Republicans often face criticism for opposing Obamacare but having no plan to replace it.
So Rep. Darrell Issa (R-Calif.) has been tweeting about his replacement proposal: Let every American participate in the Federal Employee Health Benefits program.
“Federal employees have long enjoyed high-quality, affordable health care benefits through this free market, consumer based system,” says Issa.
I’m not exactly sure what Issa means when he calls FEHBP a “free market” system. The system does set up a marketplace where private health insurers offer plans that have to meet certain specifications, and then individuals choose the plans they like best.
That’s also true of the Obamacare exchanges, which Republicans do not tend to think are very “free market.”
In fact, FEHBP is similar to the Obamacare exchanges in a lot of ways.
- If insurers want to participate in the FEHBP, they can’t exclude coverage for pre-existing conditions, just like Obamacare.
- They have to accept applicants “without regard to age, race, sex, health status, or hazardous nature of employment.” This is called guaranteed issue, and it’s just like Obamacare.
- They have to charge all applicants the same premium for a given plan. This is called community rating, and it’s more restrictive of insurers than Obamacare, which allows for substantial premium variation based on age.
The key way that FEHBP differs from Obamacare now is that only federal employees can participate in it. Those federal workers have 75% of their plan premiums paid by the federal government, and their own 25% contribution is deductible on their federal tax return.
I asked Issa’s office what financial support he would propose to help non-government workers buy FEHBP plans and haven’t heard back yet. If he’s going to heavily subsidize those purchases, then his plan will really look a lot like Obamacare.
If he’s not, then there’s a significant problem: A lot of people won’t be able to afford to buy FEHBP plans. The cheapest plan available where I live, a high-deductible plan, is $5,000 a year for single coverage or $10,900 for family coverage. That’s accessible for people with high incomes and some with middle incomes, but many people who are too rich to qualify for Medicaid will find that out of reach.
And besides affordability, there is the issue of adverse selection. If you require pre-existing condition coverage and you impose guaranteed issue and community rating, insurance plans are going to be a lot more attractive to sick people than healthy ones. If healthy people choose not to buy insurance, average costs per plan participant will rise, driving up premiums, and causing even more people to choose not to buy.
That could lead to an “insurance death spiral,” where premiums are very high and the FEHBP’s participant pool ends up being just very sick people. That’s what’s happened in New York State, where community rating and guaranteed issue have made insurance premiums so high that less than 0.1% of residents get insurance through the individual coverage market.
There are two ways to prevent a death spiral. One is to reward people for buying insurance, as Obamacare does with subsidies, and as the federal government does now by paying 75% of employee FEHBP premiums. The other is to punish people for not buying insurance, as Obamacare does with the individual mandate.
Whatever approach Issa takes to preventing a death spiral in his FEHBP-for-all plan is likely to make it look even more like Obamacare.
This illustrates why Republicans have had so much trouble coming up with a “replacement” for Obamacare. When you take a private health insurance market and try to fix the problems with it, like sick people not being able to get covered, you end up layering on rules that are similar to the ones in Obamacare, for the same reasons that Obamacare’s drafters imposed them.
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