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Senate Republicans unveiled a second-edition Better Care Reconciliation Act (BCRA2) to modify the Affordable Care Act, but a handful of GOP senators quickly killed it. The biggest innovation — two separate individual markets — still warrants a postmortem because the idea is likely to resurface — in which case, this article becomes a premortem.

Sens. Ted Cruz, R-Texas, and Mike Lee, R-Utah, originated the dual-market concept, though Lee ultimately helped kill the Better Care Reconciliation Act. The bill would have allowed insurers to sell insurance that didn’t comply with the Affordable Care Act’s individual-market requirements, including guaranteed issue (must sell policies to anyone), modified community rating (no higher premiums for sick people), and Essential Health Benefits (medical conditions every plan must cover). Non-compliant plans would be allowable only where compliant plans were also available.

Democrats argued this two-segment configuration would initiate a market death spiral in the compliant segment, with healthy people gravitating toward low-cost noncompliant policies and sicker people limited to high-cost compliant policies (and rising premiums forcing some to drop coverage). Republicans countered that the Affordable Care Act’s individual market is already in a death spiral. Both parties’ fears were plausible, but uncertain, with outcomes dependent on a complex dance of insurers, potential enrollees, and state and federal governments.

The Affordable Care Act forces healthy individual-market enrollees to subsidize sicker people’s policies, leading some healthy people to decline coverage. The Better Care Reconciliation Act would have shifted the financing burden onto taxpayers, by amplifying two Affordable Care Act mechanisms — premium subsidies for consumers and a stabilization fund for insurers. In this way, the compliant market would have resembled state high-risk pools that Republicans have long advocated.

What might have happened?

States could have rejected the dual-market option, leaving only compliant policies available and Democrats’ fears unrealized.

States might have restricted the features of noncompliant policies enough to minimize the distinctions between the two markets or frustrate the ability of insurers to separate healthy and sick enrollees, effectively maintaining the Affordable Care Act’s strictures.

The federal government could have subsidized the compliant segment enough to render coverage affordable for those with pre-existing conditions. Democrats correctly note that state high-risk pools were notoriously underfunded, stranding many without coverage.

Republicans argue that Democrats overestimate the government’s ability to force young and healthy people to subsidize sicker people. Both parties display unwarranted certainty that their chosen mechanisms will adequately finance comprehensive coverage to all with pre-existing conditions.

Perhaps the Better Care Reconciliation Act’s most serious complication was that the compliant market would itself split into two distinct groups. In the compliant market, premium subsidies would have partly shielded those with incomes below 350 percent of the Federal Poverty Level — but not those above that line — from premium increases. Both the higher- and lower-income groups would have been subsidized by a “stabilization fund” (“bailout,” some say) compensating insurers for remaining in otherwise unprofitable markets.

The Better Care Reconciliation Act’s outcome would have depended heavily on the characteristics and vagaries of consumers. How many people have pre-existing conditions that make it difficult for them to obtain coverage without heavy subsidies?

Most likely, Republicans grossly underestimate and Democrats grossly overestimate the number. The actual number can also vary with regulatory whim. And beyond that, it’s notoriously difficult to predict consumers’ responses to prices and taste for risk.

The segmented market’s viability would have depended on the federal government’s willingness to finance Affordable Care Act-compliant coverage for those with pre-existing conditions. Under current wording, the stabilization fund is temporary and, perhaps, modest in size.

But of course, the federal government’s temporary obligations often grow and become permanent. Expansive funding might have stabilized the compliant market. Skimpy funding could have desiccated it, driving sicker people into the noncompliant market or out of coverage altogether.

Moving from the Affordable Care Act to the Affordable Care Act plus the Better Care Reconciliation Act would have been a leap from one great unknown to another. Given the limited and uncertain generosity of healthy insurance purchasers and taxpayers, the same is likely to be true of other attempts to tie up neatly the pre-existing conditions problem — especially if guaranteed issue, modified community rating, and extensive benefit mandates pertain to part of the market.

Robert Graboyes is a senior research fellow with the Mercatus Center at George Mason University, where he focuses on technological innovation in health care. He wrote this for InsideSources.com.

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