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Critics Warn ‘Phase Two’ Won’t Save Health Care Plan

Things aren’t looking great for the Republican health care bill after the Congressional Budget Office estimated it would lead to 24 million more people without insurance and skyrocketing costs for older customers.

But the White House and GOP leaders say that's only part of the story.

The Republicans' "American Health Care Act" is only “Phase One” of their plan. In “Phase Two,” the White House will lower premiums with tweaks to regulations. In “Phase Three,” they’ll pass new legislation to fill in gaps that can’t be addressed through the budget process.

President Donald Trump said at a rally in Nashville on Wednesday that the multi-step process was necessary because Democrats won't participate in the initial repeal-and-replace effort.

"We're doing it a different way, a complex way, it's fine," Trump said. "The end result is when you have phase one, phase two, phase three, it’s going to be great."

His administration has driven home the same message at every level.

“The fact of the matter is with our whole plan every single American will have access to coverage,” Health and Human Services Secretary Tom Price said on the "TODAY" show Tuesday.

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But Republican critics of the bill are skeptical it can be salvaged with vague promises of future action.

“There is no three-phase process,” Sen. Tom Cotton (R-AR) told radio host Hugh Hewitt this week. “There is no three-step plan. That is just political talk, it’s just politicians engaging in spin.”

As Cotton noted, the “Phase Three” bill is far-fetched since it would need significant Democratic backing to pass with the needed 60 votes in the Senate. Sen. Lindsey Graham (R-SC) also called the idea of passing a second bill with Trump’s wish list a “fantasy” in a "TODAY" interview on Wednesday. "Anything placed in so-called bucket three will never pass," Sen. Ted Cruz (R-TX) told reporters, according to The Hill.

Democrats, meanwhile, are outright dismissive.

"This bill digs them so deep in a hole that no regulations are going to get them out of that," Senate Minority Leader Chuck Schumer (D-NY) told NBC News. "We think this bill is so bad there's no way to make it better."

So far, the administration has put out only a broad outline of what it plans to pursue in “Phase Two" and a White House aide told NBC News that "everything is on the table."

There there are some avenues, though, that supporters of the bill and some policy experts say the White House is likely to pursue to lower premium costs. But the process is uncertain and there are core provisions in the House bill that would likely put insurance out of reach for many of the most vulnerable Americans.

The biggest “Phase Two” item on the menu has to do with a provision of Obamacare called “Essential Health Benefits,” a 10-point list of health care categories that every insurance plan on the individual market has to cover.

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Conservatives hoped to eliminate this requirement and free insurers to sell skimpier plans that covered less but had more affordable premiums as a result. A 50-year-old man might pick a plan that left off prenatal coverage, to name one oft-cited example.

The specific rules, though, are set by the Department of Health and Human Services, which gives Price a chance to water them down through the regulatory process.

The path forward is difficult, however: Regulatory changes take significant time to enact and the Affordable Care Act signed by President Obama requires that any EHB standard be “equal to the scope of benefits provided under a typical employer plan,” which tend to be fairly generous.

“Although he will get some deference in judging what counts as ‘typical,’ he cannot read the word out of the statute,” Nicholas Bagley, a law professor at University of Michigan, told NBC News. “That's why I doubt he can squeeze much juice out of a redefinition of the Essential Heath Benefits.”

“Various groups could file administrative challenges to the rule-making, which would hold it up forever,” said Josh Blackman, an associate professor at South Texas College of Law who authored a book on legal challenges to Obamacare.

But there may be a simpler route: The White House could refuse to enforce the law and tell insurers that they won’t be penalized if they offer plans that don’t mean the current standards.

The precedent for this, ironically, stems from Obama’s much-criticized promise, “If you like your plan, you can keep it.” After insurers cancelled plans for millions of people in 2013 because they failed to meet ACA’s new standards, the administration gave states permission to delay banning the old insurance plans.

“As we learned doing the Obama years, [the HHS Secretary] has a lot of latitude,” Senate Majority Leader Mitch McConnell told reporters. He predicted premiums would be “a lot lower” once the changes went through.

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The law’s mixed here as well, though. West Virginia sued over the move, claiming it was unlawful, and their case is still making its way through the courts. Both Bagley and Blackman believe the Obama administration acted illegally, and the Trump administration could face further challenges if they follow that lead. “I would love to litigate that case,” Bagley said.

The legal issues are one reason Cotton doesn’t believe “Phase Two” is worth much. As he put it to radio show host Laura Ingraham this week, any adjustments the White House made would be “subject to the whims of the most liberal judge in America.”

But even if the Trump administration managed to make significant changes they would not be enough to smooth over some of the most serious coverage issues raised by the CBO score.

The nonpartisan Center for Health and Economy analyzed a previous House Republican plan to replace Obamacare that would have eliminated Essential Health Benefits entirely, along with even more restrictions that might bring down premiums. The bill they examined would have also allowed insurers to sell plans across state lines (one of Trump’s favorite “Phase Three” ideas).

Even with all of these policies, they found premiums would drop between 9% and 35% depending on the type of insurance, with the biggest decrease coming in high-deductible “catastrophic” plans that are more popular with younger customers.

Avik Roy, a Republican health care expert, said the White House has “some leeway” to act, but predicted that changes to EHB’s would have a modest effect, dropping premiums around 5%.

That’s not nearly enough to solve the issues moderate Republicans are raising about the CBO’s projected coverage losses, especially for older low-income Americans who insurers would be able to charge more under the GOP plan and who would receive less generous federal subsidies.

In one widely circulated CBO finding, the average 64-year-old making $26,500 in 2026 would pay $14,600 in annual premiums after subsidies under the House bill versus just $1,700 under the ACA. Raw premiums would have to drop by close to two-thirds to make up the difference and even then the GOP plan would cover fewer out-of-pocket costs than under the ACA.

Sen. Bill Cassidy (R-LA), who called the CBO’s coverage estimates “eye popping,” brought up similar examples to NBC News and said the math didn’t add up without major fixes to the legislation itself.

“You’re not going to make up that [difference] with regulatory change,” he said.