What's Really Behind The Cruz Amendment To The Republican Senate Plan To Replace Obamacare?

A Cunning Strategy to Back Door Risk Pools and Market Segmentation 

 

Ted Cruz has offered an amendment—since included in the latest Republican Senate draft—that would enable health insurance plans to offer stripped down coverage outside the current Obamacare compliant individual market. Anytime spent covered by them would be considered a break in service and subject the consumer to the six-month lockout provision should they want to get into the standard market. Carriers offering these plans could not deny pre-existing conditions but could up-rate sicker people.

Critics, including the health insurance industry trade associations, have come out against the idea because it would bifurcate the market into two separate pools—the healthier “Cruz pool” and the standard individual market subject to all of the current Obamacare consumer protections.
And, while the most recent version of the Cruz amendment would require insurers to pool both their standard and "Cruz pool" business, there are any number of ways for carriers to game that requirement. For example, health plans would be required to offer both a Gold and Silver standard plan. But there is no requirement they make those premiums competitive thereby limiting their impact on the "Cruz pool" business.

Perhaps more importantly, the "Cruz pool" plans would not be included in the standard market's risk adjustment program––the one of the biggest elements in leveling the playing field between competing plans. Here is a snapshot from a July article from the American Academy of Actuaries that illustrates how even with a single risk pool the market can be gamed––even if there were a risk adjustment system:

Even consumers who benefited from the premium subsidies in the standard market––at least those who were eligible for the lessor subsidies––could well ultimately find the "Cruz pool" policies cheaper as the resulting anti-selection drove the standard pool costs even higher. 

Cruz also managed to get an association health plan provision in the earlier Senate bill—and this one—that would enable an association sponsor to shop for a state with the lowest benefit mandates and enable small groups—including “one life groups” where allowed—to put together programs more likely to attract the healthy part of the market.

So, why is Cruz pushing these proposals in the face of warnings that this would just bring cherry picking back to the market?

Because, I will suggest, he thinks separating the healthy from the sick is the way to make the market work better. Cruz, and his allies, really want to allow the now mainstream standard market to become the magnet for sick people.

Essentially, their strategy is to turn the current Obamacare compliant market into a high risk pool. They realize that they cannot overtly go back to the days of pre-existing underwriting and risk segmentation. Therefore, their aim is to turn the current individual market into the high-risk pool scheme they wouldn’t be able to pass on its own.

They really want to bifurcate the market.

The $70 billion in additional large claims subsidies the latest bill includes was inserted simultaneously with the Cruz stripped down plan proposal. The $70 billion is essentially a high-risk pool subsidy meant to satisfy the health plans who would be stuck with the sickest in their standard business.

Years down the line my sense is that Cruz envisions a health insurance market largely composed of his stripped down and cheaper plans dominating the market with a smaller part of the market—the sick—being subsidized by federal dollars going to stabilize the now smaller Obamacare market complying with all of the consumer protections and benefit mandates.

Telling Ted Cruz his plan would bifurcate the market into a sick and a healthy pool would not dissuade him. In fact, that’s the plan. He figured that out before he offered the idea.

I am reminded of something then Speaker Newt Gingrich said about Republican plans to put private Medicare plans in competition with public Medicare. He said that such competition with the market would ultimately almost entirely privatize Medicare because the traditional Medicare plan would “wither on the vine.”

If you can’t kill Obamacare outright, just set it up to wither on the vine.

Senate Republican Obamacare Repeal And Replace Bill Dead––Good Riddance To An Awful Public Policy Proposal

The Senate Republican Obamacare "repeal and replace" legislation––just like the House version––was an awful bill. Individual health insurance costs wouldn't have gone down they would have gone up and both bills would have screwed a lot of low-income people. The latest Cruz amendment bifurcating the market with the sick in one place and the healthy in another was the most cynical kind of public policy.
With two conservatives withdrawing their support this evening from the current McConnell bill, it is dead.

Somewhat surprisingly, it was not the moderates that killed at least this effort—it was two conservative Republicans—Lee of Utah and Moran of Kansas. My sense is the blistering insurance industry criticism of the Cruz amendment made it impossible for any conservative to argue this bill would reduce insurance costs.

That means there are now four hard no votes. It is also important to note that the Trump administration failed miserably this weekend at the National Governor’s Conference to persuade key Republican governors from Medicaid expansion states to support the Senate bill. That result would have likely meant a number of more moderate Republican Senators would not have supported this bill.

So, in the end, about half of the ultimate Republican opposition would have come from the moderate ranks and the other half from the conservative ranks.

While I can’t say the overall Republican effort to repeal and replace Obamacare is dead, it is hard to see any realistic steps that they could take to revive the effort.

McConnell now says he will bring up a repeal only bill which would be set to take effect in two years.

Trump is also now calling for just repealing and then replacing later.

That was Plan A in January and that idea was dismissed because it would just cause more market calamity without a known replacement. I can’t see many Republicans going for that.

And a repeal only strategy begs a question: How are you going to replace Obamacare in two years when you failed so miserably this time?

Trump apparently also believes in the foolish notion that if Obamacare implodes on his watch Democrats will be desperate to bail him out. I don’t know of any Republican Senators who believe that.

Trump has also previously threatened to kill the low-income cost sharing subsidies if a replacement bill was not passed. These subsidies are worth about $8 million a month for every 100,000 low-income participants an insurance company has on the books. I wouldn’t put it past him.

The Democrats, and some Republican moderates, will now call for a bipartisan effort and we might even begin to see some meetings between those Senators. But the fact is that there is no common ground that could garner more than a handful of Republicans willing to save Obamacare. Such an effort would almost certainly now take 60 votes and would require the cooperation of the Republican leadership in both houses willing to let some of their caucus give the Democrats an enormous victory.

As the individual market continues to spiral out of control could we get some sort of short-term—maybe a year or two—patch? Perhaps. But that would even be a long shot and if that happened it would likely come as part of a must pass bill that had Senate and House Republican leadership permission to proceed. And, if that happened it would really anger both conservative Senators and Representatives, as well as the base. Any Republican Senator or House member that cooperated with Democrats to prop up Obamacare would likely get primaried at their next election. It is also hard to see how either Leader McConnell or Speaker Ryan could survive such an effort.

Or, Republicans could just let things in the individual health insurance market get worse and take that to the 2018 elections!

I have always believed that the market imperative to act is what would finally force Republicans to figure this out.

That said, there is no clear path out of this just as the individual markets continue to spiral downward partly because of the inherent issues in Obamacare’s market architecture and partly because of Republican efforts to make things even worse.

The only wisdom I can give you comes from Laurel and Hardy: “Well, here’s another nice mess you’ve gotten me into.”

And, from this moment forward it is a Republican mess.