At issue are the policies sold in the “individual market,” which serves the roughly 20 million Americans who aren’t covered by large employers’ group plans. About half of those consumers receive federal subsidies, which they use to buy policies sold on the new state insurance marketplaces (or “Obamacare exchanges,” such as Covered California).
Cruz’s proposal would let insurers that offer policies on the Obamacare exchanges that comply with the ACA’s insurance reforms also offer policies that don’t comply with Title I of the act. Title I includes provisions that are crucial to people with preexisting conditions, including prohibitions on charging them higher premiums, canceling their policies after they submit claims or withholding coverage for 10 “essential health benefits,” such as prescription drugs.
The effect would be to segment the market again into separate “risk pools” — one for healthy people who don’t need comprehensive policies or coverage of potentially expensive risks, and another for those who do. The former would presumably impose considerably lower costs on insurers and so would pay lower premiums. The latter would see the opposite as insurers pushed riskier and costlier customers away from the less comprehensive policies, either directly (by denying their applications) or indirectly (by excluding coverage for their preexisting conditions).
The subsidies offered by the bill would mitigate some of that pain, with a couple of caveats. First, the bill would slash the value of the subsidies, tying them to policies that cover only about half the consumer’s projected medical costs (the ACA ties subsidies to policies that cover more than 70% of projected medical costs) and offering them only to people earning less than 350% of the federal poverty level (the ACA’s limit is 400%). Second, taxpayers would have to pick up the tab for rising premium costs, so in effect the pain would be transferred from one group of Americans to another, albeit larger, one.
In fairness to Cruz, the current version of the Senate bill would give states considerable freedom to let insurers segment their populations and offer cheaper policies just to the healthy. Cruz’s proposal is just more aggressive, giving insurers that capability in any state where they sell ACA-compliant plans.
Regardless, if the problem posed by the ACA is high premiums, neither Cruz’s proposal nor the other GOP plans are a solution. They’re a squeeze-the-balloon trick. A real solution would tackle directly the thorny problem of growing treatment costs. That includes the mind-boggling price of some breakthrough drugs, the enormous amount spent treating people with preventable chronic diseases, and the rampant inefficiencies of a healthcare system built to profit from illness, not wellness.
Addressing the broad issue of healthcare costs would also help the nearly 300 million covered by employer and government insurance programs, not just the 20 million in the individual market. But it’s a tough nut to crack, something that will take years to accomplish. And consumers in some states can’t wait years for relief. Premiums are rising fast in their Obamacare exchanges, and insurers are fleeing.
In the short term, the solution isn’t to take more people out of those risk pools, as Cruz’s proposal would do. It’s to bring more people in.
Look at the results in California and other states that decided to operate their own insurance exchanges and to promote them aggressively. According to a new federal report — by the Trump administration, no less — Covered California’s pool of customers was 20% less risky — and consequently 20% less costly — than that of the average federally run exchange. The difference reflects the state’s decision not to let insurers sell “grandfathered” policies that didn’t comply with the ACA, preventing insurers from keeping their healthiest customers out of the risk pool. It’s also evidence of the work the state did to sign up people for coverage, in contrast to the lackluster or even counterproductive efforts in many states whose leaders opposed the ACA.
Having a huge population also helps. With that in mind, Congress should let smaller states jointly create regional insurance markets with much larger risk pools. Lawmakers should launch aggressive efforts to sign up more people for coverage, rather than letting the Trump administration refuse to enforce the penalties for going uninsured. The more healthy people who obtain coverage, the lower premiums will be. And they should look for ways to help more moderate-income Americans handle the higher cost of comprehensive coverage, rather than trying to lower premiums by letting insurers sell flimsier policies.
None of these approaches are likely to be on the table until the current “repeal and replace” efforts run out of steam. With some luck, the proposal pushed by Cruz will harden the split between the most and least conservative elements in the Senate GOP, and the real work on improving the ACA can begin.