Moneybox
A blog about business and economics.

July 21 2017 6:45 PM

The Senate Health Care Bill Plays a Sinister Joke on the Poor

Here is the most generous way I can explain the policy goal that Senate Republicans are trying to accomplish with their health care bill, some version of which may finally get a vote next week. By deeply cutting Medicaid while offering adults who live below or just above the poverty line subsidies to buy inexpensive, catastrophic insurance coverage, they are looking to move people off of a government program they see as financially unsustainable, while ensuring poorer households still have some financial protection in case of a medical calamity.

My guess is that this has to be the story most Republicans are telling themselves to justify getting behind $756 billion of Medicaid cuts over a decade. They’re not leaving needy adults out in the cold; they’re transitioning them into the private market.

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Even if you believe that narrative, however, in practice it plays a bit like a practical joke on the poor. We were all reminded of that much this week when the Congressional Budget Office released its latest assessment of the GOP's legislation. It found that by 2026, a single policyholder buying a benchmark plan—those are the insurance options intended to be affordable using one of the law's tax credits—would face an astronomical $13,000 deductible, versus just $5,000 under Obamacare. “For plans providing some benefits before the deductible was met, such as a limited number of primary care visits or generic drug purchases, the deductible would be higher,” the CBO notes.

In fact, for many Americans who stand to lose Medicaid coverage under the Republican bill, these deductibles would be higher than their total annual income. In 2026, the CBO expects that someone living at 75 percent of the federal poverty line would earn $11,400, $1,600 short of the threshold they'd have to hit before their insurer started paying any medical bills. Keep in mind, they would also be expected to pay 2 percent of their income toward this insurance, which, unless they're were involved in a car wreck or got cancer, they'd likely never use.

Some people might be comfy with that idea. There are conservative intellectuals who believe that insurance should only be used in true emergencies, and we'd be better off paying for most medical care out of pocket. But insurance that doesn't kick in before you spend a year's wages barely even qualifies as catastrophic coverage, given that it still leaves your finances an utter wreck.

Unfortunately, the CBO analysis only covers an incomplete version of the Senate bill. The office did not have enough time to score the effects of the Cruz amendment, which would allow insurers to sell unregulated insurance priced based on a customer's health as long as they also offer coverage that abides by all of Obamacare's rules. That proposal won't do the poor any favors, though. If anything, it should drive the deductiles on regulated insurance even higher, since that market would largely consist of sicker individuals. However, lower-income customers would likely have to purchase those ACA-compliant plans whether they were healthy or not, because only Obamacare-style insurance would be eligible for subsidies.

It should also be said that, technically, the GOP bill bans the sort of insanely high-deductible plans the CBO thinks are required to make its numbers work. That's because it caps out-of-pocket spending at just $10,900 in 2026. That mostly reflects the bill's shoddy, incoherent craftsmanship, and fixing the internal contradiction will either require spending more money on insurance subsidies or upping the out-of-pocket limit.

But stay focused on the big picture: The GOP's bill is only really designed to help families afford cheap coverage with high deductibles, which will be all but useless to adults on Medicaid today. The tax credits it offers families to buy private insurance are geared toward purchasing policies slightly less generous than the low-level bronze plans now available on Obamacare's exchanges (today, subsidies are keyed to more comprehensive silver plans). As the health consultants at Manatt noted Thursday, the out-of-pocket costs attached to those plans are already wildly unaffordable for low-income families; a household of two currently on Medicaid would have to spend at least 60 percent on their income before their bronze coverage kicked in.

manatt

The GOP health plan would boot people off of Medicaid onto insurance they couldn't afford to use. And again, that's the nicest thing I can say about it.

July 21 2017 4:29 PM

Anthony Scaramucci Might Be Trump’s Trumpiest Hire Yet

Of course Anthony Scaramucci is joining the White House. If you look at his career on Wall Street, in media, and in public life, he checks just about every box that Trump would want for a communications director—in part because there’s a remarkable level of Trumpiness to him. He’s like Trump’s younger, shorter double, except he’s a bit of a globalist and he can speak in complete sentences.

But just how similar are they?

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Two-word nickname beginning with the word the? Check. Everybody calls Scaramucci “the Mooch.”

Ivy League background married to a streetwise persona? Check. Scaramucci, a 1986 graduate of Tufts University, attended Harvard Law but trades on his blue-collar roots in Port Washington, Long Island.

Ideological fluidity and willingness to switch loyalties on a dime? Check. He supported Obama in 2008, only to switch to Romney in 2012. Then he loudly opposed Trump in highly personal terms in 2015—“anti-American”—before jumping aboard the Trump train.

Eagerness to be accepted by the great and good? Check. Scaramucci became a fixture at Davos, where he was a genial presence, known for throwing parties and back-slapping. (Would that I had the foresight to shoot video of his dancing.)

Good at producing shows? Check. His annual SALT conference in Las Vegas became one of the events in the financial industry. Each year, a truly impressive list of major hedge fund investors, politicos, and celebrities would flock to the Bellagio for the conference, which was covered by CNBC and Bloomberg TV.

Clubby hospitality business catering to carnivorous rich men? Check. Scaramucci is an owner of the Hunt & Fish Club, an overpriced Midtown restaurant popular with the finance set.

Business-advice book author? Check. Last year, he published Hopping Over the Rabbit Hole: How Entrepreneurs Turn Success Into Failure.

Media hound? Oh yes. Loved appearing on financial television so much that he revived the classic PBS show Wall Street Week in Review and hosted it on Fox.

Vindictive and somewhat litigious streak? Yup. When a CNN report erroneously said that Scaramucci had met with a Russian investment bank that had government ties, he quickly got up in the network’s business, arguing that the report was defamatory and reminding CNN that he’s a lawyer. (The New York Post reported that he threatened a $100 million lawsuit.) The three senior journalists involved in the story resigned and CNN retracted the story.

Heads-I-win-tails-you-lose business model? Check. Scaramucci’s Skybridge Capital was a fund of funds, a business model that is dying because it serves its clients so poorly. Essentially, funds of funds sell access to hedge funds, affording ordinary rich people and institutions the ability to get into investment vehicles that they can’t get into on their own. But they then charge significant fees—percentage of the assets invested plus a chunk of the returns—which tends to lead to returns that lag the market. For example, since its 2003 inception Skybridge’s Series G fund has returned 6.17 percent annually. In that same time period, an investment in the S&P 500 would have returned 9.46 percent annually. That is to say, a cheap, simple passive investment would have done 50 percent better.

Profitable dealings with investors from nondemocratic country? Check. Earlier this year, Scaramucci sold Skybridge’s hedge-fund business. The buyers were an entity called RON Transatlantic Advisors and HNA Capital, a subsidiary of China’s sprawling HNA Group.

Oh, and leering objectifier of women? Check.

In other words, Trump and his new communications head are perfect for each other. Which is either poetic—or just terrible.

July 21 2017 2:50 PM

New York Goes to the Mattresses Against the Eviction Machine

As the Trump era drags on, the hope that cities would be effective fortresses of resistance has melted into air. In some cases, cities don’t have the authority to serve as an effective bulwark against Republican control of statehouses and Washington, and against federal agencies like ICE. In others, they don’t have the capacity to preserve or increase protections for the poor and vulnerable.

 

But there is still room for big, simple victories, like the idea Mark Levin, a city councilman from upper Manhattan, has been working on since 2014: Hire lawyers for tenants in housing court. On Thursday, the New York City Council passed a bill that will guarantee, within five years, legal representation for all low-income tenants facing eviction. Mayor Bill de Blasio has indicated he will sign it. An independent study commissioned by the New York City Bar Association estimated the law could keep more than 5,000 families from homelessness every year.

 

Of all the ways that the American financial and legal system leaves renters at a disadvantage, you’d be hard-pressed to find a more unequal terrain than housing court. Nationwide, 90 percent of landlords have attorneys, but 90 percent of tenants do not. Tenants don’t show up to defend themselves or don’t know how. In a randomized experiment performed by the Legal Aid Society, eviction warrants declined 77 percent when the tenant had counsel.

 

Here are the numbers in New York: There are more than 150,000 housing court cases a year. More than 120,000 tenants would qualify for representation under New York’s new law, which offers counsel for households under 200 percent of the federal poverty line (about $50,000 for a family of four). Currently, fewer than 3 in 10 low-income households go to court with a lawyer. There are more than 20,000 evictions each year, and nearly half of all families in homeless shelters are thought to wind up there after eviction.

July 19 2017 6:44 PM

Repealing Obamacare Without Replacing It Is a Horrendous Idea, CBO Gently Reminds Republicans

After the Republican health care bill collapsed Monday night beneath the weight of the party's ideological incoherence, Senate Majority Leader Mitch McConnell announced a plan B. He would revive the bill to simply repeal most of Obamacare that the GOP Congress passed in 2015. Then his caucus could figure out a replacement for the law a few years down the line. It is unclear if that's still his strategy, since Republicans yet again appear to be franticly negotiating for that elusive grand compromise. But just in case, the Congressional Budget Office has offered up a gentle reminder of why repeal-and-delay is an absolutely horrendous course of action.

The big issue? Oh, just that it could cause the health insurance markets to collapse precipitously, leaving millions of Americans uninsured and nobody but Republicans to absorb the blame for any human wreckage. A major part of the problem is that the bill wouldn't actually repeal all of Obamacare—instead, it eliminates the law's Medicaid expansion and premium support subsidies, nixes the individual mandate to buy insurance, and rolls back the law's taxes. But it leaves in place all the regulations about what kinds of coverage insurers have to offer and who they have to sell to.

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That, the CBO says, would destabilize much of the individual insurance market and set it up for an immediate death spiral of skyrocketing premiums, declining enrollment, and disappearing insurers. And quickly. By 2018, premiums would jump 25 percent; by 2020, when the Medicaid and premium subsidies would sunset, they'd be up by 50 percent. And then this:

In CBO and JCT’s estimation, under this legislation, about half of the nation’s population would live in areas having no insurer participating in the nongroup market in 2020 because of downward pressure on enrollment and upward pressure on premiums.

Meanwhile, moderate and conservative Republicans in Congress would probably still be sitting around arguing with each other about whether cancer patients should be forced to go busking to pay for chemo. Not exactly a good look heading into Election Day.

July 19 2017 5:14 PM

Under Trump Party Planner, HUD Abruptly Ends Obama's Battle Against Segregation in Westchester

For eight years, Rob Astorino has led Westchester County, New York in its refusal to comply with the terms of a federal consent degree to hasten the integration of New York City’s racially stratified wealthy northern suburbs.

Ten times, the county submitted a self-satisfied examination of how county zoning impacts racial segregation and what leaders planned to do about it. (Conclusions: It doesn’t; nothing.) Ten times the U.S. Department of Housing and Urban Development rejected that “analysis of impediments.”

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In April, a few weeks after HUD deemed the county’s latest effort “unacceptable," a federal appeals panel declared that Westchester—the swath of small towns and cities between the Hudson River and the Long Island Sound—was “engaging in total obstructionism” by failing to comply with the 2009 settlement. That agreement, signed by Astorino’s predecessor, was the result of a U.S. District Court ruling that Westchester had “utterly failed” to comply with the Fair Housing Act. The Anti-Discrimination Center sued Westchester in 2006 after the county accepted $52 million in HUD grants but falsely certified in the paperwork that it had conducted a proper fair housing analysis.

Then came Lynne Patton, Trump family party planner turned HUD administrator. In June, Patton took office as the head of HUD Region II, which includes New York and New Jersey.

Lo, the 11th time was the charm. On Friday, HUD Regional Director Jay Golden wrote that Westchester’s latest analysis—which, like its previous efforts, did not find any evidence of exclusionary zoning in the county—was good enough, although Astorino staff told the Journal News the document was “essentially the same” as its precursors.

“Westchester vindicated!” Astorino wrote on Twitter on Wednesday afternoon. “HUD capitulates after 7 years. Zoning not exclusionary—like we said all along. #honor”

In April, HUD regional director Jay Golden wrote to Westchester that its analysis of impediments was “unacceptable.” Golden’s letter faulted Westchester for failing to acknowledge both the segregation of white residents and of minorities in towns like Larchmont, Pound Ridge, and Ossining.

As an example, Golden cited the county's analysis of the Village of Sleepy Hollow, which concluded there was no correlation between zoning and concentrations of black and Hispanic residents. “This conclusion is not supported by the data presented in the analysis,” Golden writes. “Areas zoned as multfamily/two-family have 8.5% African American population and 57% Hispanic population, compared to less than 1% and 10% respectively in single family housing residential zoned areas.”

The county’s strategies to overcoming impediments (most of which it had denied) included “fair housing posters, attending award ceremonies, and participating in panel discussions.” Those also struck HUD planners as insubstantial.

The most recent letter from HUD to Westchester is just one paragraph, with Golden writing that he “appreciates the County’s commitment to reaching an amicable resolution in this matter.” Still, the analysis appears to have barely changed. With respect to Sleepy Hollow, for example, the revised document concludes simply that “both minority populations reside throughout the village.”

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Westchester analysis of Sleepy Hollow zoning and racial demographics from April.
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Westchester analysis of Sleepy Hollow zoning and racial demographics from July.

Astorino had made resistance to the consent decree his calling card, both locally and in his failed 2014 bid to unseat Gov. Andrew Cuomo. In an ad that aired in Nassau County, the Long Island home of Levittown, a suburban street sprouted high rise apartments as the blue sky turned black and yellow. (Westchester’s Yonkers, where the HBO miniseries Show Me a Hero dramatized the racial housing animus of a previous generation, has its own agreement with HUD, as do the county’s other major cities—which also happen to be among the county’s 9 communities with double-digit black populations.)

Westchester also served as a rallying cry for a larger cohort of conservatives who saw the Obama administration’s attempts to enforce the Fair Housing Act as radical overreach. In a 2015 editorial that his later statements on housing have convinced me he did not actually write, HUD Secretary Ben Carson called Obama HUD Secretary Julian Castro’s policies a “government-engineered attempt to legislate racial equality.”

The Obama Administration didn’t pass any new housing laws. But it did try to finally fulfill the promise of the 1968 law to “affirmatively further fair housing.” Nixon HUD chief George Romney, who viewed racial segregation as the federal government’s preeminent housing challenge, made America’s most promising foray down this road with Operation Breakthrough, which tried to overcome local zoning restrictions as part of a larger national building campaign. Opposition, the New York Times wrote in 1970, was "based on public fear that Washington is simply trying to foist a fancy new form of public housing, with a preponderance of poor and black residents, upon the localities.” Opponents called the plan “socialistic” and “totalitarian." Romney was subsequently dismissed, and Washington never touched the subject again.

At that time, federally enforced housing segregation was in every adult's living memory. Today, it’s easy to pretend America’s segregated settlement patterns are a result of personal preferences and the racial wealth gap. In reality, they helped create the racial wealth gap—and have been, as Richard Rothstein succinctly shows in his new book The Color of Law, enforced through law and federal policy since the late 19th century. Zoning is foremost among those tools that enforce segregation: Single-family residential zoning was largely popularized as a way to circumvent judicial bans on racial covenants and racial zoning.

This is why the Obama-era HUD made cautious efforts to overcome the restrictions that keep the suburbs segregated. Its Affirmatively Furthering Fair Housing rule asked jurisdictions to prepare reports on how zoning impacted racial segregation within their boundaries. More or less the type of document, in other words, that Westchester County was asked to draw up—and failed, 10 times in eight years, to do properly.

In the end, Westchester won: Its tenacious resistance outlasted reform politics at HUD. All it took was putting a party planner in charge.

July 18 2017 6:51 PM

Trumpcare Is Dead. But Is Obamacare Safe?

Now that the Republican effort to repeal Obamacare appears to have crashed, you’re probably wondering whether the health law is finally safe for good. After all, conservatives have spent the past seven years hunting it like a pack of would-be Captain Ahabs, only to find themselves swimming amid the political wreckage of their efforts. The GOP couldn't possibly want any more of this punishment, could it?

Well, Donald Trump might.

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On Tuesday, the president reiterated his opinion that Republicans should allow Obamacare to collapse and try to pin the blame on Democrats. “Let Obamacare fail,” he said. "It’ll be a lot easier, and I think we’re probably in that position where we’ll just let Obamacare fail. We’re not going to own it. I’m not going to own it. I can tell you the Republicans are not going to own it.”

When Trump says he's ready to “let Obamacare fail,” the man may really mean that he's getting ready to smother it. Our president has spent months not-so-subtly sabotaging the law's insurance exchanges by publicly suggesting he might not pay crucial subsidies or fully enforce the individual mandate. The uncertainty has already taken a toll: Worried insurers are asking for yet another round of large premium increases that could leave millions of Americans paying more for their coverage. But if Trump finally followed through on some of his threats, he still might be able to send the market into a violent collapse.

As always, the gravest threat is that Trump will finally cut off the cost-sharing reduction payments—subisidies that insurers are supposed to receive under Obamacare in return for curbing out-of-pocket expenses for low-income customers. Some insurers, such as Blue Cross Blue Shield of North Carolina, have already raised their premiums in anticipation that the funding, which is worth billions to the industry, could dry up. But others haven't. And if Trump, who must decide whether to continue appealing a lawsuit brought by House Republicans aimed at stopping the payments, decides to simply pull the plug, many carriers may finally bail on the market rather than continue to absorb big losses. “If insurers perceived that ending the cost sharing subsidy payments was part of an overall strategy of undermining the marketplaces, then they would see little reason to stick around,” the Kaiser Family Foundation's Larry Levitt told me.

Of course, that's the worst-case scenario. There are other, more subtle ways the exchanges could run into trouble. Again, many insurers have already been asking to raise their premiums out of concern that Trump might relax the individual mandate's requirement that all Americans buy insurance coverage, as well as fears about the CSRs. Those hikes could convince more Americans to skip buying insurance, further weakening the markets—especially if Trump loosens up the mandate. It seems unlikely that we'd see a nationwide death spiral, where high prices drive out a critical mass of customers and insurers decide to jump ship. But it's possible that more sparsely populated parts of the country could be left without carriers. Already, 38 counties in three states are at risk of being left with zero coverage options next year. It's a tragic but thankfully small-scale policy failure. Nobody wants to see it grow.

Unlike Trump, some Republicans are talking about taking constructive steps to stabilize Obamacare's insurance exchanges. But it's unclear how many in the party would sign on to such an effort, especially if repeal was no longer an option. Meanwhile, Trump has more power than anybody to determine the future of the Affordable Care Act. He might just keep trying to harpoon it.

July 18 2017 1:03 PM

The Controversy That Finally Killed the Senate Health Care Bill

The Senate health care bill appears to be dead—done in by the Republican Party's inability to agree on a basic philosophical question: Should healthy Americans have to subsidize the sick?

This is the quandary that has dogged GOP lawmakers throughout their entire attempt to repeal and replace the Affordable Care Act. Many of that law's most popular planks—such as the rules banning discrimination against customers with pre-existing conditions—essentially force the young and well to pay a bit more for their health coverage so that the old and ill can pay less. Committed conservatives loathe these regulations and want to roll them back. They would prefer to let every household pay only for the coverage they want, while letting the sick buy insurance through subsidized high-risk pools. But, either because of the political optics or because they sincerely don’t like seeing the infirm drown in mountains of debt, moderate Republicans have been wary of attacking consumer protections that help sympathetic cancer and diabetes patients.

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The conflict has led to some uneasy policy compromises during the GOP's repeal push. In the House, moderates and right-wing hard-liners brokered a deal that would let states opt out from most of Obamacare's key regulations, leaving the hard calls up to governors. A variation on the waiver idea made it into the Senate bill as well, but conservatives there wanted to go further. Senators Ted Cruz and Mike Lee offered a proposal, a version of which was included in the most recent draft bill, which would allow health insurers to sell unregulated, bare-bones coverage that they could price based on a customer's health status as long as they also sold some Obamacare-compliant plans.

For a moment, it seemed like this bargain might set the stage for the bill's passage—especially after Cruz announced his support. (This was assuming, of course, that Senate Majority Leader Mitch McConnell could also throw enough money at the pet concerns of a handful of fence-sitting GOP moderates, too.)

Then, Monday night, things fell apart. Like the cracked wall of a glacier crashing suddenly into the ocean, the Better Care Reconciliation Act's prospects collapsed after Lee and Sen. Jerry Moran of Kansas simultaneously announced their opposition, leaving GOP leaders shy of the 50 votes they would need in order to move the legislation. Moran explained his position with generalities, saying in a statement that the bill “fails to repeal the Affordable Care Act” and that Republicans “should not put our stamp on bad policy.” Lee, however, spelled out exactly why he was voting no in a blog post at the Resurgent. In short, he was upset about last-minute changes to his and Cruz's amendment.

In theory, the Cruz-Lee plan—they called it “the Consumer Freedom Amendment”—was supposed to split the health insurance market roughly in two. On the unregulated side, Americans could choose to buy inexpensive coverage priced based on their health status. Meanwhile, sicker people would likely gravitate toward the Obamacare-compliant plans. That coverage would be expensive, but some families would receive federal tax credits to lower the cost, effectively turning the ACA market into a well-financed high-risk pool for a slice of the middle class. (Those with pre-existing conditions who earned too much to qualify for subsidies would have to pay the full, outrageously expensive premium.)

However, the version of Cruz and Lee's amendment that Senate leaders inserted into their draft bill included a caveat. Technically, it left in place Obamacare's rule that required insurers to treat all of their customers within a state as part of a single “risk pool”—the group of customers whose health costs companies average together to determine the price of insurance. To many, including myself, this mostly seemed like a fig leaf meant to make the proposal seem less cruel to the ill and assuage antsy moderates. It would lump healthy and sick people together for some accounting purposes. But as long as insurers could sell unregulated plans priced based on health, the market would still be split in two, with the sick paying more.

Some conservatives didn't see it that way, however. Cato's Michael Cannon argued that creating a single risk pool could force insurers to raise prices on regulated and unregulated plans by the same amount each year, foisting higher costs onto the healthy. Others noted that the approach would require a regulatory rule-making process at the Department of Health and Human Services. A Republican health secretary like Tom Price would of course set up the single risk pool in such a way as too allow unregulated plans to flourish. But later on, a Democratic administration could change the rules to stamp them out.

This was all apparently too much for Lee. In his Resurgent post, he wrote:

Experts are divided on the impact keeping this Obamacare regulation would have on the Consumer Freedom Amendment. Some say it would make no difference, while others say it would nullify the entire amendment. Either way, a new analysis by a government agency claims it would raise insurance premiums for people on freedom plans by $600 a year.
I do not want to gamble $600 in relief for middle-class families in exchange for an amendment that might be undermined because of Obamacare regulations.
That is why I will vote “no” on the motion to proceed on the new Senate health care bill.

The government analysis Lee is referring to doesn't appear to have been released yet, though his communications team promised on Twitter to share it. But the $600 figure fundamentally seems less important here than the principle: Lee doesn't believe that healthy Americans should help pay for sick ones through their insurance premiums, and he doesn't want to put his name on a bill that might—in theory, depending on regulatory decisions, maybe, one day—allow that to happen. Say what you will about the man's stance, but at least he has the courage of his convictions.

The Republicans never resolved the fundamental question of how they should assist the sick. Instead, they tried to muddle past the issue with a series of murky compromises. Now, their entire seven-year quest to repeal Obamacare seems to have sunk under the weight of that indecision.

July 17 2017 6:59 PM

It’s a Steamy Summer for European Leaders Trying to Seduce London’s Bankers

For once, foreign bankers are the most popular people in Europe. as pols in Ireland, France, Germany and beyond try to recruit financial operations that will likely be disrupted by the United Kingdom’s exit from the European Union.

Friday was the deadline for international financial institutions based in the U.K. to submit contingency plans to the Bank of England explaining what they plan to do in a variety of Brexit scenarios, including a “hard Brexit,” meaning a situation in which the U.K. leaves the European Union without a trade deal in place.

That would make things very complicated for the thousands of bankers who have made London Europe’s financial capital over the past two decades. The head of the London Stock Exchange predicted in September that the country could lose 100,000 jobs if (or, it now seems, when) the City of London loses “passporting” rights, which allow companies in London to sell services within the EU. So Sam Woods, the head of the Bank of England’s regulatory arm, asked banks in April to send in their plans.

July 14 2017 7:11 PM

Ted Cruz Says His Health Care Plan Protects the Sick. That’s Nonsense.

One of the first things that virtually every health policy expert noticed about the latest version of the Senate health care bill was that it would effectively shunt Americans with pre-existing conditions into their own separate insurance market, where they could potentially face sky-high premiums. This was thanks to a provision negotiated by Texas Sen. Ted Cruz, who demanded it in return for his support.

Cruz, of course, claims his amendment would do no such thing. He has reportedly told his moderate GOP colleagues, whom he is now trying to cajole into voting for this monstrously unpopular legislation, that the sick will be protected under his system—that there shall be no shunting. As Republicans try to push their bill closer to passage next week, it would not be surprising to hear some conservatives echo his talking points.

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Those talking points are pure bunk. Flimflam. Sleight of hand, if I'm being generous. Here is why.

As I wrote Thursday, the Cruz amendment would allow insurance companies to sell unregulated, low-cost coverage plans that could be priced based on customers' health as long as they also offered plans that complied with all of Obamacare's rules and requirements—such as the ban on charging more to customers with pre-existing conditions. This approach would lead to an obvious outcome: Young, healthy Americans would stick to the unregulated market, where they could be charged less for being young and healthy. Meanwhile, those in worse health would purchase the Obamacare-compliant plans, which (since they'd be catering almost entirely to the sick) would surge in price. That coverage could be unaffordable for middle-class families on the individual market who earn a bit too much to receive subsidies.

Cruz says there's nothing to fear. Why not? Technically, his amendment would keep all regulated and unregulated plans as part of a single risk pool. “Ted Cruz emphatically told fellow Republicans Thursday that his amendment to the Senate's Obamacare repeal legislation would not split up healthy and sick people into two different risk pools, eliminating concern that an earlier version of his plan would drive up costs for sick people,” Politico reported Thursday.

This is deeply deceptive. A risk pool is the group of customers whose health costs insurers average together to determine premiums (to Aetna and Blue Cross Blue Shield, each of us is just another risk). If the pool is made up of twentysomethigs with few health care needs, then premiums are going to be low. If the pool is full of older patients with cancer and failing knees and hips, then premiums are going to be very high.

Under Obamacare, insurers are required to lump all their customers within a state into one giant risk pool where everyone's expenses are averaged out to set what's known as a basic "index rate" for health premiums. And because carriers aren't allowed to charge sick people more than the healthy, the result is that Americans pay the same for insurance on the individual market whether they have a heart condition, need a wheelchair, or are a yoga-practicing raw-food fanatic who hasn't seen the inside of a doctor's office in three years. (Premiums can increase by age or county, however.)

Technically, the Cruz amendment would leave the rule about the single risk pool in place. But it wouldn't  matter much, since insurers would also be allowed to charge different prices based on health.

“When you charge people different premiums based on health, you may nominally create a single risk pool, but you immediately blow it up,” Larry Levitt of the Kaiser Family Foundation told me. In other words, under the Cruz plan, it would be one risk pool in name only. (There are also some technical aspects of the bill that really drive this point home. For instance, the process known as “risk adjustment”—where the government redistributes money from insurers that enroll disproportionately healthy customers to those that get unlucky and enroll a bunch of sick folks—only applies to the Obamacare-compliant plans. So it really is a separate market.)

The insurance industry agrees with the skeptical reading of Cruz’s measure. In a policy brief Friday, the American Academy of Actuaries effectively called out Cruz's sleight of hand. “Rather than having a single risk pool, in which costs are spread broadly, there would be in effect two risk pools—one for ACA-compliant coverage and one for noncompliant coverage,” it explained. “As a result, average premiums for ACA-compliant coverage could far exceed those of noncompliant coverage, thereby destabilizing the market for compliant coverage.” Notably, insurers and their trade group have also slammed the Cruz amendment as unworkable. There seems to be a consensus among health care wonks and professionals that this thing is a shabby, potentially dangerous parlor trick of a policy.

For what it's worth, some libertarians who would like to eliminate all of Obamcare's regulations are apparently worried that Cruz's “single risk pool” will lead healthy Americans to pay more. Cato's Michael Cannon, for instance, argues that the setup will require insurers to increase prices on both regulated and unregulated plans by the same percentage each year. “In other words, secure, long-term, guaranteed-renewable coverage would be impossible, because the 'single risk pool' price controls would tax those plans to death,” he writes. But while that might be nominally true, nothing would stop insurers from creating new, dirt-cheap insurance plans in the unregulated market that resemble their customers' old plans each year to avoid price hikes. Which sounds great if you're in good shape, but is ultimately a function of a system in which the healthy are no longer helping balance out the costs of the sick—who then end up paying through the nose.

The “single risk pool” that Cruz is touting is window dressing, a bit of bunting to improve the curb appeal of a decrepit piece of legislation. Don’t buy it.

July 13 2017 5:22 PM

The Senate’s New Health Care Bill Is a Win for Ted Cruz—and Almost Nobody Else

Ted Cruz: 1. Humanity: 0.

That is, sadly, the simplest way I can summarize the latest version of the Senate health care bill, which Republicans unveiled Thursday afternoon. Not much has fundamentally changed about the legislation, which still amounts to a large tax cut financed by shearing away large swaths of the social safety net. But it does represent a big win for the senator from Texas, as it includes a version of his proposal to let insurers sell cut-rate, unregulated coverage as long as they also offer plans that comply with all of Obamacare's mandates.

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Cruz, who is attempting to morph from the most hated man in the Senate into a conservative dealmaker, is very pleased with this development. He now supports the bill. His conservative buddy Mike Lee of Utah, who also pressed for the amendment, may get to yes as well, though he's still officially undecided.

There is far less in the legislation to assuage the concerns of moderate Republicans, or for that matter lower-income Americans and middle class cancer patients who might fear for their health coverage. All of the draconian Medicaid cuts? Those are still there. The skimpy tax credits meant to help people buy private coverage? Still meager. The completely bonkers waivers that, as one widely respected health policy expert put it, could feasibly let state lawmakers spend their Obamacare funding on “cocaine and hookers” instead of health care? Still right there in the legislative text.

On the other hand, the new bill doesn't include quite as many tax cuts for the wealthy. So it's got that going for it.

The Cruz amendment is an odd piece of legislative maneuvering. Again: Under it, insurers can sell whatever kind of threadbare coverage they want if they also offer health plans that abide by all of the Affordable Care Act's rules, meaning those products would cover the ACA's expansive essential health benefits and couldn't discriminate against customers with pre-existing conditions. It partially achieves the conservative goal of slaying Obamacare's various consumer protections in order to let insurance carriers market cheapo coverage. But it also throws a bone to moderates, since it doesn't entirely abandon sick Americans to the fangs of the free market.

There are some obvious problems with this approach. Young and physically well Americans will likely buy inexpensive, unregulated insurance plans, which will cost them relatively less since they'll be priced based on health and won't have to cover extensive benefits like mental health and maternity care. Many sick individuals, meanwhile, will need to buy Obamacare-compliant plans—which could send the cost of that coverage skyward.

This might not be such a concern for poorer customers, since they'll receive subsidies that cap their premiums as a percentage of their incomes. (For them, it acts like a high-risk pool with unlimited funding, which isn't so terrible.) But Americans who earn too much to qualify for those tax credits—they cut off at 350 percent of the poverty line, or about $71,000 for a family of three today—will get stuck paying full price. So if you're sick and middle-to-upper-middle class and insured on the individual market, you're stuck paying full fare for some very expensive coverage. The Kaiser Family Foundation has estimated that about 1.5 million Americans could end up in that boat.

Notably, the insurance industry itself seems to believe splitting the market this way could be a horrible, infeasible idea. “Unfortunately, this proposal would fracture and segment insurance markets into separate risk pools and create an un-level playing field that would lead to widespread adverse selection and unstable health insurance markets,” the trade group America's Health Insurance Plans said in a memo that made the rounds earlier this week. The Blue Cross Blue Shield Association was similarly critical.

There are some reasons to think that the version of the Cruz amendment that showed up in Thursday's draft wouldn't be quite such a boondoggle. For one, the draft bill includes an additional $70 billion to help insurers with the cost of especially ill or high-risk patients, which should keep premiums down a bit. (It also bulks up the market stabilization fund that was already in the legislation by an additional $70 billion, which should help keep a lid on premiums.) Beyond that, the market probably won't divide entirely into two tiers. The Senate doesn't provide subsidies to buy unregulated insurance plans, so even if they're healthy, lower-income Americans might be better off buying Obamacare-compliant coverage. That will balance out the health profile of the customer pool a bit.

Still, we're talking about a plan designed to make healthy people pay less for their insurance and sick people pay more. That will probably be the ultimate outcome. I don't know how many people not named Ted Cruz will be pleased with that.

And that brings us back to the rest of the bill, which gives moderates vanishingly little. Because cutting taxes on the wealthy while slashing Medicaid was a transparent act of class warfare on the poor, the legislation no longer nixes Obamacare's tax on investment earnings or the additional Medicare tax on high earners. It also kicks in an extra $45 billion toward opioid treatment.

Beyond that? There's not much. The bill's insurance tax credits are still designed to buy low-end, high-deductible coverage, meaning poorer adults likely won't be able to afford to use the health plans they purchase. The aforementioned waivers—which are theoretically meant to encourage health care "innovation"—still give states almost incredible latitude to divert federal money to god knows what. Meanwhile, Medicaid still gets brutalized—just as before, the bill ends Obamacare's expansion of the program and throttles its traditional funding stream over time. Republican leaders have softened their approach a tiny bit around the edges by carving out exceptions meant to deal with public health emergencies, for instance, but the basic thrust hasn't changed.

Of course, Medicaid has supposedly been the single biggest concern for senators like Maine's Susan Collins, Nevada's Dean Heller, West Virginia's Shelley Moore Capito, and Ohio's Rob Portman. Which is as it should be. We're talking about America's largest health insurance program, after all, a piece of the safety net that serves vulnerable populations like the elderly, disabled, and children. The individual market, which so much of the Obamacare debate has focused on, is a shrub by comparison.

If Republican moderates cave now and abandon their fight over the single most significant aspect of this legislation, they'll show what a weak and insignificant faction of their party they truly are. They'll show that the only GOPers who really matter are men like Ted Cruz.

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