A Cunning Strategy to Back Door Risk Pools and Market Segmentation
Ted Cruz has offered an amendment—since included in the latest Republican Senate draft—that would enable health insurance plans to offer stripped down coverage outside the current Obamacare compliant individual market. Anytime spent covered by them would be considered a break in service and subject the consumer to the six-month lockout provision should they want to get into the standard market. Carriers offering these plans could not deny pre-existing conditions but could up-rate sicker people.
Critics, including the health insurance industry trade associations, have come out against the idea because it would bifurcate the market into two separate pools—the healthier “Cruz pool” and the standard individual market subject to all of the current Obamacare consumer protections.
And, while the most recent version of the Cruz amendment would require insurers to pool both their standard and "Cruz pool" business, there are any number of ways for carriers to game that requirement. For example, health plans would be required to offer both a Gold and Silver standard plan. But there is no requirement they make those premiums competitive thereby limiting their impact on the "Cruz pool" business.
Perhaps more importantly, the "Cruz pool" plans would not be included in the standard market's risk adjustment program––the one of the biggest elements in leveling the playing field between competing plans. Here is a snapshot from a July article from the American Academy of Actuaries that illustrates how even with a single risk pool the market can be gamed––even if there were a risk adjustment system:
Cruz also managed to get an association health plan provision in the earlier Senate bill—and this one—that would enable an association sponsor to shop for a state with the lowest benefit mandates and enable small groups—including “one life groups” where allowed—to put together programs more likely to attract the healthy part of the market.
So, why is Cruz pushing these proposals in the face of warnings that this would just bring cherry picking back to the market?
Because, I will suggest, he thinks separating the healthy from the sick is the way to make the market work better. Cruz, and his allies, really want to allow the now mainstream standard market to become the magnet for sick people.
Essentially, their strategy is to turn the current Obamacare compliant market into a high risk pool. They realize that they cannot overtly go back to the days of pre-existing underwriting and risk segmentation. Therefore, their aim is to turn the current individual market into the high-risk pool scheme they wouldn’t be able to pass on its own.
They really want to bifurcate the market.
The $70 billion in additional large claims subsidies the latest bill includes was inserted simultaneously with the Cruz stripped down plan proposal. The $70 billion is essentially a high-risk pool subsidy meant to satisfy the health plans who would be stuck with the sickest in their standard business.
Years down the line my sense is that Cruz envisions a health insurance market largely composed of his stripped down and cheaper plans dominating the market with a smaller part of the market—the sick—being subsidized by federal dollars going to stabilize the now smaller Obamacare market complying with all of the consumer protections and benefit mandates.
Telling Ted Cruz his plan would bifurcate the market into a sick and a healthy pool would not dissuade him. In fact, that’s the plan. He figured that out before he offered the idea.
I am reminded of something then Speaker Newt Gingrich said about Republican plans to put private Medicare plans in competition with public Medicare. He said that such competition with the market would ultimately almost entirely privatize Medicare because the traditional Medicare plan would “wither on the vine.”
If you can’t kill Obamacare outright, just set it up to wither on the vine.