Study shows how GOP plan would lower premiums: ditching costly, sick people

Ethan Wolff-Mann
Writer
Speaker Paul Ryan, holding a Health and Human Services report, managed to get the AHCA through the House. The bill is now being rewritten by the Senate. Source: Getty Images

As the Senate rewrites the American Health Care Act (AHCA), the GOP’s bill to repeal Obamacare, the RAND Corporation released a new, in-depth report about chronic disease—a matter central to the health insurance debates.

According to the report, people with five or more chronic conditions – which constitutes 12% of the population – accounted for 41% of total healthcare spending in 2014, the latest year of data. Adding people with three to five chronic conditions, these two groups constitute 28% of the population and account for 67% of spending.

On the other end, 71% of the population, with two or fewer conditions, make up just 33% of total healthcare expenditures in the United States.

The RAND Corporation’s report, which was done in conjunction with FightChronicDisease.org, paints a picture of a fairly standard insurance model: a large group subsidizes the other, smaller group, which uses more resources.

Dismissing people who spend money lowers premiums

Targeting how the larger group subsidizes the smaller group is one of the chief ways the GOP would lower premiums for healthcare purchased on the individual market.

The Congressional Budget Office analysis of the AHCA found that 23 million people would lose health insurance by 2026. Many of them would be people with preexisting conditions, since states that receive waivers to loosen regulations surrounding insurance would take steps that would price out that population—even with additional funding to subsidize the costs.

Since healthier people could choose a pool based on their expected healthcare costs over one based on “community rating”—an average of people in the same geographic area with the same age and smoking status—insurance costs would fall.

For a state taking those steps, as well as reducing essential health benefits, the AHCA would likely be able to lower premiums 20% for healthy people buying individual insurance.

In effect, these premium declines come out of two basic changes. The first is simple: fewer services cost less—though perhaps not for everybody because benefits like maternal care, substance abuse among others would run up a pretty big bill, and quickly. But the other factor comes from simply how insurance works. A group of people pay dues so that if something bad happens, the fund will help pay for them. If you take out the people who draw on the account – in this case, sicker people – the pool doesn’t need as much money and premiums go down.

Besides pointing out who pays for whom, the RAND Corporation study colored debate around the CBO score and preexisting conditions by showing just how thin the line is between having one and not having one. According to the findings, six in 10 adult Americans had at least one chronic condition in 2014. Four in 10 had more than one.

Chronic conditions aren’t necessarily preexisting conditions. (52 million adults have preexisting conditions today, touching 53% of households, according to a survey from Kaiser Family Foundation.) But as the editor-in-chief of Kaiser Health News Elisabeth Rosenthal wrote in a recent New York Times op-ed, the pre- and perhaps post-ACA landscape had insurers deciding to lower the bar for what a preexisting condition could be.

This isn’t just older people, over 65, though 81% of that cohort has multiple chronic conditions. Half of adults 45 to 64 have multiple conditions, which has trended upwards since the early 2000s. If the GOP is unable to figure out a plan for preexisting conditions, the web of people it could entangle would be vast.

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, tech, and personal finance. Follow him on Twitter @ewolffmann. Got a tip? Send it to tips@yahoo-inc.com.

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