Ted Cruz’s plan to give insurers freedom to sell plans that don’t comply with Obamacare’s insurance regulations may be conservatives’ last best chance to salvage the stalled Senate health care bill.

But it might also send Obamacare insurance markets into a death spiral.


It’s a free market approach to health insurance that appeals to many conservatives. The plan, which is being co-sponsored by Sen. Mike Lee of Utah, got a shout out Sunday on Fox News from Marc Short, the White House director of legislative affairs.

But health care finance experts warn it could further destabilize the troubled Obamacare marketplaces, potentially causing them to collapse as premiums skyrocket and healthier customers flee — accomplishing the demise of Obamacare in practice rather than legislatively.

That’s because healthy people who aren’t worried about running up big medical bills could opt for cheap, skimpy plans that potentially wouldn’t cover big-ticket items like hospitalizations and treatment for mental health issues. Those with significant health problems, meanwhile, would likely stay in plans that meet Obamacare’s coverage rules. That would make the risk pool inherently unbalanced, leading to much higher premiums for those individuals.

“I think that really would be the definition of a death spiral,” said Tara O’Neill Hayes, deputy director of health care policy at the conservative American Action Forum. “I think it would no longer be a question of whether that’s happening.”

Senate leadership is publicly bullish on the idea, which Cruz (R-Texas) first floated before Republicans left town for the Fourth of July recess. But the proposal faces political and procedural hurdles, either of which could derail it: The coverage losses projected by the Congressional Budget Office could prove politically untenable, especially to GOP moderates who have promised to protect those with pre-existing medical conditions. And the amendment could also run afoul of strict parliamentary rules required to pass the legislation with just a majority of votes.

POLITICO Pulse newsletter Get the latest on the health care fight, every weekday morning — in your inbox. Email Sign Up By signing up you agree to receive email newsletters or alerts from POLITICO. You can unsubscribe at any time. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

“I like the idea a lot. The question is how it scores and whether it can navigate the Byrd rule,” Senate Majority Whip John Cornyn (R-Texas) told reporters on Monday, referring to the rules that determine what can be done under the fast-track process, which eliminates the prospect of a Democratic filibuster.

“They’ll give Cruz every opportunity to sell his solution this week,” said one person familiar with the negotiations. “He’s going to be the one making the sell this week. The question is whether the Cruz-Lee amendment costs you votes.”

No legislative language for the Cruz plan has been released, so details are fuzzy. The amendment is being further tweaked to try to build support. But it would essentially create two parallel insurance markets.

Cruz insists that the bifurcated marketplace can work. He points out that the Senate repeal package also includes $100 billion in funding to help address individuals with exorbitant health care costs — although it’s unclear how that might be used to reduce premiums for those ineligible for subsidies.

“The question really here is how are we going to provide for, how are we going to provide assistance to, people with serious diseases, serious pre-existing conditions?” Cruz said Sunday on ABC’s “This Week.” “There is widespread agreement in Congress there’s going to be significant assistance.”

But Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation, is skeptical.

“Segmenting the risk pool is inherently destabilizing,” he said, pointing out that individuals who make too much money to qualify for subsidies would likely face a particularly grim situation. “They wouldn’t be able to get noncompliant plans because of their medical conditions and would face astronomical premiums in the compliant market.”

Mark Pauly, a health care economist at the University of Pennsylvania, thinks Cruz’s idea could lead to a “stealth high risk pool” that would provide adequate protections to those with chronic or serious illnesses. The big unknown is how much money would be required to backstop those Obamacare-compliant plans so that individuals who need more robust coverage can afford the premiums.

Under the current Senate plan, premium assistance gets cut off for people making above 350 percent of the federal poverty level. Anyone under that threshold would be largely shielded from big premium spikes. But individuals above that income level would potentially get walloped by huge bills.

“Maybe $100 billion would be enough,” Pauly said. “I don’t think anybody knows.”

Ken Janda, CEO of Community Health Choice, a Houston-based insurer, points to another potential problem with Cruz’s idea. Insurers might simply price their Obamacare-compliant plans at exorbitant levels to avoid enrolling anyone with expensive medical conditions. Janda argues that strict regulatory enforcement would be required to make sure insurers don’t game the system.

“Frankly, Texas has never regulated the market in that kind of way,” Janda said. “I would be very, very nervous about it in a state like Texas.”

Insurers are also likely to be very wary of a new two-track market in whichthey would have no idea how consumers would react, said Paul Ginsburg, director of the USC-Brookings Schaeffer Initiative on Health Policy. That’s particularly true after many health plans underestimated the cost of their Obamacare customers in the early years and lost billions of dollars because of those miscalculations.

“They’re not going to get burned again,” Ginsburg said. “They’re probably going to price much higher the next time they don’t know who’s going to be in the pool.”

Jennifer Haberkorn and Josh Dawsey contributed to this report.