Senate considering Cruz-Lee proposal, which could lead to unsustainably high premiums

Affordable Care Act does not allow insurers to turn away patients or charge more.

WASHINGTON — A health care proposal from Senate conservatives would let insurers sell skimpy policies provided they also offer a comprehensive plan. It’s being billed as pro-consumer, allowing freedom of choice and potential savings for many.

But critics including the insurance industry say it would split the sick and the healthy, leading to unsustainably high premiums for people with medical problems and pre-existing conditions, who may get priced out of the market unless taxpayers bail them out.

Senate Republican leaders trying to resolve differences between moderates and conservatives ahead of a health care showdown are taking a close look at the proposal from Sens. Ted Cruz, R-Texas, and Mike Lee, R-Utah, dubbed the Consumer Freedom Amendment. No final text has been made public, but the concept has been endorsed by Vice President Mike Pence.

A health care factoid can help frame the issue: U.S. health care spending is highly skewed toward the sickest people. According to government estimates, 5 percent of the population accounts for nearly half of health care spending. And half the population – the healthier half – accounts for only about 3 percent of spending. The traditional idea behind insurance is that the healthy subsidize the sick.

The Cruz-Lee proposal would affect people who buy individual health insurance policies, not those covered by employers. Under current Affordable Care Act, insurers cannot turn away people with medical problems, or charge them more, and policies have to provide comprehensive benefits. That has made coverage more robust, but it’s also raised premiums for relatively healthy people.

The Cruz-Lee amendment would technically leave in place Affordable Care Act-era insurance rules and consumer protections. But it would also allow insurers to offer plans that don’t follow those rules, provided the insurer also sells a plan that complies. Insurers could offer plans with reduced benefits, no maternity coverage, for example.

Cruz says his approach can bring down premiums for most people, delivering on a core promise by Republicans in their quest to repeal and replace the Affordable Care Act.

“You the consumer, you the patient, should have the freedom to choose the insurance you want,” Cruz said recently on CBS. “It shouldn’t be the government dictating what insurance you can buy.”

But critics say the idea would siphon premium dollars paid by healthy people out of the insurance pool that covers the sick. Premiums for those who need comprehensive coverage would shoot up. The two main insurance industry lobbying groups, America’s Health Insurance Plans and the BlueCross BlueShield Association have joined in opposing the plan.

“You have the possibility of two different risk pools,” explained economist Douglas Holtz-Eakin, a longtime Republican adviser. The markets functioning under Affordable Care Act-era rules “turn into expensive high-risk pools. If they are not heavily subsidized, they run the risk of becoming unsustainable and going into a death spiral.”

GOP leaders might want to think that over, added Holtz-Eakin. “It would seem like an undesirable outcome for an exercise intended to rescue (Affordable Care Act markets) that are melting down,” he said.

A former Obama administration official agrees that the Cruz-Lee idea could create new problems. Insurance expert Karen Pollitz, now with the nonpartisan Kaiser Family Foundation, said several states tried a similar approach in the past, and it didn’t go well.

“When you create an uneven playing field in health insurance regulation, you create instability,” said Pollitz. “People who need (comprehensive) benefits go to those policies, which become more expensive. People who think they can live without those protections go to the cheaper policies and take with them their premium dollars.”

Cruz says that doesn’t have to happen. Both the Senate and House GOP bills would set up a pool of money that states can tap to stabilize insurance markets. Those funds could be used to subsidize premiums for people with health problems. But critics say that would depend on how much money is provided.

The insurance industry says the Cruz-Lee approach is bad policy. “The ‘Consumer Freedom Option’ is unworkable as it would undermine pre-existing condition protections, increase premiums and destabilize the market,” BlueCross BlueShield President Scott Serota wrote the senators in a letter released Wednesday.

Senate Republican leaders say they plan to hold a vote next week on legislation that would roll back much of the Affordable Care Act-era health law.