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Replacing ObamaCare: Pre-existing Condition Pools

Of all the health care issues facing policymakers, the “pre-existing conditions problem” may be the most difficult to solve. What are pre-existing conditions? They’re simply long-term ailments that make it more difficult or expensive to purchase health insurance.

Why do pre-existing conditions have that effect? Consider it from the perspective of the insurance company: An applicant with type 2 diabetes will likely require significantly more medical care than an applicant without any such pre-existing condition. Therefore, in order to avoid losing money in the exchange, the insurance company must charge that applicant a higher premium than those without pre-existing conditions.

For the vast majority of Americans, pre-existing conditions are not a problem. Either they don’t have a long-term ailment of this nature, or they’re covered under their employer’s health plan, which usually provides coverage regardless of pre-existing conditions. Only about one percent of Americans under the age of 65 face difficulties as a result of pre-existing conditions.

Still, solving the pre-existing conditions problem was one of the major justifications for ObamaCare. President Obama proposed to “solve” the problem with two new government mandates on insurance companies: guaranteed issue and community rating. The first requires insurers to issue policies to all applicants, while the second requires insurers to price the insurance at a standard rate. Combined, these two mandates force insurers to cover applicants with pre-existing conditions at the same rate as any other applicant.

These two mandates could force insurers into bankruptcy. The infamous individual mandate to purchase health insurance (which only twenty percent of Americans actually consider constitutional) is President Obama’s means to avoid that end. The individual mandate will force millions of Americans into the health insurance market, and the profits from this enormous new customer base will offset the costs of the guaranteed issue and community rating mandates. Unfortunately, although most Republicans in Congress advocate a full repeal of ObamaCare, some want to keep the guaranteed issue and community rating mandates in place.

Lazy, cowardly, and shortsighted thinking led these Republicans to this position. Due to the perceived difficulty of solving the pre-existing conditions problem, some Republicans prefer to use the ObamaCare approach as a way to avoid coming up with their own solution. Other Republicans obsess over a few polls that suggest the coverage of pre-existing conditions is one of the few popular provisions in ObamaCare, thereby surrendering the policy argument in favor of crude political calculations.

This shortsighted approach would be disastrous. Several states have tried to implement guaranteed issue and community rating mandates without an individual mandate, and the results are almost universally poor. A recent study by America’s Health Insurance Plans (AHIP) found that:

“…Individual health insurance markets deteriorated after the introduction of GI and CR reforms.  Often, insurance companies chose to stop selling individual insurance in the market after reforms were enacted which resulted in a decrease in competition.  Enrollment in individual insurance also tended to decrease, and premium rates tended to increase, sometimes dramatically.  We also did not observe any significant decrease in the level of uninsured persons following the enactment of these original market reforms.”

There is no reason to believe that the result would be any different on the national level. But if enacting guaranteed issue and community rating mandates is a bad idea, what’s the conservative solution to the pre-existing conditions problem? Luckily for those lazy Republicans in Congress, it has already been implemented in 35 states across the country!

The conservative solution is state-based pre-existing condition pools, also known as high-risk pools. With pre-existing condition pools in place, insurance companies who determine that an applicant has a pre-existing condition will send the applicant’s information in to their state government. The state government determines whether the applicant is eligible to enter the pre-existing condition pool. If so, the state will write a check to the insurance company in order to cover a substantial portion of the applicant’s premiums.

As policy experts James C. Capretta and Tom Miller explain, “The idea is that people will pay only the premiums they can afford.” They estimate that the annual cost to properly fund pre-existing condition pools would be about $17 billion. That’s chump change compared to the trillion dollar ObamaCare law.

Combined with other conservative solutions to drive down the costs of health care, such as full tax deductibility and price transparency, it’s feasible that the actual cost of funding pre-existing condition pools would be significantly lower than Capretta and Miller’s estimate.

Pre-existing condition pools are a fundamental part of the conservative plan to repeal and replace ObamaCare. Congressional Republicans would do well to abandon the left’s government mandates, in favor of a patient-centered, affordable health care system.