The rea­son GOP health care plans are doomed to fail

The Denver Post - - OPINION - By Cather­ine Ram­pell E-mail Cather­ine Ram­pell at cram­pell@wash­ Fol­low her on Twit­ter: @cram­pell

Some­times, in some weird mar­kets, too much con­sumer choice can be a bad thing. Un­for­tu­nately for Repub­li­cans, health in­sur­ance hap­pens to be one of those weird mar­kets.

Repub­li­cans be­lieve the prob­lem with the health care sys­tem is that Amer­i­cans are forced to buy too much in­sur­ance, in plans that are too pre­scribed. Their so­lu­tion is to give con­sumers more choices for what kinds of plans (in­clud­ing no plan at all) they can buy.

The Con­sumer Free­dom Op­tion, re­cently pro­posed by Sen. Ted Cruz, R-Texas, is em­blem­atic of this: It would al­low in­sur­ers to sell plans that don’t com­ply with Oba­macare reg­u­la­tions (such as pro­tec­tions for pre­ex­ist­ing con­di­tions), so long as they also sell at least one plan that does.

“We’re guar­an­tee­ing them ex­actly what they have now but giv­ing them more op­tions,” Sen. Mike Lee, R-Utah, said re­cently. “Op­tions that would in­evitably un­leash free-mar­ket forces, that would in turn bring down the price of health care.” And who doesn’t like op­tions? Choice is as Amer­i­can as ap­ple pie, a core perk of liv­ing in a cap­i­tal­ist so­ci­ety. We are free to choose what­ever car or yo­gurt we want, from an enor­mous menu of col­ors, fea­tures, fla­vors and prices, and econ­o­mists (gen­er­ally) be­lieve we’re hap­pier for it.

But the health in­sur­ance mar­ket has some distinc­tive prop­er­ties that mean too many choices can lead the whole mar­ket to un­ravel. This would leave nearly ev­ery­one — con­sumers, in­sur­ers and health care providers — much worse off.

Why? The an­swer is some­what coun­ter­in­tu­itive. So coun­ter­in­tu­itive, in fact, that the econ­o­mists who fig­ured it out won No­bel Prizes for the in­sight. Let’s take it step by step.

At its core, of­fer­ing greater “choice” in health plans means elim­i­nat­ing both stan­dard­iza­tion and ba­sic qual­ity min­i­mums.

Elim­i­nat­ing stan­dard­iza­tion — for ex­am­ple, Oba­macare’s rules for what ben­e­fits are cov­ered, cov­er­age tiers and out-of-pocket max­i­mums — would make it much harder for con­sumers to com­par­i­son-shop.

Shop­ping for health in­sur­ance is al­ready su­per-com­pli­cated and time con­sum­ing, and lots of peo­ple make ob­jec­tively bad choices. You have to comb through fine print and in-network doc­tor lists. You have to sort out which de­ductibles and pre­mi­ums match your fam­ily’s likely needs and risk tol­er­ance. Imag­ine how much more com­pli­cated this would be­come if in­sur­ers could of­fer many more plan con­fig­u­ra­tions with more hid­den ex­cep­tions and fewer qual­ity con­trols.

Maybe one plan cov­ers breast can­cer but not throat can­cer. An­other cov­ers statins, but only if you’ve never been di­ag­nosed with heart dis­ease, or maybe just one month’s sup­ply. With so many vari­ables, and so much op­por­tu­nity for ob­fus­ca­tion, ap­ples-to-ap­ples com­par­isons be­come im­pos­si­ble.

Con­sumers might also end up buy­ing “mini-med” in­sur­ance that turns out to cover vir­tu­ally noth­ing. This hap­pened a lot pre-Oba­macare.

There’s a larger prob­lem than con­sumer con­fu­sion, though. It’s that the en­tire in­di­vid­ual mar­ket would fall apart un­der Cruz’s plan be­cause of ad­verse se­lec­tion — the idea that peo­ple with higher health costs will self-se­lect into more gen­er­ous cov­er­age.

The cost to a su­per­mar­ket of sell­ing you a yo­gurt is ba­si­cally the same as the cost of sell­ing me a yo­gurt. That’s not true for health in­sur­ance, where I might turn out to be a much more ex­pen­sive cus­tomer than you are.

In a world where pa­tients know more about their health sta­tus (e.g., a bum knee) or fu­ture health spend­ing (e.g., preg­nancy, long-de­layed surgery) than in­sur­ers do, in­sur­ers try to at­tract only the cheap­est, health­i­est en­rollees by of­fer­ing the cheap­est, stingi­est plans. Cruz would elim­i­nate qual­ity min­i­mums, re­mem­ber.

When con­sumers have a choice of many plans, and in­sur­ers can tweak those plans to at­tract the health­i­est pa­tients, you get a death spi­ral.

In Cruz’s health in­sur­ance mar­ket, sick peo­ple would end up in the rel­a­tively gen­er­ous, Oba­macare­com­pli­ant plans, which couldn’t turn away pa­tients — and healthy peo­ple would get si­phoned off into the mini-med plans, which could. Or these healthy peo­ple would drop their in­sur­ance al­to­gether, since there would no longer be a man­date.

With only sick peo­ple in the Oba­macare-com­pli­ant plans, the plans would be­come very ex­pen­sive, caus­ing slightly less sick peo­ple to drop out, caus­ing the pool to get even sicker (and costlier), caus­ing even more peo­ple to drop out. And so on.

Cruz says the gov­ern­ment would kick in money to sub­si­dize cov­er­age in these plans, but we’ve al­ready seen how lim­ited Repub­li­cans’ ap­petite is for ad­e­quately fund­ing high-risk pools (which Oba­macare-com­pli­ant plans would es­sen­tially be­come).

In the end, we’d have what we had on the in­di­vid­ual mar­ket pre-ACA: healthy peo­ple buy­ing ra­zor-thin cov­er­age, and few good answers for ev­ery­one else. All be­cause Repub­li­cans gave con­sumers, and in­sur­ers, that

beloved free­dom to choose. Mac Tully, CEO and Pub­lisher; Justin Mock, Se­nior Vice Pres­i­dent of Fi­nance and Chief Fi­nan­cial Of­fi­cer; Bill Reynolds, Se­nior VP, Cir­cu­la­tion and Pro­duc­tion; Judi Pat­ter­son, Vice Pres­i­dent, Hu­man Re­sources; Bob Kin­ney, Vice Pres­i­dent, In­for­ma­tion Tech­nol­ogy

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