The new Senate Republican health care bill fundamentally changes the way insurers can treat sick people.
It allows insurers to create plans that don't comply with Obamacare regulations — as long as they also provide plans that do comply. (Read more about the other provisions in the new version of the GOP Senate health care bill in Sarah Kliff's Vox explainer.)
This provision, proposed by Texas Sen. Ted Cruz, would mean healthy people would buy the skimpy plans and sick people would buy plans compliant with the Affordable Care Act. The result is that sick people would essentially be grouped into a "high-risk pool" — and would pay much, much more for coverage.
To explain why, let's explore with this cartoon:
Imagine a bunch of people ranging from healthy to sick.
They go to the insurance company to buy coverage, and they are each presented with two types of plans:
The plans that comply with Obamacare regulations are expensive, but they cover a broad range of things that are considered essential — like pregnancy and mental health services. They must cover everyone, regardless of how sick they are.
These seem like a good option for people who are sick or have special medical circumstances.
The plans that don't comply are skimpy — they don't have to cover basic things like mental health services, and they can have extremely high deductibles, making them look a lot like catastrophic plans as opposed to real health insurance plans. And insurance companies can deny these plans to sicker people.
These seem like a good option for younger, healthy people who don’t need many services.
This creates a kind of sorting, where younger, healthy people get the cheap plans and sick people get the more comprehensive, expensive plans.
But even if sick people want to buy the less expensive plans, the insurance company doesn't allow them to buy the cheaper, unregulated plan because their costs would go up.
They are all forced to buy the Obamacare-compliant plan.
So let's review how these groups got split up:
Sick people cost a lot of money. So in order to make up for that, the insurance company increases premiums on the Obamacare-compliant plan. This essentially turns Obamacare-compliant plans into a "high-risk pool." Vox’s Sarah Kliff explains how this worked before Obamacare:
Before the Affordable Care Act, there were 35 states with high-risk pools. In 2011, these pools covered 226,234 people, or 0.0007 percent of the American population. But the small group generated a massive number of health care claims. They spent a collective $2.5 billion on health care in 2011. States lost a collective $1 billion on these bills.
Because costs are extremely high, it’s also possible that people who aren’t as sick decide it's not worth it anymore. So they leave that plan and try to buy the cheaper, noncompliant plan — if insurance companies accept them. They don’t have to, since the new Republican bill allows insurance companies to create the noncompliant plans that reject people with preexisting conditions.
But since that means the people in the Obamacare-compliant plan are, on average, sicker and more expensive, the insurance company has to raise premiums even further on them.
And now even more sick people can't even afford these plans, so they leave. But they can’t just enroll in the cheaper, noncompliant plan — because with those plans, insurance companies are allowed to deny them for having preexisting conditions.
Senate Republican see that this could happen. So to make costs more manageable for the people buying Obamacare-compliant plans, they toss in about $200 billion for insurers to offset to cost of sick enrollees in the Obamacare-compliant plans.
Let's take a step back and see what we're left with.
In one group are sick people who are covered by a decent insurance plan but are paying premiums so high that some of them can't afford it.
In the other group are healthy people paying lower costs for skimpy plans that some experts would barely count as coverage, which could undermine the preventive care that lowers health care costs.
Ultimately, as Vox's Ezra Klein writes, the system “returns individual insurance markets to the bad old days when insurers competed on insuring the healthy and finding ways to avoid covering the sick."
Insurance is supposed to be able to cushion the blow of people with high health care costs by putting them in the same risk pool as healthy, low-cost people:
But the Senate Republican bill incentivizes insurers to put all the sick people in the same risk pool, without healthy people to cushion their costs. And since those are the only plans that have to be Obamacare-compliant and accept people no matter how sick they are, we'd likely end up with a bunch of sick people in one pool with runaway costs — and a bunch of healthy people in another pool, desperately hoping they don't one day end up sick.