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

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.