President-elect Trump has made waves by saying that though he plans to repeal Obamacare, he wants to keep the aspect of it that bans coverage for those with pre-existing conditions. But this is not possible without broader changes to the healthcare system.
The pre-existing condition ban is ultimately one of the primary drivers of the premium hikes we're seeing within Obamacare. The reason is that with insurers forced to offer coverage to anybody who applies, they incur higher medical costs, and they thus require more signups from younger and healthier people — but those signups aren't materializing in a large enough volume to offset costs.
The problem with the pre-existing condition ban is that it's a perfect example of how bigger government begets bigger government. That is, once lawmakers ban pre-existing conditions, they have to come up with a way to make it affordable. Otherwise, insurers could just say, "Sure, we'll cover people with heart problems, but for $2,000 a month."
So, even though those with pre-existing conditions are technically offered coverage, the coverage isn't within the realm of affordable.
Thus, to prevent this from happening, Democrats paired the pre-existing condition ban with a ban on charging more money based on health status, thus putting an upper limit on how much individuals with an illness could be charged for coverage
Though those sicker individuals save money, the flip side is that it then drives up the cost of insurance for younger and healthier people, who now have to pay more for insurance than they otherwise would. To prevent younger and healthier people from exiting the market as a result, lawmakers then mandated that they have to purchase coverage.
But once the government forces individuals to purchase something, there's an obligation to try and make that product affordable. So, starting off with what seems like a rather modest and noble goal to cover those with illnesses who can't find coverage, we ended up with a vast scheme — the federal government distributing hundreds of billions of dollars in subsidies and mandating that individuals purchase government-designed insurance policies on government-run exchanges.
To be fair, Trump's comments on "60 Minutes" could be interpreted as him saying that he's going to repeal and replace Obamacare, and that the replacement will in some way address the problem of those with pre-existing conditions, not necessarily in the same way as Obamacare. And on that front, there have been a number of ideas floated as possible substitutes for the mandate-based approach.
One of the most popular ideas on the Right for getting coverage to those with pre-existing conditions involves the creation of high-risk pools. The theory behind this is to create, essentially, separate insurance systems on a state-by-state basis for those with illnesses that prevent them from obtaining coverage through the normal means.
These pools would involve government intervention, as it would cost money to subsidize them, and there would need to be some mechanism to make sure that insurers who end up with a disproportionate share of high-risk customers receive some sort of compensation from participating insurers who end up with a lower share of them.
Otherwise, insurers would have an incentive to design insurance policies in a way that discourages enrollment among those with the conditions. But the basic idea is to take these hard cases out of the standard risk pool, so that you could have an otherwise functioning free market for the overwhelming majority of individuals who do not suffer from such conditions. This is in contrast to Obamacare, which distorts the market for everybody to find a way to cover relatively few people.
Another option is one floated by Avik Roy in his Obamacare alternative. He would actually keep the pre-existing condition ban in place. But instead of a mandate, he would place stricter limits on when individuals could sign up for coverage, limiting it to a six-week period for two years.
Thus, young and healthy people could legally choose to forgo insurance during that time, but doing so would mean that if anything happened to them, they wouldn't be able to change their mind and get insurance until the next period in two years. Roy argues this, coupled with other cost-reducing deregulation, would incentivize enough younger and healthier people to sign up that it would compensate for the cost of covering those with pre-existing conditions.
From a more libertarian perspective, University of Chicago professor John Cochrane proposed an innovative, market-based solution in 2009 that deserves another look: health status insurance.
The thinking behind the idea is that essentially, an insurance policy insures you against two things: one is that it helps cover the routine medical expenses that may crop up over the course of the year, and the second is that it offers protection against a sudden change of health status — say, a massive car accident that leaves you with major medical issues, or a cancer diagnosis. Cochrane's thought was, what if those two functions were split into two parts?
That is, one insurance policy continues to cover more standard medical issues. But then there's another policy that insures individuals against a sudden change in health status.
For example, let's say that somebody young and healthy can purchase insurance for $100 per month. But then something happens to change that persons health status, and insurers determine that to cover the costs, they really need to charge $2,100 per month. At that point, the health status insurance would kick in. The individual would pay the primary health insurer $100, but then the health status insurer would pay the additional $2,000.
Given the low risk of something happening to a child or somebody in their 20s, it would probably be relatively cheap to purchase health status insurance early in life and hang onto it, just as it's cheaper to purchase life insurance at a younger age. Such a system would still require some sort of transition period for those who currently have pre-existing conditions before this new market develops.
So, there are various ideas out there for addressing coverage for those with pre-existing conditions, but it would have to be done as part of a broader effort to replace Obamacare. Republicans couldn't simply repeal all of Obamacare and carve out the pre-existing condition provision without decimating the insurance market.