July 10, 2017
Recently, there has been a lot of hue and (of course) cry over the potential repeal and replacement of the Affordable Care Act (hereinafter Obamacare). Senate Republicans, led by Mitch McConnell and Ted Cruz, have been floating proposals in order to entice recalcitrant moderate GOP senators to unite behind a bill, any bill, to repeal and replace Obamacare.
Last week, Senator Cruz proposed an amendment to the current Senate bill which would allow insurance companies to sell non-Obamacare-compliant policies alongside Obamacare-compliant policies in the same markets. Industry experts immediately, and correctly, pointed out that this would result in young and healthy people buying the cheap policies, while older and sicker people would have to buy full coverage. In insurance parlance, this is referred to as “adverse selection”. Since older and sicker people would have worse claims experience, their premiums would rise significantly, which would in turn price the healthiest people out of the market, which makes claims experience yet worse… This is the classic “death spiral” of an insurance market.
So, you say, what is to be done? Were I a Republican senator, I would propose a couple of tweaks to the Cruz amendment. First, limit the number of Obamacare “essential services” which can be dropped by insurance companies. It seems that every Republican has the same talking point; “Why should 60-year-olds be compelled to pay for maternity services?” (This is a fallacious argument, but I’ll leave why that is so for another article). So allow policies that don’t cover maternity or mental-health services, which seem to be the main bugaboos of the GOP.
Secondly, and more importantly, cap premiums for compliant policies at some percentage, say 125 or 130 percent, of the premiums for noncompliant policies. This would bring some price stability to the markets and mitigate adverse selection to some extent. The CBO would probably still hate it, but they wouldn’t hate it as badly as they hate the current bill.
These tweaks would produce a bill that might actually overcome some moderate Senators’ objections to the current repeal proposal. Whether it could be passed in the current highly toxic political environment is uncertain, to say the least, but it would be a better deal for the American consumer than what’s on the table now.