The looming collapse of private health insurance

published 3 April 2020

The week ending on March 21 had the greatest explosion of new unemployment claims in American history, with 3.3 million people filing for benefits — surpassing the previous weekly record by a factor of nearly five. Now we have data for the week ending March 28, which more than doubled the prior week's record. Given struggling state enrollment programs and other factors, the real damage was surely worse than that. Well over 10 million people have lost their jobs in just two weeks, and a lot more will soon. A Federal Reserve economist estimated America could be seeing over 30 percent unemployment in a few months — more than the nadir of the Great Depression.

Thanks to America's uniquely boneheaded insistence on tying health insurance to employment, a great many of these people also suddenly find themselves without health coverage — one of several ways the novel coronavirus pandemic is hammering the insurance system. But the problem will also affect more than those who have lost their jobs. If Congress doesn't do something very big — like throwing every American onto the military's Tricare program — the system is in very real danger of collapsing altogether.

Before the crisis hit, about half of Americans got their insurance through their job. Now, maybe a third of those people will lose their coverage. It turns out, contrary to the argument from moderate Democrats that the current system allows people to keep their insurance if they like it, in fact people have no such choice. Even during normal times, millions of people lose their employer-based coverage every month. Now perhaps 50 million people are about to learn all at the same time how little choice they actually have.

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Now, there are a couple fallback systems for unemployed folks — namely, COBRA, the ObamaCare exchanges, and Medicaid. But all have serious problems. COBRA (named after a 1986 law) allows you to continue the same employer-based coverage as before, but because your employer is no longer chipping in, it typically costs 3-4 times as much in premiums as before. Most people are unlikely to be able to swallow such an enormous expense just after they lost their job.

However, if you lose your employer-based coverage, you still qualify for a special ObamaCare enrollment period (even if President Trump doesn't reopen the exchanges more broadly). The problem here is that ObamaCare insurance is generally expensive, complicated, and lousy. Even for people who can navigate the obnoxious enrollment process, coverage will take days or weeks to come online, and enrollees will still be vulnerable to all the infamous problems of narrow networks and huge surprise bills. Moreover, the recently-boosted unemployment insurance will also be counted as income for ObamaCare purposes, which will put many people outside of its subsidy zone, making the coverage even more expensive.

Medicaid is the best of the three, especially because the new unemployment benefit will not be counted towards its income eligibility rules. However, many likely will still not be poor enough to qualify, and because it is partly funded by cash-strapped individual states, it isn't geared to handle a gigantic surge of beneficiaries. Indeed, New York Governor Andrew Cuomo appears likely to push through a massive cut to his state's program soon. Other states facing gargantuan budget shortfalls will probably follow suit if Congress doesn't help them out. And thanks to the Supreme Court, the federal government can't force states to upgrade their Medicaid programs anyway.

The whole medical system is facing an unprecedented surge of costs across the board. A bad case of COVID-19 can leave people in the ICU for weeks, and hospitals across the country are already having to work flat out to try to save as many people as possible. They are chewing through their reserves of supplies and working their staff to the bone. Meanwhile, insurance companies are losing millions of their enrollees at the same time as millions of others require extremely expensive care. Analysts are predicting as much as a 40 percent hike in premiums next year to cover these costs.

One could imagine a number of different solutions here. We could just fling money at private hospitals and insurers so they don't go bankrupt. But that would not save people from gigantic COVID-19 bills, which are already starting to come in. We could throw people on existing Medicare, but that program is patchy and would need serious updating to handle millions of new younger beneficiaries. That would take months, time we don't have.

The best solution I've seen comes from Jon Walker at The Intercept. He proposes opening up Tricare, a Pentagon plan that covers military families and retirees under 65, and already includes about 10 million people. Unlike most ObamaCare plans, it has low cost-sharing, cheap premiums, wide networks, and covers prescription drugs. Unlike Medicaid, it is funded and controlled by the federal government. There would be many ways to do it — for instance, Congress might say anyone who loses their job this year, or works at an essential service like sanitation or a grocery store, can apply for Tricare. Or they could simply cut the Gordian knot and throw everyone on there.

Ryan Cooper is a national correspondent at TheWeek.com. His work has appeared in the Washington Monthly, The New Republic, and the Washington Post.

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