The House is set to vote this week on Fred Upton’s “Keep Your Plan Act,” which would “re-grandfather” the insurance plans that were canceled because of O-Care’s new regulations. I myself floated the idea of re-grandfathering in a post or two last week, just because it seems like an obvious stopgap solution until the website is fixed. If millions of people who’ve had their plans dropped are now at risk of not having coverage on January 1 thanks to Healthcare.gov’s Glitchapalooza, there’s an obvious solution: Reinstate the canceled plans. Easy peasy, right?
Nope, neither easy nor peasy. For starters, each state has regulations of its own that a plan needs to comply with before it can be offered there. (Obama conveniently neglects to mention this when he dismisses canceled plans as “cut rate” and “bad apples.”) Some of the canceled plans may no longer meet those state regs; even ones that do would somehow need to be approved by the responsible state agency with less than two months to go in the calendar year. Even if you could get the states to waive their regs for previously offered plans as an emergency solution, though, there are other logistical difficulties insurers would have to deal with. The man to read on this, as usual, is Bob Laszewski:
Ideally, we could just say, never mind––let these people simply stay on their current policies. But here’s maybe the biggest irony in this whole mess. The Obama administration may not be ready for Obamacare but the insurance industry is. The health insurance companies spent the last many months rolling their old policies off the books and replacing them with the 2014 Obamacare compliant products––Bronze, Silver, Gold, and Platinum.
Cancellation letters have been sent. Their computer systems took months to program in order to be able to send the letters out and set up the terminations on their systems. Even post-Obamacare, the states regulate the insurance market. The old products are no longer filed for sale and rates are not approved. I suppose it might be possible to get insurance commissioners to waive their requirements but even if they did how could the insurance industry reprogram systems in less than a month that took months to program in the first place, contact the millions impacted, explain their new options (they could still try to get one of the new policies with a subsidy), and get their approval?
The solution to government tech chaos can’t be insurance industry tech chaos. But never mind the logistics: The real problem with re-grandfathering healthy people is that healthy people are only part of the equation. What happens to the sick people who’ve been doggedly signing up for new plans on the exchanges over the past five weeks? They’re not going to be deterred by Healthcare.gov’s failures; they’ll go to individual insurers and buy directly from them. They’re not going to be deterred by the fact that they don’t know what subsidies they’re eligible for yet either; when you have a preexisting condition that costs hundreds of thousands of dollars to treat, you’re happy to have insurance at virtually any cost. Thousands of these people have signed up since October 1, undoubtedly, and now insurers need to figure out how to pay for them. Letting healthy people revert to old, comparatively cheaper plans doesn’t solve that problem because the revenue target for those plans was set before the law required insurers to assume much greater expenditures by letting the sick enroll. Greater costs from the sick mean you need greater revenue from the healthy, which is why so many middle-class people are now finding themselves gouged by premiums for their new “comprehensive” plans. Letting them go back to the old plans at this point would be like losing your management job as a 50-year-old and deciding to resume the burger-flipping job you had when you were 18. It’s a nonstarter. Your expenses are much greater now than they were then.
So what now? Experts have no idea:
Obama has directed his health care advisers to look for a way to deal with the wave of cancellation notices hitting some policyholders. But health policy experts have no idea what the White House could actually do to alleviate the sticker shock some consumers are facing.
“I can’t imagine what they’re thinking about,” said Tim Jost, a Washington & Lee University law professor and an expert on the Affordable Care Act…
Insurance companies have already set their premiums for 2014, so the high prices some consumers are experiencing aren’t going to change this year. And insurers’ business models already account for moving people into the health care law’s new insurance marketplaces.
“In short, I’m flummoxed,” University of Michigan law professor Nicholas Bagley wrote at the Incidental Economist blog. “Maybe the administration has something creative up its sleeve, and it’s certainly prudent to reserve any kind of final judgment until we learn more. For now, though, color me skeptical.”
If the White House could figure out a way to let the healthy be re-grandfathered, it could offer insurers some sort of bailout to cover the sick temporarily, until people are willing and able to enroll on Healthcare.gov en masse. I don’t know where that money would come from. Lori Gottlieb discovered recently that her liberal friends who support O-Care don’t seem to give one wet shinola that she’s paying thousands more for coverage this year, so maybe Obama could test their largesse by proposing an excise tax to pay for preexisting conditions. Let’s see how that plays before the midterms with America’s generous centrist Democratic voters. Even that would only solve part of the problem, though, since there’d still be millions of people whose plans have been canceled who are staring at a lapse of coverage on January 1 unless they can enroll within the next month. Maybe there’s some sort of one-size-fits-all (or two- or three-sizes) coverage scheme insurers could cobble together for the healthy, with the feds on the hook for any losses until risk pools start to normalize next year. Again, though: Where’s the money coming from? Is a temporary one-size-fits-all plan even logistically possible? We’re only beginning to grasp the magnitude of this train wreck. Frankly, I don’t know what insurers were thinking in relying on Obama and Sebelius to have Healthcare.gov working perfectly by October 1 given the massive disruption to the industry that might result if they proved to be grossly incompetent. For people whose business is measuring risk, that was a glaringly poor measurement.