Would Ted Cruz’s ‘Consumer Freedom Option’ lead to an insurance death spiral?
Last week, the Senate released a revised version of the Better Care Reconciliation Act, which included a “Consumer Freedom Option” proposed by Senator Ted Cruz (R., Texas). This would have repurposed the exchanges established by the Affordable Care Act as a safety net for low-income able-bodied individuals and those with pre-existing conditions, but allowed others seeking health insurance on the individual market to purchase plans exempt from the ACA’s costly regulatory mandates.
Various interest groups and liberal activists have alleged that Cruz’s proposal would lead to a death spiral on the exchange but have cited little hard data in support of this claim. Nor have they addressed the fact that most individuals remaining on the exchange would receive public subsidies, which insulate them from premium increases and would serve as an automatic stabilizer for the bulk of the risk pool.
The net consequences of the Cruz amendment are therefore the subject of substantial disagreement, stoked by fear-mongering from those with a stake in maintaining the status quo. This is usually where the Congressional Budget Office (CBO) brings light to the discussion, but they have insisted that the Cruz amendment will take them a month to score and so have remained silent.
Although the unprecedented interaction of many different factors would undoubtedly require a great deal of research to analyze in all its complexity, the CBO has developed many tools to assess changes to health-care policy and would be quite capable of producing a rough provisional estimate (with caveats and qualifications) at short notice if it wished to do so. CBO’s purpose is to inform the lawmaking process, and it is of little use if it refuses to yield any contribution until after the window for enacting legislation has closed.
The Department of Health and Human Services has stepped into the void, releasing estimates based on a similarly pre-constructed model of the insurance market. What does this tell us about the potential consequences of the Cruz amendment?
First, it confirms the intuition of critics that there will be further risk segmentation. But, in quantifying this effect, it draws attention to the fact that most unsubsidized low-risk individuals have already left the exchange and that this dynamic can’t go much further. Although the HHS report could have done more to investigate how this would interact with the effect of BCRA’s increased cost-sharing, fears that the Cruz amendment would necessarily induce a death spiral on the exchange are clearly overblown.
Senator Lee had declared his opposition to the Senate bill, which caused its collapse, because he worried that it required Cruz plans to fully pool risk with the exchange. The HHS analysis estimates two sets of effects — one for a Consumer Freedom Option that remains part of the same risk pool as the exchange (and is forced to bear the costs associated with it through risk-adjustment), and another for a segmented-risk scenario where Freedom Option plans would not be responsible for the costs incurred by the exchange.
HHS estimates that a single risk pool would costs taxpayers $15 billion less and cover 2 million more than current law and that a segmented risk system would cost taxpayers $10 billion more and cover 3 million more than current law. This confirms the intuition that the Cruz amendment would serve more to bring the uninsured back into plans than it would to undermine the coverage of those with pre-existing conditions.
It may seem odd that a segmented-risk system championed by conservatives scores as costing more than the single risk pool, but the essence of a single risk pool is ultimately an attempt to maintain the ACA’s taxation-by-regulatory-mandate structure, which imposes invisible taxes through premiums. HHS estimates that 2024 Consumer Freedom Option premiums would be 8 to 33 percent lower than the 2017 exchange silver-plan premium if a single risk pool were maintained, and 44 to 47 percent lower if plans were allowed in a separate risk pool.
CBO may eventually land closer to HHS’s projections of the impact of the Cruz amendment than critics would like to believe.
Liberals have leapt to criticize the motives, methods, and assumptions involved in the HHS estimates. They have advanced an array of nitpicks and assailed the lack of documentation about its modeling assumptions (which approximate and may even go beyond what CBO tends to disclose alongside its projections) but have offered no serious engagements with the central points and provided no alternative analysis of the trade-offs identified.
No projection is above criticism, but I suspect that CBO may eventually land closer to HHS’s projections of the impact of the Cruz amendment than critics would like to believe. When the House proposal to replace the ACA was released, the Centers for Medicare and Medicaid Services (CMS) and CBO issued rival scores which diverged substantially. Yet the question of whether states would react to reductions in Medicaid matching rates by eliminating program enrollment expansions is ultimately a matter of loosely educated political guesswork. The question of which individuals would leave the exchange if Cruz plans became available largely depends on the magnitude of subsidies that various individuals would be entitled to receive by remaining enrolled in the exchange — an issue of fact about which there is little disagreement.
In truth, the main liberal grievance with the HHS report on the Cruz amendment is that its statistics are framed to succinctly highlight the virtues of the proposal — something the GOP has thus far failed to do in its attempt to replace the ACA.
Multiple investigations of complex issues are good to have. If CBO wants to contribute to the conversation over the Cruz amendment, it should hurry up.
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