On Thursday, Senate Republicans unveiled the latest revision in their belabored attempt to replace Obamacare. Based on the original Senate bill and given the rumors leading up to the announcement, there weren't many surprises. The revision doesn't save Medicare, doesn't keep the individual mandate, and doesn't roll back many Obamacare-era taxes.
But while everyone is talking about what the bill doesn't do, few are talking about what it does do: Rely on people exercising foresight and making rational choices about their health care options. It almost sounds almost plausible. But it's a false choice.
A tale of two risk pools
One of the big changes to the Senate bill is a variant on an amendment proposed by Sen. Ted Cruz. It proposes two different types of health insurance plans.
One group of plans would follow the same consumer protection guidelines afforded by the ACA; that means things like requiring essential health benefits and providing protection for people with pre-existing conditions. These provisions – requiring a higher level of care to more people – are often blamed for the high costs of health insurance policies. These regulated, ACA-compliant plans would find themselves with a majority sick (and costly) group of applicants.
The other group of policies would be unregulated policies. These policies wouldn't have to follow the ACA guidelines and could provide plans that don't cover essential health benefits and could deny applicants for pre-existing conditions. The ostensible benefit is that less-robust plans will cost insurers less money, and those savings will be passed on to consumers in the form of lower premiums. On the flip side, insurers would protect themselves by attaching high out-of-pocket deductibles to these plans or just not covering many services. This group would likely attract mostly healthy applicants using very limited services.
According to an assessment of the bill by Kaiser Family Foundation's Larry Levitt, the subsidies offered by the federal government would not apply to unregulated plans. This would leave people a choice: Participate in a higher cost, higher quality plan with the possibility of getting a subsidy to help pay for it if you qualify, or opt for a very low cost, limited coverage plan and bet that you won't get sick or hurt.
Aside from breaking the mechanism that makes the entire concept of insurance work – shared risk pools that disperse the costs of insurance – this setup requires people to think rationally about their long-term health and judge it against their financial situation. And frankly, we aren't very good at it.
People won't think rationally about their options
People don't think about health care rationally. Sometimes, it's not our fault. When we're buying a car, it makes sense to buy the best car for our situation that's in our budget; when it comes to health care, we often don't know what's best for us or what's in our budget since we don't know what the services will cost if we get sick. But it's also hard to judge what level of care we'll need in the future; no one wants to pay high costs for health insurance because they might get sick — but you actually might. What Republicans are asking consumers to do is look beyond price point to find a policy that appropriately covers their risk.
But immediate concerns of high premiums make cheap plans enticing. It doesn't make sense to buy a skimpy plan that doesn't cover maternity care if you may get pregnant in the future, but when you're trying to make ends meet, a policy that's half the cost is attractive.
Or, if an insurance policy doesn't meet your needs, you might opt out altogether – something many people might do, since the Senate bill removes the individual mandate.
There's also the fact that people don't understand the various costs associated with their health insurance. Low premiums are great until you actually have to use your policy. At that point, unreasonably high deductibles make having insurance a moot point. People who jump at a low monthly premium may not understand the tradeoff they're making, and they may end up burdened with medical debt.
The division between regulated and unregulated health insurance plans may naturally be interpreted as plans for sick people and plans for healthy people. But healthy people become sick people. The policy they buy when cost is the only thing on their mind may not be the policy that's best when they're faced with high medical costs.
The pre-ACA health insurance world was a Wild West of disparate policies; Republicans are proposing bringing that world back, and the results could be costly to those who need protection the most.
Commentary by Jennifer Fitzgerald, the CEO and co-founder of PolicyGenius, an independent digital insurance company for consumers. Previously, she was a junior partner at McKinsey & Company where she advised Fortune 100 financial services companies on marketing and strategy. She is a graduate of Columbia Law School and Florida State University. Follow her on Twitter @jenlfitzgerald.
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