An amendment is under consideration that maybe, just maybe, could unlock the whole Senate Republican health bill. It might knock over the dominoes necessary for a deal, starting with regulations, moving to tax subsidies, and ending up with more cash for Medicaid and fewer tax cuts for the rich.
It comes with big long-term risks for Americans who have high medical costs — and it could ultimately shift the burden of covering the uninsured further away from middle-class Americans who already have insurance, and more onto predominantly wealthy taxpayers.
Its author? Sen. Ted Cruz of Texas.
Senate conservatives have been searching desperately for a way to unwind more of Obamacare’s insurance regulations as part of the chamber’s health care bill. They are withholding their support for the current leadership plan because it does not go far enough on that front.
It has been a vexing quest. Obamacare’s protections for people with preexisting conditions — the requirement that health plans cover every American regardless of health status and the prohibition on charging sick people more than healthy people — are overwhelmingly popular. That makes many less ideological senators skittish about rolling those regulations back. Then there is also the problem of the Senate procedural rules, which limit what policies Republicans can include in their plan.
Cruz, an anti-Obamacare firebrand who has staked much of his reputation on helping shepherd this health care bill through the Senate, has maybe/possibly found a compromise.
No legislative text of Cruz’s proposal is yet available, but this is the gist: As long as a health plan offered at least one Obamacare-compliant plan in a state, the plan would also be allowed to offer non-Obamacare-compliant plans in that state.
Nothing is certain, but I’m told this is the main conservative ask on the health care bill right now. Senate Majority Leader Mitch McConnell (R-KY) is working hard to find a compromise by the end of the week, after the embarrassment of postponing a vote on the legislation until after July 4.
If conservatives get that win on insurance regulations, they might be willing to accept fewer tax cuts for the wealthy in the bill. Smaller tax cuts would, in turn, free up more money for McConnell to spend on Medicaid and insurance subsidies for poor and middle-class Americans. Those concessions are likely necessary to win over moderates who currently oppose the bill, some of whom are already agitating to scale back the tax breaks for the rich.
Every part of the plan is fickle, and McConnell’s margin for error is nil. But as he scrambles for a deal in the next few days, this might be his best bet. If it came to pass, it would represent a significant restructuring of who picks up the tab to cover the most vulnerable Americans.
Obamacare’s insurance protections have been a huge problem for Republicans
If conservatives had it their way, they would probably repeal all of Obamacare’s insurance mandates: the preexisting conditions protections, the requirement that plans cover certain essential health benefits, the rules for how much of a person’s medical costs a plan must cover, etc. They say those mandates have driven up health insurance premiums, and lowering premiums is their No. 1 policy objective.
But Americans are strongly supportive of, for example, requiring plans to cover everybody no matter their health: 69 percent approve, according to November 2016 poll by the Kaiser Family Foundation.
President Donald Trump also promised during his campaign to protect people with preexisting conditions. Some Republican senators therefore refuse to repeal the regulations nationwide.
“The president very explicitly said over and over again during the campaign that he wished to preserve guaranteed issue,” Sen. Bill Cassidy (R-LA) told me Wednesday. “We criticized Obama when he broke campaign promises. So I think we need to be sensitive to the contract our leading Republican made with the voters.”
Such a provision might also violate the Senate procedural rules that Republicans are using to pass the bill with a bare majority of 50, which are supposed to limit the health care bill to policies that directly affect federal spending and revenue.
So while some conservative senators, like Ron Johnson of Wisconsin, have been advocating in recent days for fully repealing Obamacare’s insurance reforms, that seems politically and procedurally unpalatable.
Cruz’s proposal could thread the political needle, but it has big policy asterisks
Enter Cruz. Here’s how the Texas senator described his plan, in his own words, on Wednesday:
If an insurance company offers at least one plan in the state that is compliant with the (Obamacare) mandates, that company can also sell any additional plan that consumers desire.
What that does is it maintains the existing protections, but it gives consumers additional new options above and beyond of what they can purchase today.
As a matter of politics, you could see how the idea would be a winner: Moderates can say they kept Obamacare’s insurance reforms and conservatives get to say they allowed non-Obamacare plans back on the market.
As a matter of policy, it’s a much more complicated picture.
The fundamental problem is sicker people would be drawn to the more robust Obamacare plans, while healthier people would gravitate toward the skimpier non-Obamacare coverage. That’s a reality that even Cruz acknowledges.
Then inside the Obamacare market, as more and more sick people buy coverage there, costs for health insurers go up and so they increase premiums. It has the makings of a classic death spiral. Because only sick people remain, premiums eventually increase to astronomic levels. It turns the Obamacare exchanges into a high-risk pool.
Cruz’s counter, when I asked him about this, was the Obamacare subsidies that the Senate bill is largely keeping, though it scales them down. Under Obamacare, people who receive the subsidies are partially inoculated from premium increases because they pay only a certain percentage of their income for health insurance. The Senate’s bill also includes upward of $100 billion to further subsidize people with high medical costs.
“You would likely see some market segmentation” Cruz told me. “But the exchanges have very significant federal subsidies, whether under the tax credits or under the stabilization funds.”
That is true. But outside experts argued that the costs to the federal government could be unsustainable. As the Obamacare markets turned into high-risk pools, premiums would increase, driving the cost of the tax subsidies higher and higher.
“Keeping the ACA tax credits would, in theory, protect subsidized consumers,” Larry Levitt, senior vice president at the Kaiser Family Foundation, told me. “But the cost of those tax credits would quickly skyrocket, because healthy people would flock to non-complaint plans, which could cherry pick them with inexpensive premiums.”
Cruz acknowledged that his plan would depend on taxpayer subsidization of people with high medical costs. But, he argued, it was better for the federal government to pick up the tab than requiring health plans to charge sick people and healthy people the same premiums, increasing costs for the latter.
“It’s not fair to a working-class person who’s struggling to put food on the table, for the federal government to double their premiums trying to work an indirect subsidy for others who are ill. Far better to have it through direct tax revenue,” Cruz told me.
So it becomes a question of the federal government’s willingness to pay that bill, indefinitely into the future. Otherwise, people with high medical costs could be stuck with a market that doesn’t function and isn’t adequately subsidized. The whole idea is dependent on an effectively unlimited federal commitment to pay the bills.
“The marketplaces would turn into de facto high-risk pools,” Levitt said. “How long would Congress allow the ACA tax credits to stand as the costs increase rapidly?”
The other problem is that the Obamacare subsidies cut off at 400 percent of the federal poverty level, about $48,200 for a single person. The Senate plan would lower that threshold to 350 percent.
Americans with higher incomes who wanted to buy an Obamacare-compliant plan, people likely to have high medical costs themselves, would have no protection from skyrocketing premiums.
“If they're healthy, they could buy inexpensive non-compliant plans. But if they have pre-existing conditions, they'd be stuck in plans with escalating premiums,” Levitt said.
The Cruz plan could potentially break the Senate’s health care stalemate
Nevertheless, Cruz’s proposal represents a pragmatic attempt to bridge the policy and political divides within the Senate Republican conference.
It is also a notable admission that Congress, even under control of Republicans, recognizes the need for the federal government to help many vulnerable Americans afford health coverage.
“If those with seriously illnesses are going to be subsidized, and there is widespread agreement in Congress that they are going to be subsidized, I think far better for that to happen from direct tax revenue rather than forcing a bunch of other people to pay much higher premiums,” Cruz said.
If McConnell adopted the proposal — Cruz’s office declined to comment on the ongoing Senate negotiations — it could start knocking over dominoes that would bring Republicans closer to consensus on a health care bill.
First, moderates would need to accept it as an adequate protection for people with preexisting conditions. Then the conservatives, having won a victory on their biggest priority, could be willing to bend on some other issues. They might, for example, be open to keeping some of Obamacare’s taxes to pay for moderate priorities.
Some of those more moderate senators, such as Mike Rounds of South Dakota, said Wednesday that they wanted to limit the tax breaks for the wealthy to help boost the funding for poor and middle-class Americans.
“The challenge is if we do things, we also have to find a way to pay for it,” he told reporters. “I think we ought to to take a look at the investment tax that’s in the system and whether or not it would be appropriate to allow that tax to remain so that we can afford to pay for some of these additional costs.”
That would allow McConnell to pump more funding into Medicaid, the insurance subsidies and the opioid crisis. The majority leader is already adding money to the bill; Politico reported funding for the opioid crisis would be increased from $2 billion to $45 billion. But that probably won’t be enough: Sen. Shelley More Capito (R-WV), one of the senators most focused on Medicaid and opioids, said her core concerns were with the current bill’s Medicaid cuts. More funding, perhaps facilitated by Cruz’s proposal, could help.
The math will always be tough, because leadership can lose only two of the 52 Senate Republicans. Everything would have to fall into place. But such a grand bargain could conceivably get a majority behind the plan.
The other looming threat to Cruz’s proposal is the Senate’s “Byrd Rule,” which is supposed to limit the health care bill to policies that directly affects federal spending and revenue. Many outside experts are doubtful that changes to insurance regulations meet that standard.
But Cruz told me Wednesday that he thought his proposal would work under those rules and that the Senate would not have to take the drastic step, as he had previously advocated, of overruling the Senate parliamentarian who adjudicates these issues.
“I think under the plain text of the Budget Act of 1974, it satisfies the Byrd test,” he said.