July 12, 2017
Why Democrats Should Love Cruz’s Health Care Amendment
Senator Ted Cruz (R-TX), along with Senator Mike Lee (R-UT), may have the solution to the health care stalemate—and it just might allow a functioning health insurance market to emerge once again for most people.
And Democrats should support it because it has similarities to a plan they love: the Federal Employees Health Benefits Program (FEHBP).
Cruz has not released legislative language at this writing, just a card entitled “Path to Yes” with four proposals on it.
(1) Consumer Freedom Option.
(2) Real Flexibility for Medicaid.
(3) Enact the “consensus” market reforms.
(4) Reach a real agreement to rein in the long-term growth of Medicaid.
But the first principle is the one getting all of the attention. It says:
“Consumer Freedom Option. Obamacare’s insurance mandates caused premiums to skyrocket. To fix that problem, the [Senate GOP] bill should add a provision that says that any insurance company that offers at least one plan that meets the mandates can also sell any other plans that consumers desire.”
So any health insurer that offered at least one plan that covered Obamacare’s 10 essential health benefits and did not charge someone more because of a preexisting medical condition would be able to offer consumers a wide range of non-qualified plans.
It appears that people who qualify would still receive federal subsidies for choosing an Obamacare-qualified plan, but not for non-qualified plans. However, No. 3 in the Cruz handout says people could use tax-free Health Savings Account (HSA) funds to purchase those policies.
If that rather vague HSA comment resembled the Cato Institute’s Large HSA proposal, so much the better. Large HSAs would allow employers to deposit tax-free funds into their employees’ HSAs, which they could use to buy into the employer’s health plan, buy individual coverage or just spend it on health care expenses. As Michael Cannon of the Cato Institute points out, Large HSAs would represent a huge middle-class tax cut.
Critics of the Cruz approach point out that the sickest people would likely choose the comprehensive plans while the healthy would choose the less comprehensive and therefore less expensive plans, leading to “adverse selection” (i.e., a disproportionately large number of sick people are in an insurance pool).
Of course they would! But that’s already happening under Obamacare, as many of us predicted and the Democrats who wrote the law ignored.
The comprehensive plans would likely become, in effect, high risk pools. But health insurers would be running them rather than states, as 35 states did prior to the passage of Obamacare.
But in this case, Republicans are also providing billions of dollars in funding to offset health insurer losses, with the goal of keeping premiums affordable.
For this approach the best model is probably “invisible high risk pools,” which the states of Alaska and Maine adopted to offset insurer losses under Obamacare. Basically, the states identified several high-cost medical conditions. When people with those conditions applied for coverage, the state funneled money to the health insurer, allowing the insurer to keep premiums lower.
Plus, Cruz’s amendment is similar to a feature in the FEHBP, which Democrats love. That program allows federal workers to switch from more-comprehensive plans to less-comprehensive, and even high deductible plans and back again.
The person who oversaw those federal plans in the 1990s (long since retired) told me that the FEHBP had a major adverse selection problem. Federal employees and their dependents would choose a low-cost option while they were healthy, and if a major or chronic medical condition emerged, some would shift to the “high option” plan during the open enrollment period.
Incidentally, Democrats also allowed policy switching under Obamacare.
While there would almost certainly be adverse selection under Cruz-Lee, it’s impossible to predict how much. That would depend on the popularity of the non-qualified options insurers offered, the extent to which direct subsidies to qualified individuals offset the cost of coverage, and whether direct subsidies to health insurers allowed them to keep premiums affordable.
No one knows at this point how those various incentives and disincentives would affect coverage choices.
What the Cruz-Lee option does is allow individuals to choose something they, rather than Washington, want. It is amazing how Washington assures us that the public wants whatever it is they are selling, but then refuses to prove it by letting consumers vote with their dollars.
To be clear, the Cruz-Lee amendment is not a return to a free market in health insurance that many of us would like to see. The Senate’s Better Care Reconciliation Act (BCRA) still includes many of Obamacare’s onerous regulations, because too many GOP senators who campaigned on repealing Obamacare and its mandates have gone wobbly.
But Obamacare’s individual market is collapsing. Giving people the option to move to more affordable coverage that they want—and that they are willing to pay for—might be the only way to save that market.