The other day, I wrote a piece lauding an amendment Sen. Ted Cruz (R-TX) was proposing to add to the Senate GOP's health care bill. Cruz called it the Consumer Freedom Amendment. If insurers offered two ObamaCare-compliant plans to all comers, the Cruz amendment would have freed them to sell--and freed consumers to purchase--health-insurance plans that did not comply with those regulations. The legislative language I saw appeared to free consumers, not from all the regulations I would like, but from enough that it would have made the Senate bill a step in the right direction. It also included more restrictions on the use of this "freedom option" than I would like, but same thing. The changes would have dramatically reduced premiums for consumers. Perhaps more important, it would have offered more comprehensive and more secure coverage to people who develop expensive illnesses than ObamaCare does.
Today, Senate GOP leaders released an updated draft of their health care bill.
This draft imposes ObamaCare's "single risk pool" price controls on "freedom option" plans. Long story short, that means there is no "freedom option" in this bill. Insurers probably would not even offer non-compliant plans. If they did, ObamaCare's "single risk pool" price controls would make secure, guaranteed-renewable health insurance impossible by taxing such plans to death. Here's how.
- The "single risk pool" price controls would require insurers to increase premiums for both ObamaCare-compliant plans and non-compliant plans by the same percentage. If claims in the compliant market necessitate a 10 percent increase, while claims in the non-compliant market necessitate only a 6 percent increase, the insurer would have to increase premiums in the former market by too little and/or increase premiums in the latter market by too much.
- Let's say insurers split the difference by increasing premiums in both markets by 8 percent. In the second year, insurers would be over-charging consumers in the non-compliant market. The problem would only get worse with time. By year five, the insurer would be overcharging consumers in the non-compliant plans by almost 10 percent. That creates an incentive for the insurer or a competitor to issue new, appropriately priced non-compliant plans that lure the healthy people out of the old non-compliant plans.
- Consumers who developed expensive illnesses in the first year could not switch to the new non-compliant plans, because insurers would underwrite them and charge them an even higher premium. So those folks would stay in the old non-compliant plans until the hidden tax imposed by the "single risk pool" price controls made those plans a worse deal than the heavily subsidized ObamaCare-compliant plans. At that point, those consumers would switch to the ObamaCare-compliant plans. Actually, the effect would be a lot like that of the MacArthur waivers in the House's health care bill. [Update: Astute reader Doug Badger notes that because the non-compliant plans do not qualify as creditable coverage, people in those plans could not automatically switch to ObamaCare-compliant plans. "They would either have to renew their existing policy, buy another non-ACA-compliant policy, or remain uninsured for a period of six months before enrolling in a policy sold through the Exchange," he writes. Another option would be for the enrollee (or a parent or spouse) to take a job with health benefits for twelve months and then switch to an ObamaCare-compliant plan. Since employer-sponsored insurance would count as creditable coverage, there would be no waiting period, and while employers may impose waiting periods of up to 90 days for health benefits, the enrollee could keep her non-compliant plan until she is eligible to enroll in the employer plan. To the extent these strategies are feasible, newly sick enrollees in old non-compliant plans would and could migrate to compliant plans. To the extent such strategies are infeasible, the "single risk pool" price controls would create a trifurcated market of (1) healthy people hopping among non-compliant plans and (2) newly sick people stuck in increasingly overpriced non-compliant plans that subsidize (3) people with preexisting conditions in ObamaCare plans. Presumably, however, at a certain point, the costs of remaining in increasingly overpriced non-compliant plans would exceed the costs of those switching strategies.]
- In other words, secure, long-term, guaranteed-renewable coverage would be impossible, because the "single risk pool" price controls would tax those plans to death.
- This dynamic would happen even faster if insurers increase both the compliant and noncompliant plan premiums by 10 percent, which they probably would.
I'm not saying there's no way Senate Republicans can redeem their bill. I have offered ideas that might. But at this point, the Cruz amendment does not redeem or even add to the bill.
I don't get Republicans' sudden infatuation with price controls.