President Obama is gambling that his proposed solution for Americans receiving health insurance cancellation letters will help ameliorate his political problems while not doing too much damage to the health care law that informally bears his name.
The short explanation for the fix is that it lets people keep their old plans for one year, if they want to and if insurers and state insurance commissioners allow them to. Like a similar workaround proposed by Sen. Mary Landrieu (D-La.), the insurers who un-cancel their plans will have to explain to customers how their undead zombie plans fall short of ObamaCare's requirements and inform them of their other options.
Unlike Landrieu's proposal, however, Obama won't force insurers to resurrect these defunct health plans, nor allow them to live indefinitely. And unlike the rival bill from Rep. Fred Upton (R-Mich.) that the House is voting on Friday, Obama won't let resuscitated health plans sign up new customers.
With a few exceptions, insurers aren't thrilled about this late-game change of plans. America's Health Insurance Plans (AHIP), the country's largest insurer trade group, put out an annoyed-sounding press release — while Obama was unveiling his proposal.
"The only reason consumers are getting notices about their current coverage changing is because the ACA requires all policies to cover a broad range of benefits that go beyond what many people choose to purchase today," said AHIP President Karen Ignagni. "Changing the rules after health plans have already met the requirements of the law could destabilize the market and result in higher premiums for consumers."
Given the choice — and Obama gives them the choice — many insurers are expected to keep their deceased plans dead and buried. And the insurance commissioners in some states, like Washington, have already said they are not going to approve the return of the canceled plans.
The political benefit of this for Obama isn't lost on the White House, or the insurers: If you liked your plan, and you couldn't keep it, it's a lot harder to blame ObamaCare. As far as the president is concerned, you're welcome to continue with your plan for at least another year; if your insurer or state says no, take it up with them.
In other words, "this is primarily a put-up-or-shut-up move from Obama," says Kevin Drum at Mother Jones. Insurers have been blaming the cancelation letters on ObamaCare, but "I think that most of the canceled policies have been canceled because insurance companies wanted to cancel them."
A big reason the grandfather clause didn't work is that insurance companies kept on selling (and creating) plans that they knew wouldn't pass muster after the launch of the ACA [Affordable Care Act], even if their customer didn't. The scary letter was built into the sale. And many are now sending offers for new, expensive plans with the cancellation notice, as if those were the only alternatives. The administration should have anticipated that; it seems to have done a poor job of gaming out how the insurance industry, which hardly has a record for transparency, would act. [New Yorker]
Salon's Brian Beutler is equally unsympathetic to the plight of the health insurers. Obama's blame-shifting gamble may not pay off, politically or policy-wise, he says, but it's certainly "a justified comeuppance for carriers who defaulted beneficiaries into obscenely expensive plans... and blamed the whole disruption on ObamaCare."
Political considerations aside, Obama's administrative fix does create some concrete problems for the insurers. First, there are the logistical considerations of re-creating plans flushed from the computer systems, getting state insurance commissioners to approve those plans and rates, informing customers that their plans are back as an option, and giving them time to decide whether to re-up or move on.
Obama's solution creates an "enormous administrative burden" for insurers, says Citigroup analyst Carl McDonald. "The complexity of trying to uncancel millions of canceled individual policies with only six weeks left in the year is staggering." An "industry insider" is less politic, telling BuzzFeed: "This doesn't change anything other than force insurers to be the political flack jackets for the administration."
Then there's the actuarial problem: Insurers created their new plans and set the rates on the assumption that most people in the individual market would have to sign up under the new exchanges. The people most likely to keep their revived plans are young and healthy — a main reason their current plans are less expensive — leaving a pool of older, sicker people in the ObamaCare exchanges, at least for a year.
Obama may have fixed his immediate political problem — fleeing Democrats — but he's "creating a long-term policy problem" in the process, says Peter Suderman at Reason. First, he's undermining the law, unilaterally, by letting young people opt out of the exchanges.
At the same time, insurers, who have been targeted by the administration for blame and had their assurances about the state of the law (and thus their business plan) upended, will be less likely to cooperate with the administration. They are already frustrated with the administration, and this will hasten the break between them. The opposition of insurers will add a new layer of opposition that the administration must contend with in order to make the law — which is built around the goal of making insurance coverage accessible — work. [Reason]
Whatever the political and policy implications Obama's solution will have on insurers, though, this is the way the winds were blowing in Washington. And as Suderman implicitly notes, Obama's and the insurance companies' interests are essentially aligned on this: The Affordable Care Act struck a careful balance, and they both want to keep that balance as intact as possible. That's not true of Landrieu, Upton, and their respective backers in Congress.