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Do You Really Like Your (Sub-Par) Policy? Keep it Another Year

November 14, 2013

For about 5% of the population, President Obama’s promise “if you like your insurance, you can keep it” was clearly off the mark. They like it and they can’t keep it—or they will have to pay more for it. Their anger and sense of betrayal are being used by opponents of the Affordable Care Act to discredit the President and highlight the law’s alleged shortcomings. But let’s be honest; how great was that insurance in the first place? Sure it might have been cheap, but many policyholders were one illness or accident away from crushing bills and even bankruptcy. And is it worth it to allow insurers to keep selling these policies to cherry-picked healthy people, even if it threatens to raise premiums for many of the 40 million uninsured people who have been priced out of the individual market because of their health status, age or gender?

The answer, for at least another year, is “yes.” Under pressure from anxious Democrats in Congress—including some like Sen. Mary Landrieu (LA) who are facing tough reelection battles—Obama today proposed an administrative fix to the ACA that would let insurance companies renew plans through 2014 that do not meet the benefit standards of the health care law. State insurance commissioners and insurance companies will now make the final decision on whether they will renew cancelled policies on the individual market. Insurers would have to notify plan subscribers of alternative plans they could purchase through the exchanges, as well any benefits they would miss out on by staying with their existing policy. As the President put it: “the Affordable Care Act is not going to be the reason why these companies are canceling your plan.”

The President also clarified that this fix applies to people who are covered under “grandfathered” plans—those sold before the health law took effect in March 2010 and have not been substantially altered—as well as to consumers who bought their plans after 2010. Calling the original definition of grandfathered plans “insufficient,” Obama said the new fix was meant to help allay the fears of more consumers. “It’s scary getting a cancellation notice.” He did not address how this fix would affect premiums on the state and federal exchanges—likely because not even health policy experts are sure.

Most of the people who are so eager to keep their cancelled policies had plans marketed specifically to healthy single people or families who anticipated few medical costs. Some of these plans qualify as so-called “junk insurance” or “mini-med plans” that carry large deductibles, exclude whole areas of care like mental health or prescription drug coverage, and have payout limits on hospital stays or emergency visits that leave subscribers vulnerable to catastrophic costs. I wrote about some of these bare-bones plans in 2010 and how they contributed to growing medical bankruptcy and poor access to care.

The Affordable Care Act’s standard for essential health benefits was meant to protect consumers from the inadequacies of many of these policies.  As Obama noted at today’s press conference, “the old individual market was not working well and we can’t pretend it’s a place worth going back to.” He pointed out that premiums in the individual market have gone up an average of 15% each year, even as out-of-pocket spending limits increased and benefits like prescription drug coverage or hospital care disappeared. “It worked well when you were healthy but not if you became sick,” he said.

The people decrying their policy cancellations are—not surprisingly—those who are likely to see premium increases if they have to buy more comprehensive insurance through the exchanges. They are healthy, “reasonably affluent” and earn too much to get federal subsidies. In a recent piece in the New Republic, Jonathan Cohn estimates that this group represents “one to two percent of the population;” a particularly “well-connected group” that has a compelling story to tell at a time when tales of exchange success are few and far between. One fact largely ignored by the media and conservatives is that 400,000 formerly uninsured people have signed up for Medicaid since the Obamacare rollout. (There would surely be more of these unheralded success stories if some states–that’s you Texas–had chosen to expand their Medicaid coverage.)

What we also aren’t hearing so much about are the people who qualify for federal subsidies (individuals earning up to $46,000/yr and families with incomes up to $94,000/yr) and the others who don’t qualify but currently fork over $18,000 or more to insure a family on the individual market. These are the folks that haven’t signed up yet for coverage (damn those exchange “glitches”) but once they do it will almost certainly mean “paying less money for benefits that are as good, if not better, than what they have now,” says Cohn.

So how will this latest political fix affect premiums for individual policies on the state and federal exchanges? Obama’s proposal is similar to one put forth by Sen. Landrieu with the exception that that Landrieu’s fix would allow people to keep their sub-par policies indefinitely. The concern with both Obama and Landrieu’s proposals is that younger, healthier people will keep these policies while sicker and older people who have been priced out of the individual market will head for the exchanges. In short, there goes your risk pool. Insurers warn that this will lead to increased costs, passed on to consumers as higher premiums. “Bills like Landrieu’s lower premiums for people who have benefited from the system at the cost of raising them for the people who’ve been locked out of the current system,” says Ezra Klein in Wonkblog.

Sarah Kliff, writing in the Washington Post, canvassed a half-dozen health policy experts about the effects of reversing the cancellation notices sent out to an estimated 7 million to 12 million Americans. She writes, “The consensus seemed to be this: Yes, there are potential solutions. But they entail painful trade offs. And yes, it would be messy for the health care law.”

Whatever the long-term consequences of this latest rejiggering of the healthcare rollout, the battle is far, far from over. Conservatives weren’t much impressed by the administration’s reversal. According to the New York Times, “Speaker John A. Boehner said that he intended to push ahead with a House vote Friday on a measure that would allow consumers to keep their canceled plans without penalty and allow others to sign up for them.” But even that is just a stopgap measure: “The only way to fully protect the American people is to scrap this law once and for all,” Mr. Boehner told reporters.

  1. Bob Hertz permalink

    Thanks for tackling this different subject.

    Did Pres Obama really say that “The Affordable Care Act is not the reason your insurer is cancelling your plan?”

    I am not sure if this was federal or state directed, but some insurers were ordered by govt agencies to cancel non compliant plans. Of course the insurers did this with profit in mind from those insureds who stayed with them.

    But the cancellations were part of health care policy behind the scenes. Zeke Emmanuel implied this on TV on Weds.

    I have been reading a lot of blogs on the individual market. I conclude that many partisans of health care reform have not appreciated the variety of this market.

    Of the 15 million individual policies, I think that a small minority were mini-meds and medical discount cards.

    A fair number of policies in this market came from carriers like Blue Cross and Kaiser. They may have had gaps in coverage but they were not junk or dishonest insurance.

    Picture two types of individual policy holders. One of them is 58 years old and early retired, and gets an individual policy out of desperation. They pay $900 a month for a $10,000 deductible and they are eager to go on the exchanges.

    The other type is 35 yrs old and actually has $10,000 in an HSA. They pay $200 a month for a high deductible policy, and it is a coherent financial plan.

    The latter group hates the ACA and is articulate about it. But this is trouble. Remember it only took a minority of affluent seniors to scuttle the Catastrophic Bill in 1989.

  2. Thanks for your post. There are a lot of forces being applied to the simple effort to improve the poor health care and high health care costs in the U.S. So many groups are profiting from our inefficient system you hear them complain when change happens. Insurance companies did probably need to raise rates because not much has been done to reduce system cost. But, the insurance company rate increase by increasing deductible, out of pocket maximum and premiums all at the same time in the 15-30% range is simply price gouging — call it what it is. The most fair solution is to force the loss ratio down to 8% (companies must pay out 92% of premiums) and refund any excess.

  3. First, nothing will “scuttle” the ACA. It’s here, it’s moving forward on the ground, millions of people have been helped, and hospitals, insurers, the states have all invested a huge amount of money in the ACA.

    It’s here to stay.

    Secondly, Naomi Good post.
    I also tend to agree with Cohn. –
    I’m not as convinced by Wonkblog’s argument that Obama has created a “mess.”

    – I’m wondering how many insurers will actually send out those letters?
    It will be a huge administrative burden–expensive, not to mention embarrassing– to spell out
    exactly what is missing in the plan you sold a customer a few years ago.r.You know, all of the things that the insurer (or the broker) didn’t point out when they sold you the plan.

    Most relatively healthy people don’t really know what their plan does and doesn’t cover. The most popular plan in the individual market in N.J. doesn’t cover chemo (75% of New Jerseyites who buy their own insurance have this plan.) . Some plans cover doctors’ visits but if you land in the hospital, you’re on your own.

    My guess is that most insurers will not send out these letters offering to renew. Then Obama will be right: you shouldn’t blame the ACA if your plan is cancelled–your should blame your insurer who didn’t take the president up on his offer.

    Secondly, insofar as insurers do send out the letter, how many people will renew? How many will check out the Exchanges only to find out that they can get much better protection for just $50 more– (after applying a subsidy) or even less that the are paying now.. 40% of those who now buy their own insurance will qualify for a subsidy.

    Those who don’t qualify for a subsidy may well pay more –but do they really want to pay Anything for a plan that doesn’t cover chemo, doesn’t cover
    hospitalization, doesn’t cover ambulances, doesn’t cover rehab after surgery, and leaves the customer exposed to unlimited out of pocket spending???

    I’ve written about this on health and today plan to post a longer piece on
    HealthBeat explaining why why insurers won’t send out the letter, and most customers won’t renew.

    In the meantime, the president has persuaded many Americans that he really is sorry, and really does care.
    Strategically, think his press conference was a brilliant move.

    • Bob Hertz permalink

      I have to quibble about the clause that begins “do they really want to pay anything for a plan that does not cover chemo, hospitalization, or rehab after surgery:…………

      Point #1 — the individual plans sold by major insurers like Kaiser and Blue Cross definitely covered hospitalization….only the medical discount junk plans did not, and they were a small minority of the market. I will let you pass on this one, you have done so much good writing.

      Point #2 — if not covering chemo saved me $200 a month on insurance, I would strongly consider such a plan. No one in my family has had cancer. If I get a cancer that requires chemo, I know enough about charity care policies to have a reasonable expectation that I could get care. Worst case, I get care and then declare bankruptcy. I declared bankruptcy for non- medical reasons in 1991 and it was not traumatic.

      Where I am going is this: if mandated benefits raise my premiums by 30%, and I am not eligible for subsidies but still far from rich, I might resist the mandate.

      And I am a lifetime liberal.

      The current debate is somewhat mindful of the Cash for Clunkers program. That program required that old gas guzzlers be destroyed. I made it through college buying old gas guzzlers for $250.

      All I am saying is that raising standards sometimes cuts off people who were surviving OK on substandard goods. This does not mean that we should not raise standards. Only that maybe we should do so more slowly.

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