Effects of ACA individual mandate vs AHCA surcharge

Question

The US Congress is currently considering a new healthcare bill, the AHCA, which would replace the existing healthcare bill, the ACA.

One of the major changes is the way each bill encourages people to maintain health insurance coverage:

• ACA existing law: (in general) if you do not have health insurance for part of the year, you pay an additional tax based on how long you were not covered.
• AHCA proposed law: (in general) if you have a lapse in coverage for more than 63 days, insurance companies are allowed to charge you up to 30% more for 12 months.

I am not an economist, but IMHO, the goal of these provisions should be to both encourage people to obtain coverage if they don't have it, and also discourage people from ending coverage if they do. It seems to me that the current ACA meets both of those goals, however, the proposed AHCA does not encourage people to obtain coverage once they have lapsed for 63 days. In fact, the AHCA appears to discourage people from obtaining coverage once they have lapsed for over 63 days. Of those in the group that have lapsed, those that need the coverage the most (regardless of price) are still going to purchase insurance, so this would increase the density of high cost people in the overall pool, leading to increased premiums for everyone.

Is the above analysis correct, and if so, why would this change be proposed? (I find it hard to believe that the economists involved in writing the bill would have simply overlooked this.)

Answer 1

Working off of Josh's answer let's do a case study based on a real world example. On Friday, before leaving for a 7 day cruise through the eastern Caribbean, I went to the Dr and got a prescription for Tramadol, a pain reliever to treat an injury. I went to all of the usual suspects, Walgreens, CVS, etc, and found that with my insurance, the cost for 15 50mg pills was 60 dollars. Using the app GoodRX, I was able to reduce this cost to 44 dollars. I decided to pass. Fast forward two days to find me sunning in the Dominican Republic but unable to enjoy myself because of the injury so I found the nearest pharmacy and was able to purchase a blister-pack of 20 50mg pills for 13 US dollars without a prescription (Tramadol is not regulated like a narcotic as it is in America). These were not knock-offs but the actual meds. How could this be, I wondered. So I asked the pharmacist. He told me that drug manufacturers make all of their profits in America, marking up the same drugs that sell in other countries for reasonable prices to exorbitant prices and then offer modest discounts to insurers, not to mention the profits of the pharmacy. Why can one script be 90 bucks at Walgreens and only 4 bucks at Walmart? The simple answer is greed and slothfulness. Drug companies and pharmacies rely upon the laziness of Americans and our willingness to get screwed and our eagerness to bitch about problems without the slightest intent on fixing them.

The moral of this story is that when it comes to managing health care costs, one of the major issues is the regulation of pricing. While I am an ardent believer in capitalism, we must limit the margins charged by drug manufacturers and suppliers alike. The government must modify Medicare Part D to include price controls and introduce these same controls into the ACA or we are doomed to ruination.