With GOP health plans, there's an elephant in the room.

Photographer: Daniel Acker/Bloomberg

Scott Walker's Deal-Breaker, in One Word

Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”
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That sigh of relief you hear? It's coming from policy-minded Republicans, now that their 2016 presidential candidates are finally talking about what they'd replace Obamacare with. If they can repeal it, that is: The Affordable Care Act has withstood 56 votes by congressional Republicans to kill it off, not to mention two Supreme Court challenges.  

Obamacare, Assessed

That's a problem for the party's presidential ambitions. Obamacare so far has helped about 32 million people obtain health coverage. The biggest winners have been young adults, Hispanics and those living in red states. For all the maligning of Obamacare as big-government-run-amok, it's developed a constituency.

Wisconsin Governor Scott Walker has a new proposal that's winning huzzahs from the party's reformicon policy intellectuals. The centerpiece of his detailed plan, released yesterday, uses tax credits to help people buy insurance if they're not covered at work or eligible for Medicare or Medicaid. 

Comprehensive as it is, the plan's political and practical viability could rise or fall on one word: continuous. That word shows that Walker is struggling with the consequences of dismantling one of Obamacare's most popular benefits, the prohibition against charging people more for insurance if they have a pre-existing medical condition. 

"No one," Walker writes, "would see their premiums jump because of a health issue" -- so long as the individual maintains "continuous, creditable coverage." 

"Continuous" is a fraught term of art. It means there can't be a single day's lapse of employer-based or individual insurance coverage. Under Walker's plan, if you change your job or lose it, and your insurance lapses, insurers can reassess your health status. Then they can require you to pay dearly if you (or a dependent) has (or once had) a health issue like heart disease, diabetes, cancer, HIV/AIDS or even obesity. 

This isn't small beer. A Commonwealth Fund study found that 89 million Americans experienced breaks in their health coverage between 2004 and 2007. Having fallen into the gap, almost a third said they were subsequently turned down, charged a higher price or had a condition excluded by insurers. 

In today's gig economy, in which about 40 percent of workers are self-employed, independent contractors, part-timers or freelancers (and thus unlikely to have employer benefits), higher premiums for people with pre-existing conditions could knock millions off the insurance rolls in a world without Obamacare.      

Insurers aren't being callous when they raise premiums for riskier customers. They quite reasonably don't want individuals to wait until they're sick to purchase coverage. Under Obamacare, that can't happen because everybody is required to obtain insurance (or pay a penalty). If Obamacare disappears, insurers will need another way to offset the cost of older, less healthy individuals against younger, healthier ones. 

Walker would resolve the problem by encouraging states to form pools for high-risk people. Before the ACA, 35 states had such pools, which generally took the form of independent, state-regulated, nonprofit insurance exchanges for those with pre-existing conditions, lacking employer coverage, or ineligible for Medicaid. Because everyone in the pool, by definition, was high risk, taxpayers had to subsidize premiums. 

One conservative estimate concludes that about 4 million people today would require subsidies of about $4,300 each. That's an annual tax increase of $17 billion. 

Beyond the political peril for Walker to be proposing tax increases of any sort, high-risk pools have other problems. They were inferior to private insurance, with higher deductibles and copayments and lower lifetime caps. Every state's pool also had exclusion periods of two months to one year for pre-existing conditions -- making worse the very problem they were meant to address -- for those who lacked continuous coverage. 

If you're hoping for a realistic Obamacare alternative, look for the word "continuous." If you find it, ask some hard questions. 

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

To contact the author on this story:
Paula Dwyer at pdwyer11@bloomberg.net

To contact the editor on this story:
Jonathan I Landman at jlandman4@bloomberg.net