Politics A big part of the GOP's Obamacare replacement may accomplish the opposite of its goal

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The "continuous coverage" provision, which the GOP says is designed to encourage more people to sign up for insurance, could cause people to ditch healthcare.

Arminda Murillo, 54, reads a leaflet on Obamacare at a health insurance enrollment event in Cudahy, California, U.S. March 27, 2014. REUTERS/Lucy Nicholson/File Photo play

Arminda Murillo, 54, reads a leaflet on Obamacare at a health insurance enrollment event in Cudahy, California, U.S. March 27, 2014. REUTERS/Lucy Nicholson/File Photo

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The Congressional Budget Office announced Monday that the American Health Care Act, the GOP leadership's plan to repeal and replace the Affordable Care Act, would lead to as many as 24 million more people to be uninsured by over the next decade.

And what could be to blame is a major provision in the bill that Republicans say is designed to encourage more people to sign up for insurance.

The AHCA includes a provision that says anyone who does not have health insurance coverage for a period of 63 days or more in the previous year is subject to a 30% increase in premiums for up to the next year as a penalty. The GOP says that the penalty would discourage people from waiting until they are sick to access coverage.

The CBO, however, found otherwise. According to the report, the "continuous coverage" provision would lead more people to sign up for insurance coverage in 2018 (the first year of the law), but reduce that number in the years after.

"By the agencies’ estimates, roughly 1 million people would be induced to purchase insurance in 2018 to avoid possibly having to pay the surcharge in the future. In most years after 2018, however, roughly 2 million fewer people would purchase insurance," the report reads.

Further, the CBO suggested that the people deterred from buying coverage would tend to be healthier than those who did buy coverage.

Richard Frank, a professor of health economics at Harvard Medical School, told Business Insider that the "continuous coverage" provision will come down harshly on both young people and lower-income people. Both groups, according to Frank, tend to have incomes that fluctuate heavily from month-to-month and make financial decisions with the view on the immediate future, often because they have to.

If a person is fairly healthy and doesn't think they can afford insurance to begin with, the possibility of a 30% rate hike if they lose their job, or suffer some other financial misfortune, is a further disincentive to buy insurance, he added.

"It’s a fairly harsh penalty," Frank said. "That doesn’t incentivize people to sign up."

Yuval Levin, a former policy adviser to George W. Bush and a conservative commentator, wrote in the National Review that the provision could actually keep people out of the healthcare market until they get sick.

"It would create a disincentive for everyone who hasn’t been continuously covered to get coverage, by making insurance more expensive for them," Levin wrote. "But that disincentive would do more to drive away healthy people than sick people, since the added premium is more likely to be worth it to someone who otherwise would have higher costs than to someone just looking to get insurance for a rainy day. It would, in other words, exacerbate the problem it is trying to mitigate."

One of the biggest problems for the ACA has been that the risk pools in the individual market — in other words, the demographics of the people signing up through Obamacare's exchanges — are tilted toward older, sicker people. This has led to large losses for some insurance companies, because the pool is more expensive to cover than was expected.

The worry, based on Levin's analysis, is that without any incentive to stay in the pools, more young people will pull out of the plans and wait until they get sick to sign up. Eating the 30% premium increase might be viewed as small potatoes compared to paying expensive medical bills if a person falls ill.

Americans seem to be looking at the penalty with extreme skepticism early on. According to a Morning Consult/Politico poll, only 18% of people surveyed supported the measure.

Another potential issue for Republicans hoping to pass the legislation into law is that the 30% penalty is not paid to the federal government. Since the GOP is using the budget reconciliation process to move the AHCA to avoid a Democratic filibuster, all measures in the bill have to be pertinent to the federal budget.

If there are any extraneous measures to the budget, for which the penalty could qualify, the bill could be blocked using the Senate's Byrd rule.

It appears Republicans may be considering getting rid of the 30% penalty. Axios' Caitlin Owens reported Wednesday that GOP leaders, worried about blowback and the impact of the provision, could drop the penalty to make the bill more palatable.