Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Band-Aids aren't particularly effective for bullet wounds. An IOU for a Band-Aid is even less useful -- especially when it comes from a politician. 

In exchange for supporting the Senate tax-cut bill, which repeals the Affordable Care Act's individual mandate, Maine Senator Susan Collins extracted some promises from GOP leadership. Those included a pledge to restore Obamacare subsidies for insurers and to fund a reinsurance program designed to help lower insurance premiums.

But promises aren't laws. And even in the unlikely event Collins gets everything she wants, it would do little to avert the disaster in the individual insurance market that would be caused by an ACA mandate repeal. 

Melodrama
The potential that the GOP tax plan will repeal the ACA's individual mandate has led to a volatile week for Obamacare-focused insurers
Intraday times are displayed in ET.

There's a chance the GOP's tax-cut effort could still fall apart in the process of reconciling the House and Senate bills, or that the ACA's individual mandate might still be saved. It just doesn't seem likely. Insurers who have remained committed to the ACA despite substantial turmoil could be in serious trouble.

The individual mandate isn't just a feature of the ACA; it makes the law work. Without an incentive to buy insurance, fewer healthy people are likely to do so. That will increase the concentration of sicker patients in the individual market. Insurers will be forced to hike premiums to compensate for the cost of caring for those sicker patients, and that will further depress enrollment.

The Congressional Budget Office (CBO) believes individual mandate repeal would result in 13 million additional Americans going uninsured by 2025. 

Brace for Impact
The CBO estimates repealing the ACA's individual mandate will result in enrollment declines in several different markets and 13 million new uninsured Americans
Source; CBO

One of Collins's proposed remedies is to resume payment of subsidies that help cover out-of-pocket health costs for low-income enrollees. President Donald Trump stopped these in October. While these payments are important to insurers, the CBO doesn't think resuming them would have a significant impact on insurance coverage or premiums. The fact that it may not be included in a stopgap government-funding bill the GOP is set to propose this week suggests it's not a major priority.

A second Collins-supported effort to shore up the individual market is a bill to provide about $4.5 billion in reinsurance funds over two years to protect insurers from losses incurred by caring for very sick patients. This would likely have a more concrete benefit than resuming subsidy payments and could help cap premium hikes in the states where it is deployed.

But unless Congress is willing to spend significantly more than $4.5 billion over a longer time period, the reinsurance scheme would be overwhelmed by the coverage losses and deteriorating risk pool that would result from repealing the individual mandate. It's no certainty that even the $4.5 billion proposal could get through Congress, let alone one big enough to actually mitigate mandate repeal. 

It all shapes up to a pretty poor outlook for ACA-focused insurers -- one that gets even worse if the GOP plays true to type and tries to cut funding for Medicaid and Medicare after adding billions to the national deficit with its tax-cut plan. Collins says she has an "ironclad" commitment Medicare will not be cut. Such a commitment is essentially impossible to provide, and others in her party appear to differ. Automatic spending cuts triggered by the bill's deficit increase could lead to Medicare cuts on their own, or reduce the already limited effectiveness of efforts to shore up the individual market. 

But hey, at least insurers get to bring back overseas cash at a cheaper tax rate! Oh, wait ...

Repatriation
Some parts of the tax bill won't be especially beneficial for health insurers
Source: Bloomberg

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net