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Tuesday, July 11, 2017

Senator Cruz’s Death Spiral Amendment

Senator Ted Cruz has been openly touting a proposal to amend the Senate’s health bill by allowing health plans to market cheap, narrow-coverage plans—that is, junk health insurance policies—as long as they also separately offer coverage that complies with minimal federal marketplace standards. This model will endanger affordable coverage for people with pre-existing conditions in multiple ways.   

The version of the Senate health bill that was released in June included several major elements that would severely damage protections for people with pre-existing conditions, including allowing states to waive essential health benefits requirements and sharply cutting assistance with premiums for older people and assistance with out-of-pocket expenses for others. 

The Cruz amendment would go even further in this damaging direction. 

It would allow insurance companies—as long as they sell at least one plan that does comply with federal requirements—to sell policies that fail to cover ten essential health benefits with no annual or lifetime limits or that fail to guarantee sale and renewal to people with pre-existing conditions. They could sell policies that discriminate against people based on their health status, fail to cover preventive care with no cost sharing, and fail to provide easy to read consumer information about the plan and its benefits. All these changes hurt consumers and harken back to the status quo before we saw the enactment of the ACA’s consumer protections.

We know from pre-ACA days that if insurers are not required to offer essential health benefits, they often don’t. They commonly omit coverage for outpatient prescription drugs, mental health, and substance use care, physical and occupational therapy, and maternity and well-baby care. Additionally, plans will limit the dollar amount of coverage they provide, and many will include fine print in their policies that exclude coverage for particular types of diseases or injuries. People who get seriously ill or have an accident after buying one of these plans will be out of luck, and consumers who have not read through the fine print of their policies will be surprised by expensive, uncovered costs when they seek care or start a family.

The immediate result of the Cruz proposal would be that the price of plans that comply with federal standards will soar. Right now, people are all in one insurance risk pool regardless of their health risk. When insurers offer skimpier plans that attract people who do not expect to have health care costs, the price of plans complying with federal standards—where all the people with high medical costs will flock—will rapidly escalate.

Cruz does not deny the certainty of this outcome. Rather, he hinges his argument that people with significant health needs will still be protected on the requirement that insurers also offer a “compliant” plan with decent benefits and the continued availability of federal subsidies for people using comprehensive plans. But there are several fundamental problems with this argument. 

People with pre-existing conditions with incomes above 350% of the poverty level—those not eligible for subsidies—will still face skyrocketing premiums as they find themselves stuck in plans that don’t have enough healthy people to balance out the pool and keep premiums low.

Silver Plan coverage—the most popular type of insurance in the Marketplace today—will become grossly unaffordable as the Senate bill cuts premium tax credits that help people afford plans with less deductibles and out-of-pocket expenses. Under the Senate bill people who want to instead buy a Silver plan with a lower deductible will have to pay the full price difference between a bronze and silver plan, in addition to the percentage of their income that they are charged for bronze coverage. Under the Cruz amendment this problem will get much worse as the price gap between compliant silver and bronze plans widens, causing people to pay even more of their incomes for the silver plans.

And governmentally-sponsored insurance markets that are limited to people with high health costs are historically unstable. The long, troubled history of state-run high risk pools demonstrates how difficult it is to sustain a meaningful individual insurance market that serves only those with pre-existing conditions, that is, only people with high medical costs. 

Bottom line: If you create one pool for healthy people and one pool that only covers sick people—those with pre-existing conditions—you are thrusting sick people into a pool that is the very definition of a death spiral. It is also a recipe for higher costs for insurers and consumers, especially those with pre-existing conditions.