Cruz insurance proposal underscores trouble with protecting pre-existing conditions

Health insurers are nervous about a new deregulation proposal by Texas Sen. Ted Cruz that could be added to the Senate Republicans' struggling legislation to repeal and replace the Affordable Care Act.

Cruz, who has withheld his support for the Senate GOP bill, suggested Wednesday that he could back the bill if it's revised to include his idea. He wants to allow insurers to sell individual-market plans that don't meet the ACA's popular consumer protections-as long as they offer at least one plan in the same market that complies with those mandates. He argues that would make premiums more affordable.

Insurance groups and policy experts warn, however, that this approach would create instability in the individual market by fragmenting the risk pool and driving up premiums for sicker people who need expensive care. They say it would turn the market for ACA-compliant plans into a de facto high-risk pool, but without an adequate, dedicated funding stream to make that model viable.

"Insurers are concerned that would make it challenging to keep premiums low for everyone," said an insurance industry official who did not want to be named.

"The sick would be attracted to generous plans, while the healthy would be attracted to cheaper plans, with the knowledge they could always move into more generous plans if they got sick," said Craig Garthwaite, a health insurance expert at Northwestern University. "That kind of adverse selection makes pricing and offering insurance very hard."

Cruz's proposal would mean insurers could sidestep ACA rules requiring that they accept all customers regardless of pre-existing conditions; vary premiums based only on age, charging older people up to five times more than younger people under the Senate bill (compared with a limit of three times more under the ACA); set no annual or lifetime benefit limit; and offer 10 minimum essential benefits in all plans.

Political observers say Cruz's proposal could help bring about a compromise between Senate ultraconservatives and moderates and enable Majority Leader Mitch McConnell to get the minimum 50 Republican votes he needs to pass the bill when senators return from recess July 11.

It might persuade Cruz and other ultraconservatives to go along with the moderates' demand for more funding for Medicaid and tax credits. It also could ease passage in the House, where a GOP ultraconservative leader said he likes Cruz's proposal.

It's not known whether McConnell will include Cruz's proposal in the revised bill he plans to send to the Congressional Budget Office for a new evaluation of its cost and coverage impact. But senior Senate Republicans said they're open to the proposal.

"There's some value" to the idea in terms of "giving people more options and more freedom to get the policy that they want," Sen. John Thune of South Dakota, the third-ranking Republican told Bloomberg News.

But the proposal highlights the tension between Republicans who want to abolish the ACA's protections for consumers with the goal of lowering premiums, and those who want to preserve them as much as possible to ensure coverage for people with pre-existing medical conditions. That's a key reason Republicans are struggling to get 50 votes to pass their bill.

Cruz's proposal "would lead to adverse selection in the marketplace, and it would vitiate the important consumer protection of having a prohibition against annual and lifetime caps," Republican Sen. Susan Collins of Maine, a moderate who has voiced strong doubts about the bill, told Bloomberg.

There also are doubts about whether Cruz's proposal would comply with Senate rules, which require all provisions of a budget reconciliation bill to have a budgetary impact as their main purpose.

In an interview with Vox, Cruz acknowledged the insurance market segmentation issues his proposal could cause. But he argued that sicker people still would be able to afford more-expensive ACA-compliant plans because the Senate bill would continue to offer them premium tax credits.

Even if he's right, people with higher incomes who don't qualify for those tax credits and who have costly medical conditions could be priced out, experts say. The Senate bill limits tax credits to people with incomes up to 350% of the federal poverty level, down from 400% under the ACA, thus offering financial help to fewer Americans.

Affordability for higher-income consumers who don't qualify for subsidies has been a major concern under the ACA. That problem could get worse under Cruz's proposal.

Insurance groups reacted cautiously to Cruz's proposal. "We admire the senator's efforts to think creatively and would be very happy to discuss the idea in greater detail, as many unanswered questions remain," said Ceci Connolly, CEO of the Alliance of Community Health Plans.

The proposal is a variation of provisions in the House and Senate repeal-and-replace bills to give states flexibility to let insurers sell plans that operate outside the ACA's consumer-protection rules. And its effects likely would be similar.

The Congressional Budget office said Monday that the Senate bill's provision allowing states to waive ACA rules such as essential benefits would lead to higher premiums and higher out-of-pocket costs for people who need services no longer included in essential benefits. Some people would forgo needed services because of those higher costs, it said.

Garthwaite said Cruz's proposal spotlights the tough dilemma Republicans face as they struggle to replace the ACA's intricate framework of subsidies and regulations with a more conservative, free-market model. They want to keep the law's protections for people with pre-existing conditions, but they're unwilling to accept the other parts of the law making that possible.

"Cruz is a very smart man and I think he can understand this," he said. "But facts are inconvenient. "We'd like the world to be one way, and that's just not the way the world is."