One of the most popular provisions of the Affordable Care Act (ACA) is that part of the law that prohibits insurance companies from denying health insurance coverage because a patient has a “pre-existing condition.” A pre-existing condition could cover any number of previous illnesses, health history, or other circumstances that insurance companies, before the ACA, used as a rationale to deny customers a policy or place restrictions on what health care costs the policy would pay for. The ACA not only restricts this practice but also requires policies to cover an essential package of benefits.

 

Obvious examples of pre-existing conditions would be if a person has a history of heart disease or a chronic health condition such as diabetes or high blood pressure. Before the ACA, an insurance company might offer you a policy but prohibit paying for coverages for some conditions; for example, if you had a previous back ailment or back strain, a company might attach a “rider” that would specify they won’t pay health care coverage for anything related to your back.  

 

The ACA addresses this in two basic ways. To sell a policy on the exchange (which allows customers to get tax credits or other protections and support), insurance companies cannot deny you coverage regardless of your medical history. In exchange, the insurance industry benefits from a large pool of customers, which, like any insurance pool, reduces the cost of premiums because you have a large pool of customers who may not have health care needs and costs.

 

If the ACA falls due to a Supreme Court ruling that could come shortly after the election, those large insurance pools and tax subsidies go away. So does the requirement that insurance companies cover all applicants. If Congress were to pass a law that simply requires companies to cover any applicant, it likely would mean that anyone could buy an insurance policy, but the monthly premium would be extremely expensive.  

 

An applicant with a heart history or diabetes could be limited to an insurance policy that would charge hundreds or even thousands of dollars a month in premiums. With such a law, insurance companies would argue they have to charge such high costs because, without incentives or requirements for all people to have an insurance policy, some customers could wait to buy health insurance when they get ill, or they are more likely to face health care risks, for example as they get older.

 

This is not just an economic theory but a reality. Before the ACA, some states attempted piecemeal approaches such as passing a law that mandated insurance companies to cover anybody who applies regardless of their health status.  

 

According to a 2017 study conducted by PricewaterhouseCoopers, LLP: Challenges of partial reform – Lessons from State Efforts to Reform the Individual and Small Group Market Before the Affordable Care Act. “In New York, imposition of community rating combined with guaranteed issue without incentives for broad participation by healthy consumers, led to rising premiums, and declining participation by consumers and plans in New York’s individual market. In particular, average health plan premiums tripled between 2001 and 2010; and individual market enrollment fell from 8.9% of the non-elderly population to 5.8% in 2000.”

 

The New York state experience points to another challenge: as premiums rise, the people more likely to buy are the people who have a health condition requiring treatment while the healthy customers leave or drop premiums risking the possibility they will not need to see a doctor.

 

New York was not alone. The state of Kentucky, home state to Senate Majority Leader Mitch McConnell (R-KY), had been highlighted in the first years of the ACA for its success in implementing the new law in the first years under Governor Steven Beshear. A report by the Foundation for a Healthy Kentucky in 2015 found: “Kentucky has made significant gains in health insurance coverage and access to needed care through its commitment to implementation of the Affordable Care Act. The Commonwealth has been at the forefront in designing effective strategies to get and keep people covered, providing lessons for the rest of the country.”

 

Before the ACA, Kentucky had another experience. The state had attempted to enact its own reforms starting in 1993. Again, it was a state attempting to go it alone without the guarantee of a large pool of insured. The same PricewaterhouseCoopers report stated, 

 

“Due to the relatively rich nature of the standardized plans, sick people entering the individual market flocked to the reformed products –quickly overwhelming the small pool of healthy enrollees. Premiums shot up in response. By October 1995, more than 40 carriers had announced their intention to depart the Kentucky market citing concerns about guaranteed issue, modified community rating, and the standardized plans…

 

The individual market shrank from over 40 carriers to two. Both in serious financial distress by the end of 1996, the two remaining carriers asked the state to approve a 28% premium rate increase to stop the drain on the plans’ reserves.”

 

Like another popular provision that allows parents to extend health insurance to their adult child through age 25, such broad mandates only work if you expand the pool of the insured. Standalone laws that simply prohibit bad insurance policy practices sound appealing, but if the resulting premiums explode, as has been the real-life case, the number of uninsured grows, and so does the cost of health care.

About the Author:

John Sciamanna is CWLA's Vice President of Public Policy.

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