Accepting a Ted Cruz Compromise on High-Risk Pools Would Be…High Risk
While events are moving very quickly, it looks as though an important piece of any revised Republican Senate health care bill will be some version of a “high-risk pool.” High-risk pools have been in the mix for most of this year, and a recent compromise proposal from Ted Cruz (in which states would be free to allow noncompliant plans for sale in exchanges as long as there was at least one Obamacare-compliant plan) is effectively just another high-risk variant (because, after adverse selection, only sick people would enroll in the compliant plan).
To my great astonishment, Cruz’s explanation for why his idea was attractive sounded…good. As Cruz (and, to be fair, actual health economists) have said, a high-risk pool can be more progressive than existing exchanges. Basically, exchanges pay for the costs of caring for the sick by raising premiums for healthy people in the same pool. High-risk pools, as Cruz envisions them, would pay for the same care using general tax revenues. It is quite possible that the progressivity of general tax revenues exceeds the progressivity of the flat premium hike faced by healthy insureds under the ACA.
Now, I debated Ted Cruz a few times in college, and watched him debate a few times more. If there’s one thing I learned from that experience, it’s that if Ted Cruz is offering you something that sounds good, you don’t want it. So what’s wrong with high risk pools, and with Ted’s new proposal?
Politics. High risk pools are on net better for working families…as long as they are actually fully funded. Under Ted’s proposal, though, it is much less likely that the risk pool would continue to get the funding it needs to cover care at current levels.
It’s in part a story about budget institutions. Cross subsidies under the ACA are off budget. They can be raised or lowered without worrying about their effect on the deficit. Funding for high-risk pools, on the other hand, would be on budget. That means that they’d always be there as a pool of money to be raided if other priorities arise. And, in all likelihood, they would not be structured as an entitlement, meaning that they would be subject to annual appropriations, with all the problems of enacting an annual budget, debt ceilings, and so on that that entails. Given the steep slope of health costs, securing that annual appropriation will only grow tougher — a dilemma that, as my colleague Jake Brooks has pointed out, afflicts many sectors subject to “cost disease.”
Further, there’s also a question about political optics, or, as Jonathan Gruber memorably put it, the stupidity of the American voter. A line item for high risk pools is a more visible, and therefore probably more politically salient, reminder of the costs of health care. Perhaps that makes it a more tempting target for those skeptical about or sensitive to the size of government.
Long story short, beware of Texans bearing gifts.
