Before the Affordable Care Act, insurance companies could offer any combination of benefits in most states and legally call them a health insurance policy. A huge deductible? Coverage for only one night of hospitalization? Nothing for maternity care, mental health or medication?
If consumers were willing to buy such “bare bones” plans — and some people did, usually at very low prices — those policies were considered health insurance coverage.
“If they sold you a policy that covered [only] a toothbrush, that qualified,” said Karen Pollitz, senior fellow at the Kaiser Family Foundation.
The ACA did away with that, mainly by requiring that all health plans on the individual and small-group market include certain “essential benefits” for everyone: prescription drugs, lab services, even maternity care, to name a few.
Now Texas Sen. Ted Cruz (R) wants to again allow insurers to sell whatever bare-bones coverage they desire and consumers to purchase it. To qualify, insurers would just have to offer one plan that complies with the ACA’s comprehensive benefits standard.
It may sound good in theory — free markets and freedom of choice — and it’s an idea that has long been popular with conservatives. But experts say insurance simply doesn’t work this way, and the “Cruz amendment” would unleash destructive forces for individuals without employer-sponsored coverage as well as for the system.
The senator and his allies “have been very clear,” said Sarah Lueck, a senior policy analyst for the Center on Budget and Policy Priorities, a left-leaning think tank. “They want lower premiums, and they think that keeping healthy people and sick people separate keeps premiums lower. Well, it does. For healthy people.”
But, she added, “From an insurance perspective, and from a consumer protection perspective, it wouldn’t work.”
The insurance industry echoed that late Friday, strongly opposing Cruz’s “Consumer Freedom Option” in a letter to Senate Majority Leader Mitch McConnell (R-Ky.) and Minority Leader Charles E. Schumer (D-N.Y.)
“It is unworkable in any form and would undermine protections for those with significant medical conditions, increase premiums and could lead to widespread loss of coverage for people currently enrolled in the individual market,” wrote the main industry trade group, America’s Health Insurance Plans, and the Blue Cross Blue Shield Association.
Ultimately, the starkly explicit letter warned, “This provision will lead to far fewer, if any, coverage options for consumers who purchase their plan in the individual market. As a result, millions of more individuals will become uninsured.”
Here’s how this all would play out: Insurance premiums paid by the vast majority of healthy people, who use relatively few medical services each year, cover the costs for those who are ill and require the care provided by the world’s most expensive health system. Leaving aside myriad complexities of insurance markets, ideally it balances out. People are covered for much of the care they get, insurance companies make a profit, and health care providers are reimbursed for their services.
Yet if the sick and the well are sorted — or sort themselves — into separate pools, the system can start to fall apart. With the well no longer subsidizing the sick, the latter may face ever-escalating premiums or fewer choices entirely if insurers no longer are required to sell to anyone who wants to buy a policy.
And in a related scenario, people who are priced out the market because of a preexisting medical condition, who turn to a health plan with minimal coverage, can find themselves unexpectedly facing very high bills. So can individuals on such a plan who are diagnosed with a serious disease like cancer.
Meanwhile, everyone else who receives insurance through the workplace or can afford to purchase robust coverage continues in a de facto separate system.
“It’s just Insurance 101,” Lueck said. “You don’t create two disparate markets and then let healthy people leave your marketplace.”
Under the Senate bill, the ACA’s premium subsidies would still be available to those earning up to 350 percent of the federal poverty level, blunting the cost for many. But middle-income Americans who earn more could face skyrocketing costs without the same consumer protections afforded under the 2010 health-care law.
Those Americans would still be subject to a penalty if they didn’t maintain continuous coverage. The Senate legislation erases the ACA’s individual mandate to buy coverage, replacing it with a six-month waiting period for those who have been uninsured for at least two months in the previous year.
The Cruz amendment would go an extra step, potentially prodding millions of people with problems like diabetes or heart conditions to stay insured. But depending on what they purchase, it wouldn’t guarantee them the ACA’s consumer safeguards.
Conservatives have criticized the Cruz amendment as well. Douglas Holtz-Eakin, former Congressional Budget Office director under president George W. Bush, warned that it would send premiums skyrocketing for older and sicker people.
But Holtz-Eakin was more positive about the latest iteration of the Senate GOP legislation, which provides an additional $72 billion that states could use to stabilize their individual marketplaces.
“Everyone will want to stay on the exchange and use that money to subsidize off-exchange people,” Holtz-Eakin said. “All that money is fungible.”
The idea of minimal coverage was tried before the ACA became law, with little success. In 2009, during the Great Recession, Consumer Reports noted that an estimated 14,000 people a day were losing employer-based health insurance. When some turned to individual or small-group plans, they found that they had purchased “coverage so riddled with loopholes, limits, exclusions, and gotchas that it won’t come close to covering their expenses if they fall seriously ill,” the magazine wrote.
At the time, the system favored young, healthy people who wanted to buy cheaper plans without all the frills. And indeed, those are the people have shied away from many of the Obamacare marketplaces, frustrated by premium hikes and willing to instead pay the relatively small fine for lacking coverage.
But there were also some consumers who bought lower-cost coverage without understanding the limitations of such plans, which companies and brokers marketed heavily, said Pollitz at the Kaiser Family Foundation.
“People don’t really get health insurance,” she said. “They mostly price-shopped, and if a policy was only 50 bucks a month, they said ‘I can afford that.’ ”
As Republicans have focused on repealing and replacing the ACA this year, conservative lawmakers have started defining success by just one benchmark: Whether a GOP bill would lower insurance premiums. That wouldn’t necessarily make plans affordable, however; many compensate with much higher deductibles and copays.
Cruz has fully embraced the narrower goal. The ultimate test of success, he said in May, is whether a final GOP plan lowers premiums.
“If we drive down the cost of premiums so that people who are struggling can more easily afford health insurance for their family, we will have succeeded,” he said. “If the cost of premiums continues to skyrocket, as they have under the last seven years under Obamacare, than we will have failed.”