The health care bill that passed the House a few months ago called for Americans with a history of serious illnesses to be covered in their own, special high-risk insurance pool.
When the Senate unveiled its health legislation in June, it notably omitted the unpopular provision, instead requiring that all Americans be covered by the same kind of insurance, and be charged the same price as other customers of the same age.
Now Senator Ted Cruz of Texas has an idea that could bring back the high-risk pool.
When the Senate unveiled its health legislation in June, it notably omitted the unpopular provision, instead requiring that all Americans be covered by the same kind of insurance, and be charged the same price as other customers of the same age.
Now Senator Ted Cruz of Texas has an idea that could bring back the high-risk pool.
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His proposal, which he’s circulating to his colleagues on typed handouts, wouldn’t explicitly create and fund the special insurance markets, as the House bill did. Instead, insurance experts said, it would create a sort of de facto high risk pool, by encouraging customers with health problems to buy insurance in one market and those without illnesses to buy it in another.
Senate leaders are taking the proposal seriously, as it offers something for conservative and moderate lawmakers, at least on paper. And, according to a Fox News interview with Marc Short, the White House director of legislative affairs, the Congressional Budget Office is evaluating the plan this week.
Senate leaders are taking the proposal seriously, as it offers something for conservative and moderate lawmakers, at least on paper. And, according to a Fox News interview with Marc Short, the White House director of legislative affairs, the Congressional Budget Office is evaluating the plan this week.
There is no public legislative language yet, but here’s how Mr. Cruz’s plan appears to work, based on his handout and statements: Any company that wanted to sell health insurance would be required to offer one plan that adhered to all the Obamacare rules, including its requirement that every customer be charged the same price. People would be eligible for government subsidies to help buy such plans, up to a certain level of income. But the companies would also be free to offer any other type of insurance they wanted, freed from Obamacare’s rules.
People who bought the Obamacare-compliant plans would be eligible for subsidies that limit their cost, as long as their income was less than about $42,000 per year for a single person. And those who earn more — or wish to buy skimpier, cheaper plans without all the rules — may also get a discount on those premiums, in the form of pretax health savings accounts, which the legislation would let them use to buy insurance.
As Mr. Cruz told Dylan Scott of Vox.com, “You would likely see some market segmentation,” meaning that healthy and sick customers would probably pick different kinds of insurance. Healthier, wealthier people would tend to gravitate toward the skimpy plans. Sicker people would opt for the compliant plans, which cover more benefits. Even though the compliant plans wouldn’t technically be more expensive for the sick, those choices would mean that mostly sick people would buy them, and the prices could get extremely high.
“There have been Nobel Prizes in economics awarded for the finding that when you allow an insurance market to segment like that, you end up with basically an unstable market,” said John Graves, an assistant professor of health policy at Vanderbilt University. Mr. Graves said that the government subsidies would blunt the financial impact for people below the income threshold, but the government would get stuck paying for most of the extremely high premiums.
Just a few states allow older noncompliant plans, or allow special plans that price their products according to the health history of customers. This includes Iowa, a target for Republican critics because of its expensive and shaky market.
Before Obamacare, Congress established a program that required insurers to offer special plans to people if they signed up right after leaving the employer market, an exception to the rule for normal plans, where insurers could discriminate against the sick. The guaranteed insurance products tended to be extremely expensive, because only sick people bought them.
People who bought the Obamacare-compliant plans would be eligible for subsidies that limit their cost, as long as their income was less than about $42,000 per year for a single person. And those who earn more — or wish to buy skimpier, cheaper plans without all the rules — may also get a discount on those premiums, in the form of pretax health savings accounts, which the legislation would let them use to buy insurance.
As Mr. Cruz told Dylan Scott of Vox.com, “You would likely see some market segmentation,” meaning that healthy and sick customers would probably pick different kinds of insurance. Healthier, wealthier people would tend to gravitate toward the skimpy plans. Sicker people would opt for the compliant plans, which cover more benefits. Even though the compliant plans wouldn’t technically be more expensive for the sick, those choices would mean that mostly sick people would buy them, and the prices could get extremely high.
“There have been Nobel Prizes in economics awarded for the finding that when you allow an insurance market to segment like that, you end up with basically an unstable market,” said John Graves, an assistant professor of health policy at Vanderbilt University. Mr. Graves said that the government subsidies would blunt the financial impact for people below the income threshold, but the government would get stuck paying for most of the extremely high premiums.
Just a few states allow older noncompliant plans, or allow special plans that price their products according to the health history of customers. This includes Iowa, a target for Republican critics because of its expensive and shaky market.
Before Obamacare, Congress established a program that required insurers to offer special plans to people if they signed up right after leaving the employer market, an exception to the rule for normal plans, where insurers could discriminate against the sick. The guaranteed insurance products tended to be extremely expensive, because only sick people bought them.
The Cruz solution does address one of the concerns many critics raised about the high-risk pool idea in the House bill: inadequate funding. The House set aside a modest pot of money to help states pay premiums for residents with very high health care costs — an amount many outside experts said would be too low to make insurance affordable for them.
Under the Cruz plan, subsidies for the compliant products would be automatic and unlimited, able to keep increasing in value as prices go up. In that way, they would become a sort of entitlement program just for sick people. Once healthy people developed illnesses that their thinner plans didn’t cover, they could switch over.
But there is one big drawback to the Cruz plan, compared with a traditional high-risk pool. Because of how the proposal is structured, only Americans with relatively low incomes would be able to access the tax credits. That means that, even for Americans solidly in the middle class, comprehensive insurance might remain out of their financial reach.
Imagine some people earning $50,000, with a history of arthritis. They might not be able to buy insurance in the noncompliant market, and they might not be able to afford insurance on the special Obamacare market, where premiums could skyrocket as all the healthy customers left the risk pool.
“If you’re unsubsidized, and you can’t find an underwritten plan, you’re stuck being uninsured or paying exorbitant premiums,” said Sabrina Corlette, a director at the Center on Health Insurance Reforms at Georgetown University.
The Affordable Care Act sets up insurance price cliffs based on income, too. Its subsidies help only customers earning below about $48,000 a year for a single person. But because there are healthy as well as sick people in the insurance market, the cliffs are less steep than what might occur under the Cruz plan, which could create strong disincentives for people with serious health care needs to increase their incomes above the thresholds.
Ms. Corlette pointed out another risk of such a system: It would create big disincentives for insurance companies to attract customers into their compliant plans, since no company would want to take on the risks of covering so many very sick patients. That could lead to limited marketing and bad customer service, but the bigger worry, she said, was that the system would encourage companies to steer as many customers as possible into noncompliant plans or the plans of their competitors.
Still, the Cruz proposal solves a political problem, which is why it has some legs. It gives conservative lawmakers a way to roll back Obamacare rules. And for moderates, it preserves the health law’s pre-existing conditions protections and all of its benefits rules, albeit for a smaller segment of Americans.
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Under the Cruz plan, subsidies for the compliant products would be automatic and unlimited, able to keep increasing in value as prices go up. In that way, they would become a sort of entitlement program just for sick people. Once healthy people developed illnesses that their thinner plans didn’t cover, they could switch over.
But there is one big drawback to the Cruz plan, compared with a traditional high-risk pool. Because of how the proposal is structured, only Americans with relatively low incomes would be able to access the tax credits. That means that, even for Americans solidly in the middle class, comprehensive insurance might remain out of their financial reach.
Imagine some people earning $50,000, with a history of arthritis. They might not be able to buy insurance in the noncompliant market, and they might not be able to afford insurance on the special Obamacare market, where premiums could skyrocket as all the healthy customers left the risk pool.
“If you’re unsubsidized, and you can’t find an underwritten plan, you’re stuck being uninsured or paying exorbitant premiums,” said Sabrina Corlette, a director at the Center on Health Insurance Reforms at Georgetown University.
The Affordable Care Act sets up insurance price cliffs based on income, too. Its subsidies help only customers earning below about $48,000 a year for a single person. But because there are healthy as well as sick people in the insurance market, the cliffs are less steep than what might occur under the Cruz plan, which could create strong disincentives for people with serious health care needs to increase their incomes above the thresholds.
Ms. Corlette pointed out another risk of such a system: It would create big disincentives for insurance companies to attract customers into their compliant plans, since no company would want to take on the risks of covering so many very sick patients. That could lead to limited marketing and bad customer service, but the bigger worry, she said, was that the system would encourage companies to steer as many customers as possible into noncompliant plans or the plans of their competitors.
Still, the Cruz proposal solves a political problem, which is why it has some legs. It gives conservative lawmakers a way to roll back Obamacare rules. And for moderates, it preserves the health law’s pre-existing conditions protections and all of its benefits rules, albeit for a smaller segment of Americans.
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