Will’s Article Misleading – Misses Important Variable

In a recent, widely publicized, article by George Will the conservative columnist lays out a plan that would threaten to undermine the Affordable Care Act (the Act).  Will’s article which is based on Thomas Lambert’s article entitled How the Supreme Court Doomed the ACA to Failure, presents a brilliant argument using two hallmark provisions of the Act.  The problem is it fails to account for a third variable that would place a substantial risk on individuals who follow through with Will and Lambert’s plan.
 
The first important provision to the plan is the guaranteed issue clause.  This clause forbids an insurance company from denying coverage based on an individual’s preexisting condition.  Beginning in 2014 insurance companies will have less discretion when selecting who they cover.  The second provision critical to the plan is the community rating clause.  This clause limits the factors insurance companies can use when establishing premium prices to age, tobacco use, geographic location and whether the coverage is for an individual or family.  Noticeably absent from the list is an insurance company’s ability to charge higher premiums to individuals with a preexisting condition.
 
Will and Lambert make the argument these two provisions encourage healthy individuals to not purchase coverage until the individual becomes sick even when factoring in the individual mandate tax and the tax credits available under the Act.  Their argument, which has validity after the numbers are crunched, is a healthy individual will pay less by paying the individual mandate tax compared to the cost of premiums for health insurance.  If the healthy individual were to ever get severely sick, only then should the individual purchase health insurance.  The Act would prohibit a health insurance company from charging a higher premium to the individual because of the individual’s preexisting condition.
 
Will and Lambert argue because of the guarantee and community rating clauses healthy individuals have no incentive to enter the health care market.  This will leave health insurance companies with a population that is not as healthy which will lead to higher premiums for those participating in the health insurance market.  Healthy individuals are critical to keeping premiums down especially in light of all of the unhealthy individuals with preexisting conditions that will be allowed to enter the market when the calendar turns to 2014.
 
What both articles fail to factor into the plan is insurance companies, according to the proposed regulations issued November 26, 2012, may restrict enrollment in individual health plans to open enrollment periods or special enrollment events.  The initial enrollment period will be October 1, 2013 and extend through March 31, 2014.  The current structure of the initial enrollment period would allow an individual to game the system and pocket the savings from the difference between health insurance premiums and the individual mandate tax while still being able gain access to health care coverage within 45 days.  This is a limited window and I am skeptical individuals will sit down, crunch the numbers, and figure out the best plan of attack to save a couple hundred bucks.
 
However, after the initial enrollment period all subsequent years will have an annual open enrollment period which will begin October 15 and extend through December 7 of the preceding calendar year.  If an individual enrolls in coverage during the annual open enrollment period, the individual must receive coverage by the first day of the following benefit year (typically January 1).  If a person is diagnosed with a disease or condition in which it would be advantageous to purchase health insurance after December 7 of a given year, the person could have to wait as many as 391 days before gaining access to health coverage in the individual market.  This is the risk Will and Lambert (in fairness to Lambert his paper was published before the proposed regulations were issued) fail to recognize in their articles.
 
Consider the following worst case scenario to illustrate the point.  Suppose a healthy individual elects to pay the individual mandate tax instead of pay the premium for health care coverage because the former option is half the price.  Unfortunately, the individual is diagnosed with cancer on December 8, 2014.  This person, who would surely be in line for massive medical bills, would not be able to gain access to the individual health market until January 1, 2016.  The individual would be on the hook for the expenses associated with the cancer treatment from December 8, 2014 until December 31, 2015 unless the individual could gain access to health coverage through a market other than the individual market.  This is a worst case scenario, but the open enrollment period is a critical variable that is neglected by Will and Lambert.
 
Insurance companies will surely utilize the enrollment period restrictions allowed by the Act to prevent the exact scenario Will and Lambert discuss in their articles.  The important question is whether the additional variable, the open enrollment period, will encourage healthy individuals to enter the individual health care market or keep healthy individuals in the individual health care market.
 
There is one way I can see Will and Lambert’s plan working in spite of the open enrollment variable.  In addition to the annual open enrollment period, insurance companies operating through the Exchange will also be required to allow individuals to enroll during special enrollment periods.  The list of special enrollment events are immaterial to Will and Lambert’s plan except for one.   One of the special enrollment events occurs if the individual gains access to a new qualified health plans as a result of a permanent move. Technically Will and Lambert’s plan could still be implemented by an individual effectively if an individual is willing to make a permanent move to become eligible for a new qualified health plan upon the diagnoses of a severe disease or condition.  I don’t see this as a likely scenario for a majority of the population.
 
While Will and Lambert’s plan is conceivable it is not a risk free endeavor.  Healthy individuals will have to carefully weigh the risks of not being covered and not having access to health care for a prolonged period.  Whether that risk is worth it is an individual’s choice and one which will have an effect on the premium prices paid in the individual health care market.