I receive lots of daily health-policy newsletters. This morning, one of them exhibited an all-too-common misunderstanding and bias about how health-insurance markets work.

The setting is the “Consumer Freedom Amendment” Sen. Ted Cruz (R‑TX) has offered to the Senate GOP’s bill to rewrite ObamaCare. Contrary to what the Republican Party has pledged for seven years—a pledge that presidential candidate Donald Trump even put in writing—the Senate bill would not repeal the health-insurance regulations that are behind ObamaCare’s rising premiums, race-to-the-bottom coverage, and collapsing insurance markets. The Cruz amendment would keep those regulations on the books, but allow consumers to purchase insurance that does not include all of ObamaCare’s hidden taxes and coverage mandates. In effect, it would separate the market. Currently healthy enrollees would opt for the lower-cost “Freedom Option” coverage, which would stay with them once they developed expensive illnesses. Currently sick enrollees would opt for ObamaCare-compliant plans. Premiums for ObamaCare-compliant plans would rise even more than they already have, essentially turning ObamaCare’s Exchanges into high-risk pools that would require lots of government subsidies to keep afloat.

Enter one of my daily newsletters, which matter-of-factly reported:

Of course, everyone paying into the system for those who most need care is the way insurance is fundamentally supposed to work.

Of course! I hear this sort of thing all the time. Now, there is a charitable interpretation that would render this particular phrasing just barely true, but I am fairly sure that interpretation is not what the author intended to convey. Instead, the sentence glosses over a distinction so crucial that entire insurance markets hang in the balance. And it does so in a way that presents the (legitimately disputed and controversial) pro-ObamaCare ideology as an of-course-this-is-fundamentally-true fact.

Fundamentally, insurance markets are a system of subsidies. People with the same ex ante (i.e., before-the-fact) risk of needing medical care pay into the system to subsidize the few in that group who will develop expensive medical needs. We know insurance is supposed to work this way, because of what happens when you try to pool together people with different ex ante health risks at the same premium: the system of subsidies collapses. (See: state-level experiments with community rating, ObamaCare’s CLASS Act, the child-only market under ObamaCare, U.S. territories under ObamaCare, and Exchanges in dozens of counties). Risk-based premiums, exclusions for preexisting conditions, and other measures that ObamaCare supporters hate are actually consumer protections. They exist to keep that system of subsidies stable, so it can keep doing the most good possible by subsidizing people who become sick.

The idea that everyone should pay the same premium regardless of risk arises because left-of-center folks want to cram additional, hidden subsidies into the insurance system. They want to do this rather than create explicit taxes and transfers because, as Jonathan Gruber taught us, there is not sufficient political support for explicit taxes and transfers. But again, when you force insurers to cover unlike risks at the same premium, insurance markets collapse. So ObamaCare throws tons of money at insurers—with everything from the individual mandate to risk-adjustment—in the hope of preventing a collapse. Sometimes it prevents a collapse. Sometimes, not so much.

The above sentence therefore amounts to saying, “Insurance is fundamentally supposed to work exactly like ObamaCare supporters want, with mandates and lots of government subsidies, not like its opponents say.”

That’s what the news tells me, anyway.

One anecdote does not constitute evidence; and I cannot vouch for the accuracy of the story below. But the information in the email, reprinted with the sender’s permission, is nevertheless suggestive:

Dear Professor:

I wasn’t sure to whom I should write, so please pass this along to an economics colleague who specializes in health care costs.

My husband, a man with a BMI of over 40 (a lifelong—since babyhood—“issue”), is currently working as a limousine driver for a commercial carrier regulated by FMCSA [the Federal Motor Carrier Safety Administration]. In October FMCSA’s Medical Review Board developed new regulations for drivers’ medical evaluations which occur every two years. They are that anyone with a BMI of 40 or more or a BMI of 33–39 with 3 of 11 risk factors (of which 2 are being male and over age 42) be referred for screening for obstructive sleep apnea regardless of whether they show any symptoms of it other than sleepiness while driving. (As my husband pointed out to one of the approved medical examiners at his exam a couple of years back, anyone who answers the question, “Have you ever driven while tired?” with a ‘No’ is lying—there isn’t anyone over the age of 18 who hasn’t driven late at night, in the wee hours of the morning, on a long road trip or to and from work/​study after a long day or pulling an all-nighter without feeling tired; since he gets to sleep during the March–October busy season for 1–4 hours at a time, yes, he is tired.)

The salient statistics and facts: According to one organization, 53.2% of FMCSA’s approximately 4 million drivers have a BMI which will fit into the damned-near instant referral for screening. Here in Rhode Island screening costs between $190-$500 we have discovered over the last 2 years. The Medical Review Board’s recommendations note that a negative result is meaningless (essentially), so theoretically, around 2 million people will be referred for a $200 test every 2 years. That’s a “preventive health care” cost of $200 million per year!

Isn’t the point of “preventive health care” to save money? … [T]his “prevention” is penalizing a sizeable (no pun intended) minority … and wasting a lot of health care dollars on testing and treatments which do nothing to make anyone healthier.

For more systematic evidence on whether preventive care is cost-effective, see here.

Yesterday, I posted “Five Questions I Will Use to Evaluate the Phantom Senate Health Care Bill.” The phantom bill took corporeal form today when Senate Republicans released the text of the “Better Care Reconciliation Act.”

So how does the Senate bill fare with regard to my five questions?

1. Would it repeal the parts of ObamaCare—specifically, community rating—that preclude secure access to health care by causing coverage to become worse for the sick and the Exchanges to collapse?

No. The Senate bill would preserve ObamaCare’s community-rating price controls. To be fair, it would modify them. ObamaCare forbids premiums for 64-year-olds to be more than three times premiums for 18-year-olds. The Senate bill would allow premiums for the older cohort to be up to five times those for the younger cohort. But these “age rating” restrictions are the least binding part of ObamaCare’s community-rating price controls. Those price controls would therefore continue to wreak havoc in the individual market. The Senate bill would also preserve nearly all of ObamaCare’s other insurance regulations. 

2. Would it make health care more affordable, or just throw subsidies at unaffordable care?

The Senate bill, like ObamaCare, would simply throw taxpayer dollars at unaffordable care, rather than make health care more affordable.

Making health care more affordable means driving down health care prices. Recent experiments have shown that cost-conscious consumers do indeed push providers to cut prices. (See below graph. Source.) 

If you want to see that level of price reductions, you need something along the lines of “large” health savings accounts.

The Senate bill would make only minor adjustments to tax-free HSAs that would not deliver lower prices. 

3. Would it actually sunset the Medicaid expansion, or keep the expansion alive long enough for a future Democratic Congress to rescue it?

The bill would keep it alive so ObamaCare supporters can rescind the repeal.

To be fair, the Senate bill would forbid the 19 states that haven’t implemented ObamaCare’s Medicaid expansion from doing so. As explained below, however, the bill would expand a different entitlement–ObamaCare’s Exchange subsidies–to that population. 

The bill would also repeal the Medicaid expansion in 2024. Yet three new Congresses would take their seats between passage of the bill and when it would repeal the Medicaid expansion. We may even get a new president by then. It is almost guaranteed that one of those Congresses (if not all three) will be more supportive of the Medicaid expansion than the current Congress. Such a Congress could rescind that before it ever happens, as if it never happened.

Senate Republicans rigged this Medicaid-expansion repeal never to take effect.

4. Tax cuts are almost irrelevant—how much of ObamaCare’s spending would it repeal?

This one is hard to answer without an official score from the Congressional Budget Office–or even with one. Senate Republicans played budget games that hide how much of ObamaCare’s spending they are keeping. 

Senate Republicans required the CBO to compare the cost of the bill to projections of Exchange enrollment and spending that everyone agrees are inflated. So the forthcoming CBO score will make it look like the Senate bill increases the uninsured more than it actually does. Put differently, the CBO score will count some people as losing coverage under the Senate bill even though they weren’t going to have coverage anyway. By the same token, this gimmick will make the Senate bill look like it cuts ObamaCare spending more than it does. It requires the CBO to score the Senate bill as eliminating ObamaCare outlays that were never going to happen. The sneaky part is that this budget gimmick then allows Senate Republicans to apply those phantom cuts either to new spending or deficit reduction.

One way the Senate bill applies those phantom cuts to new spending is by expanding ObamaCare to an additional 2.6 million Americans. Thirty-one states and D.C. have implemented ObamaCare’s Medicaid expansion. The Kaiser Family Foundation estimates that in the 19 states that have not expanded Medicaid, there are 2.6 million able-bodied adults who earn too much to qualify for Medicaid but less than 100 percent of the federal poverty level, and thus not enough to receive a “premium assistance tax credit” toward the purchase of an Exchange plan. (We call them tax credits, but they are mostly outlays.) In 2020, the Senate bill would open eligibility for the tax credits to everyone below 100 percent of the federal poverty level in states that do not implement the expansion. This would expand ObamaCare to another 2.6 million people. In effect, it is Medicaid expansion by another means–and it effectively snubs GOP officials in the 19 states that did the right thing (reduced federal deficits, etc.) by not expanding Medicaid.

The Senate bill would also fund ObamaCare’s “cost-sharing” subsidies, something the law’s Democratic authors never did. That, too, would expand ObamaCare beyond what a Democratic Congress created.

So even if the bill’s spending cuts were real (they’re not; see above), we still wouldn’t really know how much the Senate bill reduces actual federal outlays. All we know for sure is that Senate Republicans want to hide how much ObamaCare spending they are preserving, and that the CBO score will likely overstate the bill’s deficit reduction.

5. If it leaves major elements of ObamaCare in place, would it lead voters to blame the ongoing failure of those provisions on (supposed) free-market reforms?

Yes.

Supporters of the Senate bill are calling it a huge win for conservative governance. 

Finished reading the Senate HC bill. Put simply: If it passes, it’ll be the greatest policy achievement by a GOP Congress in my lifetime.

— Avik Roy (@Avik) June 22, 2017

Yet the bill does almost nothing to address the fundamental flaws and instability in ObamaCare’s architecture. Community rating and other provisions of the law will continue to increase premiums, degrade the quality of coverage, and destabilize insurance markets. ObamaCare supporters, including those who also support a single-payer system, will be quick to blame ObamaCare’s failures on the conservative, free-market ideology that supposedly animates the Senate bill. Such claims will be nonsense. But the narrative will be difficult to combat. The Senate bill could therefore set back the cause of free-market health care reform by decades–yet another feature it shares with ObamaCare. 

—–

The Senate bill is not even a step in the right direction. If this is the choice facing congressional Republicans, it would be better if they did nothing. Consumers would continue to struggle under ObamaCare’s regulations, but those costs would focus attention on their source. The lines of accountability would be clearer if Republicans signed off on legislation that seems designed to rescue ObamaCare rather than repeal and replace it.

Rumor has it that tomorrow is the day Senate Republican leaders will unveil the health care bill they have been busily assembling behind closed doors. So few details have emerged, President Trump could maybe learn something from Senate Majority Leader Mitch McConnell about how to prevent leaks. Even GOP senators are complaining they haven’t been allowed to see the bill.

Here are five questions I will be asking about the Senate health care bill if and when it sees the light of day.

1. Would it repeal the parts of ObamaCare—specifically, community rating—that preclude secure access to health care for the sick by causing coverage to become worse for the sick and the Exchanges to collapse?
2. Would it make health care more affordable, or just throw subsidies at unaffordable care?
3. Would it actually sunset the Medicaid expansion, or keep the expansion alive long enough for a future Democratic Congress to rescue it?
4. Tax cuts are almost irrelevant—how much of ObamaCare’s spending would it repeal?
5. If it leaves major elements of ObamaCare in place, would it lead voters to blame the ongoing failure of those provisions on (supposed) free-market reforms?

Depending on how Senate Republicans—or at least, the select few who get to write major legislation—answer those questions, the bill could be a step in the right direction. Or it could be ObamaCare-lite.

The 2010 Patient Protection and Affordable Care Act, also known as Obamacare, may perhaps be the most contentious and polarizing law we’ve seen enacted in the past several decades. For seven years, Democrats have remained convinced they like it and Republicans confident that they don’t.

But once we get past the partisanship and polarization, what do Democrats and Republicans think about the fundamental regulations that constitute the core of Obamacare? These core regulations include pre-existing conditions rules that require insurance companies cover anyone who applies (guaranteed issue) and charge people the same rates regardless of pre-existing conditions (community rating).

All government policies and their ostensible benefits come with a price. What are Americans willing to pay?

As I’ve previously written, the Cato Institute 2017 Health Care Survey found that while Americans initially support core Obamacare regulations of community rating and guaranteed issue, support plummets if such regulations harm access to high quality medical services, require higher premiums or higher taxes. That being said, Americans appear to care more about their access to high quality medical services than they care about higher taxes, higher premiums, or universal coverage for those with pre-existing conditions.

Democrats are unique, however. They are the only group who says they’d be willing to pay more if it guaranteed coverage to those with pre-existing conditions. Six in 10 Democrats say they’d be willing to personally pay higher taxes and 58% say they’d pay higher premiums so that insurance companies wouldn’t charge people higher rates based on pre-existing conditions (community rating). Similar shares say they’d pay higher taxes (60%) and premiums (51%) so that insurance companies would cover anyone who applies (guaranteed issue).

Yet, the survey found that Democrats turn against the core regulations in Obamacare if they threaten their access to medical services and treatments, limit their access to top hospitals and surgeons, or require them wait several months to see a specialist.

Indeed, 62% of Democrats would oppose regulations that ban insurance companies from charging higher rates to people based on pre-existing conditions if it limited their access to medical tests and treatments. Similarly, 65% of Democrats would oppose the community rating rule if it required they wait several months before getting in to see a specialist for medically necessary care. And 54% would oppose if it limited their access to top rated medical facilities.

Similarly, two-thirds of Democrats would oppose regulations requiring insurance companies cover anyone who applies if these harmed the quality of health care in the US.

Why should we care about these results? Academic research examining the impact of these regulations find that they do come with significant costs to the quality of health care—limiting access in the exchanges to top hospitals and surgeons and to medical services and treatments that people need.

Moreover, threats to the quality of health care constitute the one cost that Americans of all partisan persuasions would be unwilling to accept.

This doesn’t mean Americans would oppose other methods to help those with pre-existing conditions obtain the health care they need. Instead, they may support other policies that achieve this goal so long as they don’t come at the expense of quality in the U.S. health care system, raise premiums or hike taxes.

For too long, the national dialogue has focused almost exclusively on the cost versus coverage debate. This misses a third and incredibly important dimension that is a top priority of the American public: health care quality in the United States. Health care regulations and proposed reforms must be assessed not only according to their impact on cost and coverage, but also their impact on Americans’ access to timely high-quality medical care.

Survey results and methodology can be found here. The Cato Institute in collaboration with YouGov conducted two health care surveys online February 22–23, 2017. The first survey interviewed 1,152 American adults with a margin of error of ± 2.93 percentage points. This survey asked about community rating. The second survey interviewed 1,103 American adults with a margin of error of ± 2.85 percentage points. This survey asked about guaranteed issue. The margin of error for items used in half-samples is approximately ± 5.1 percentage points.

The Congressional Budget Office’s cost estimate of the American Health Care Act confirms what health-policy scholars have known for months: the AHCA is bad health policy that will come back to haunt its Republican supporters.

Premiums on the individual market have risen an average of 105 percent since ObamaCare took effect. Maryland’s largest insurer has requested rate hikes for 2018 that average 52 percent. Yet the CBO estimates the AHCA would saddle voters with two additional premium increases before the mid-term elections—a further 20 percent increase in 2018, plus another 5 percent just before Election Day. Even worse, the bill’s ham-handed modifications to ObamaCare’s most harmful regulations would accelerate the race to the bottom that ObamaCare has begun. Voters will blame Republicans for their skyrocketing premiums and lousy coverage, deepening what appear to be inevitable GOP losses in 2018.

Free-market reforms would reduce premiums by up to 90 percent, make access to care more secure for people who develop expensive medical conditions, reduce taxes and health care prices, and give states the ability and flexibility to cover preexisting conditions. It might even give the GOP’s base a reason to go to the polls in 2018.

The AHCA is not free-market reform.

The Epoch Times quotes me on how the American Health Care Act’s Medicaid provisions create almost identical incentives to ObamaCare’s Medicaid expansion:

While both the per capita matching funds and the block grants seek to unleash innovation, they provide the states with very different incentives, according to Michael Cannon, director of health policy studies at the Cato Institute.

“The current per dollar matching grant system provides an unlimited entitlement to federal funds,” Cannon said. “The per capita matching grant system allows the states to keep that unlimited entitlement to federal funds going if they keep expanding enrollment, and so it creates enormous pressure for states to expand enrollment.”

Because able-bodied adults consume less health care than those who are more vulnerable, the per capita matching grants have an unintended consequence, according to Cannon. They will give states incentives to enroll able-bodied adults in preference to others who are more needy.

Cannon prefers giving the states block grants, which have the benefit of limiting federal expenses to a fixed amount, making the program financially sustainable.

For more, read my Philadelphia Inquirer op-ed, “Fulfill Promise to Repeal ObamaCare.”