Trumpcare: Health Insurance Companies Should Oppose It

(Bloomberg Gadfly) -- The reviews of the House Republican plan to replace Obamacare are in, and the Tomatometer reads zero. 

In addition to policy luminaries on both sides of the political aisle -- Democrats, conservative lobbying groups, and rogue members of the Republican party itself -- the nation's largest doctor and hospital groups have arrayed themselves against the bill. 

Notably absent so far? AHIP, the trade association for the nation's health insurers. (Update: AHIP released a letter late Tuesday afternoon objecting to portions of the law.) Their relationship status with the bill is complicated. 

The bill does include some changes that will save members money. But the group needs to oppose it, and strongly. Any benefit of the law will be more than wiped out by the disruption to insurance markets the bill will cause, along with the legislation's many flaws.  

Insurers do get a huge tax cut in the GOP plan, in the range of $145 billion over a decade. The bill would make more of their executive compensation deductible. They will be able to charge older people more for insurance, and offer less-expensive plans that may bring younger Americans into insurance markets. In the future they may be able to offer leaner and more flexible plans than they can under the Affordable Care Act. Insurers that provide employer insurance or administer Medicare plans may benefit, to some extent. 

But a lot of the most expensive regulations for insurers, such as the prohibition on lifetime/annual spending limits, out-of-pocket cost caps, and guaranteed coverage of people with preexisting conditions, are set to remain.  

As a general rule, health insurers want more people to buy health insurance. Trumpcare, as currently constituted, is set to encourage the opposite. 

The bill will end the ACA's Medicaid expansion over time. It will substantially cut funding for the program, on which a number of AHIP members rely. And while it replaces Obamacare's subsidies with tax credits, those are based on age rather than income. They also don't account for geographic variance in health-care premiums. And they would render insurance unaffordable for many older and low-income Americans.

A (very) preliminary analysishave suggested

Why? On top of Medicaid cuts, a 60-year-old in Pinal County, Arizona, making $20,000 a year would get $12,000 less in tax credits under this bill than under Obamacare, according to a Kaiser Family Foundation analysis. Because insurers would be able to charge older Americans more under the GOP bill, those patients would also likely face a substantially higher premium than they currently do. 

And while insurers have had difficulties in the ACA's individual exchange market and some have left, meager tax credits and the repeal of the individual insurance mandate won't fix things. The mandate tried to keep costs down and the insurance population balanced between healthy and sick people by requiring that everyone buy insurance.

The Republican alternative nixes that and instead lets insurers charge 30 percent higher premiums for a 12-month period to people who don't maintain continuous coverage. That will likely have the opposite effect of what's intended: Healthy people won't want to pay the penalty, and sick people will be the only ones willing to do so. Over time, this could create a "death spiral" of escalating premiums and medical costs.

For insurers, no tax cut is worth this degree of uncertainty and lost business. Lucky for them, the bill is highly unlikely to pass. But their opposition would be an extra stake in its heart. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

To contact the author of this story: Max Nisen in New York at mnisen@bloomberg.net.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.