy could play out in ways we don’t fully understand or expect.

“You’re not suffering any consequences for being uninsured beyond not being protected,” says Larry Levitt, vice president of the Kaiser Family Foundation. “It’s only when you decide to buy coverage that you pay a penalty and that could discourage you from signing up.”

Senate procedural rules could force Republicans to drop this provision

Republicans plan to use a process called budget reconciliation to pass AHCA. The process requires all changes to have a direct impact on the federal budget, significantly constraining what can be in the replacement plan.

When the health care overhaul reaches the Senate floor, Democratic senators can challenge provisions they think do not directly relate to the federal budget. The Senate parliamentarian — who oversees Senate procedure — will issue guidance on each policy, and her rulings can be difficult to predict. This is known as a “Byrd bath,” named in honor of former Sen. Robert Byrd, who pushed for the provision in the 1980s.

Republicans will need to make the case that an insurance premium surcharge — paid directly from a consumer to a private company — has a direct effect on the federal budget. Senate procedure experts say that won’t be easy.

"The first question would be what is the score in terms of receipts to the government and the outlays," says Alan Frumin, who served as Senate parliamentarian for 20 years before retiring in 2012. "This seems to be more a question of payments to private entities, so I'm skeptical there is a legitimate budgetary score."

“The penalty goes to the insurance industry, not the government,” says Sarah Binder, an expert on Senate procedure at George Washington University. “On the face, it would seem to be an insurance provision that does not have an immediate impact on the revenues of the government.”

Frumin was quick to add that legislators can often make persuasive arguments that certain provisions really do relate to the budget. It’s possible Republicans could do that for the premium surcharge.

"We know process, and they know substance," he says. "We have to filter substantive proposals through a sieve. We are duty-bound, once we've told them to make their case, to listen to their arguments."

Still, this is one of the provisions that Senate procedure experts have singled out as one of the most difficult to move through the reconciliation process. And that is especially problematic because this isn’t a part of the bill you can simply cut out and move on without. This is a policy integral to making the individual market work.

You can expect the premium surcharge to be pretty unpopular with voters

In late February, I worked with the research firm PerryUndem to run four focus groups with Obamacare enrollees. We explained a lot of the ideas that Republicans wanted to include in their replacement plan.

In each focus group we ran, the premium surcharge idea got the most negative reaction. Trump voters in a focus group we conducted in Harrisburg, Pennsylvania, got hung up on the idea of someone losing their job and suddenly not being able to afford insurance. Why should that person get penalized, they kept asking.

“Life happens, and you may be making $100,000 per year but all of a sudden your company goes out of business and you’re left with nothing, and it’s not your fault that you have the preexisting condition and you don’t have the insurance,” Denby, an unemployed 54-year-old, said of the premium surcharge.

“I don’t like that idea,” Robyn, a 34-year-old dental assistant, said. “Now you’re paying seven times the amount when it’s not your fault you were let go to begin with.”

In a separate focus group we conducted in Virginia Beach, Virginia, a lot of people had questions about how long the break could be. Most of them felt like there should be at least a six-month grace period. This was a group that had experienced spells of uninsurance themselves — and pictured paying the surcharge.

We asked that particular group to raise their hand if they thought this policy, the premium surcharge, was a bad idea. All six hands shot up.

“I don't like it,” Wanda, who is uninsured, 61, and had recently lost her job, said. “I’m one of those people.”

Arnett, a 42-year-old Uber driver, argued that he wouldn’t like anything that penalized people so quickly for not having coverage. “It might take you six months to a year to find a job,” he said. “This just doesn’t sound right.”