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Obama to Nation: If You Like Your Plan, You Can Keep Your Plan

November 15, 2013

By Avik Roy

PRINTER FRIENDLY

Yesterday, President Obama announced that his administration would unilaterally decline to enforce the provisions of Obamacare responsible for millions of insurance policy cancellations around the country. "The bottom line is insurers can extend current plans that would otherwise be canceled into 2014," he said. The real bottom line is this. If you like your plan, you might be able to keep it for another year. But after the midterm elections are over, non-Obamacare-compliant plans will get canceled yet again. Because, if the delay continues past 2014, one Obamacare architect believes it "could be the beginning of a death spiral" for the law’s insurance exchanges.

Details of the President’s attempted 'fix’

At his Thursday press conference, the President explained that he was attempting the blame for insurance cancellations from Obamacare to insurers and state governments. "State insurance commissioners still have the power to decide what plans can and can’t be sold in their states," he said. "The Affordable Care Act is not going to be the reason why insurers have to cancel your plans."

The President didn’t give a lot of details in his press conference. But a key federal official responsible for regulating the exchanges—Gary Cohen—did. Cohen is Director of the Center for Consumer Information and Insurance Oversight within the Centers for Medicare and Medicaid Services. He penned a letter to state insurance commissioners, noting that some individuals are "finding that such coverage [as can be found on Obamacare’s exchanges] would be more expensive than their current coverage, and thus they may [be] dissuaded from immediately transitioning to such coverage."

The administrations’ new "transitional policy" will allow people who liked their plans to stay on those plans, provided that "the coverage was in effect on October 1, 2013," and that the insurer offer a free advertisement for its competitors on Obamacare’s exchanges:

"The specified conditions [include that] the health insurance issuer sends a notice to all individuals and small businesses that received a cancellation or termination notice with respect to the coverage, or sends a notice to all individuals and small businesses that would otherwise receive a cancellation or termination notice with respect to the coverage, that informs them of (1) any changes in the options that are available to them; (2) which of the specified market reforms would not be reflected in any coverage that continues; (3) their potential right to enroll in a qualified health plan offered through a Health Insurance Marketplace and possibly qualify for financial assistance; (4) how to access such coverage through a Marketplace; and (5) their right to enroll in health insurance coverage outside of a Marketplace that complies with the specified market reforms.

Note the phrase "individuals and small businesses." It contradicts assertions from the administration that only people in the individual market—people who shop for coverage on their own—are affected by the wave of Obamacare-related cancellations. "Keep in mind that the individual market accounts for 5 percent of the population," said Obama in his press conference. (It’s more like 8 percent—25 million people.) But 156 million people get their insurance through their employers, and many of them will see cancellations also.

Obama prefers unilateral action to the legislative process

One obvious question: how does the President have the legal authority to simply choose not to enforce a key provision in the law? It’s of a piece with his decision not to enforce the employer mandate for a year, not to verify individuals’ eligibility for exchange subsidies in some cases, and numerous other unilateral changes that the White House has announced. Those decisions have stood thus far, because mounting a legal challenge against them is difficult. Mr. Obama’s cancellation "fix" appears to be of a piece with these earlier changes.

Why the focus on unilateral action? The President and his supporters fear that allowing Congress to pass legislative fixes to the law would set a dangerous precedent. "Once Congress reopens Obamacare, no one knows where they stop," observes Ezra Klein. "You’re opening Pandora’s box with Congress and insurers," said Drew Altman to Klein.

Again, this contradicts the President’s assertion that Republicans in Congress are opposed to improving the law. "I’m willing to work with Democrats and Republicans to fix problems as they arise," Obama averred. But the fact is that the President would much rather enact a regulation of his own choosing than to let Congress pass legislation to that effect.

Can insurers reassemble the old plans before Dec. 15?

For the President’s "fix" to work, insurers will have to do something that is near-nigh impossible: reassemble the old insurance product within 30 days. That involves (1) negotiating 2014 reimbursement rates with doctors and hospitals; (2) figuring out how much such a plan should cost, given changing participants; (3) submitting the plan to state insurance regulators and gaining their approval; (4) marketing the plan to victims of cancellations; and many other things. I haven’t spoken to a single insurance executive who thinks that insurers are going to be able to get all that done.

It seems extremely unlikely that insurers will be able to do that. "It is unclear how, as a practical matter, the changes proposed today by the President can be put into effect," said Jim Donelon, Louisiana insurance commissioner and president of the National Association of Insurance Commissioners. "In many states, cancellation notices have already gone out to policyholders and rates and plans have already been approved for 2014. Changing the rules through administrative action at this late date creates uncertainty and may not address the underlying issues."

How much will the ‘fix’ undermine Obamacare’s exchanges?

Karen Ignani, CEO of America’s Health Insurance Plans, the trade group, was also cool to the President’s plan, because it would incentivize healthy people to stay in the old market, while sicker and older people sign up for the new exchanges. This will exacerbate the problem of adverse selection, in which sicker people enroll early on, driving up the average health-care consumption per enrollee and thereby the cost of coverage.

Harvard economist David Cutler, one of the architects of the law, expressed similar concerns. "If it turns out to be a delay of a year, the we can work through that," he told Megyn Kelly on The Kelly File. "If it becomes a permanent situation that people who are healthier stay away and people who are sicker go into the exchanges, that becomes a very big problem. That could be the beginning of a death spiral. That is, you could have a situation where people in the exchanges are very unhealthy people with high premiums."

Gary Cohen, the CMS official, is more optimistic. "Though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014," he wrote in his letter to the insurance commissioners, "the risk corridor program should help ameliorate unanticipated changes in premium revenue. We intend to explore ways to modify the risk corridor program final rules to provide additional assistance."

While insurers may end up being protected by the risk corridor program, it’s still true that premiums could go up in the Obamacare exchanges. Unsubsidized people will end up discovering that exchange-based policies will be higher than they expected.

In fairness, every proposal offered to address the cancellation problem—including those of Sen. Ron Johnson (R., Wisc.) and Rep. Fred Upton (R., Mich.)—would have borne the same risks, and the same costs.

Your plan will still get canceled—in 2014

A key aspect of the President’s "fix"—and of the GOP bills I discussed above—is that it will expire in 2014. "Barring any further intervention, all this bill does is put back for a year the ultimate reckoning in which non-Obamacare-compliant, individually-purchased health insurance will get canceled. Critically, however, the delay helps Democrats survive the midterm elections, without their constituents dealing with more programs.

"We will consider the impact of this transitional policy in assessing whether or not to extend it beyond the specified timeframe," writes Gary Cohen. But the likely scenario is that the individually-insured will still lose their health coverage by the end of next year.

And that’s assuming that insurers find a way to rush these products to the market before January 2014. As we’ve heard, it’s an open question.

Original Source: http://www.forbes.com/sites/theapothecary/2013/11/15/obama-to-nation-if-you-like-your-plan-you-can-keep-your-plan-at-least-until-the-next-election/

 

 
 
 

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