Fair Fix on Health Insurance Plans

This week, the President announced that anyone who received a notice that their health insurance policy would be canceled because it didn't comply with the Affordable Care Act could keep that same policy for another year. Considering the actual impact the political gaffe would have had, that seems like a fair fix on a minor glitch. The ACA's federal exchange enrollment website issues, however, remain a serious political problem.

The political calculus on President Obama's oft-repeated promise that no one would lose the insurance policy they had prior to the ACA's enactment was not well thought out, especially as it regarded the administration's signature legislation. What's worse, leaks last week suggested that members of his staff had been arguing over the validity and possible political ramifications of that statement way back when he first began using it.

That no one of influence in the room could foresee the political nightmare which might be spun does not say much for the quality of strategists he employs, and I couldn't help but remember that time his inner circle of staff and speechwriters let him lift the Elizabeth Warren line that ended up handing the Republican Party its 2012 convention motto with a bow tied around it. (It is also worth noting that both speeches seemed to be paraphrasing Berkeley Professor George Lakoff.)

In reality, the President did not cancel anyone's health insurance. The ACA reformed individual (non-group or non-public) health insurance policies, which prior to the law's enactment were far and away the most egregious in the marketplace. One of the signature elements of Obamacare is a trade-off with insurance carriers of an individual mandate for ending practices like exclusions, denials and price increases related to previous health conditions, while increasing plan benefits.

As a former VP for a large health insurance firm that marketed the exact products we're talking about, I can tell you that this is a very good thing for consumers. These plans are among the worst examples of what is wrong with our healthcare system, as they routinely charge big premiums for minimal coverage. Insurers argue that since risk for individuals is not off-set by a large pool of fellow policy holders, there is more exposure on each policy and lower coverage levels are warranted, while prices should be raised significantly for any factors that might suggest increased risk. Meanwhile the most risky applicants are simply denied coverage. 

The individual mandate seeks to force insurers to treat this sliver of the population as a large group in and of itself, no different than a similarly-sized organization that would benefit from much better coverage in exchange for their large risk pool of premium paying customers.

Insurance companies could have modified some old individual plans to be ACA compliant, but for whatever reason, decided it was better to get rid of them and simply offer new ones to those clients instead. Others, which were "grandfathered" in so to speak, could have been kept, provided the insured was enrolled before the ACA effective date. But the law went into effect March 23, 2010. That's important when you consider the way individual insurance is typically used.

Unlike group plans, they have a relatively short policy life. In fact, only around one in five policy holders keep their plans more than two years, with nearly half of the market keeping it less than six months (which is sometimes the gap between the time they are insured by different employers, or quite often, the first time they use their much inferior individual plan and decide it's not worth the premium). That means that nearly all of the policies receiving cancellations would have been purchased after the March 2010 date and therefore ineligible for a grandfathering. This is likely something that neither insurance companies or the Obama administration fully considered.

Again, and I can't stress this enough, that's because nearly all of that tiny portion of the market would have had a chance to get better coverage for the same or less. So in a sector where people typically keep their policy for about a year, a portion who may have kept it longer and would have wanted a plan without ACA requirements was understandably not seen as even a blip on the radar. But while no one was told, we can't insure you any longer (something they could have been told prior to the ACA's enactment), some were in fact told, “the plan you were on will no longer exist next year, here are some other ones you can choose from.”

Reports that many of the plans were more expensive were wildly distorted, as many did not factor in the likelihood (and indeed probability) that many of the policy holders would qualify for premium subsidies, or that others were simply on bare-bones, good-for-nearly-nothing plans that would be illegal. So indeed, for that sliver of the sliver, some may face a scenario where they had a low-benefit discount plan which was less expensive than even the bronze-level plans now on the exchange, and would have to pay more than they did before – though again, while getting more coverage.

Nevertheless, the President did say that if you have insurance and you like it, you would be able to keep it, which has proven not to be the case for everyone. Fair enough – that was a bad idea and he's paying the price for a poorly-communicated message. Now insurers can offer those clients their old non-conforming plan for one more year, though they will have to disclose the areas of the plan that do not meet ACA requirements, while showing them other plans which do.

That's a fair fix that will remedy the “lie,” while exposing the reality of the situation – that most of those who have a plan which would have been canceled can get a much better plan for the same or less money, while the few who can't will still get something much better for only a little bit more.

However, if the White House cannot get the website for the federal exchange working properly pronto, the disaster that has been the ACA's roll out will only continue to get worse, and it will continue to be a major issue for Democrats right into the 2014 election. Some are already signaling their impatience, as 39 in the House jumped ship Friday to vote on an even stronger measure than the President had announced. 

As with the "cancellations," the website problem is small from a practical standpoint. All of the states who have their own exchanges are not impacted, and there is still plenty of time for everyone who will use the federal exchange to enroll before the deadline. This is a website problem that has nothing to do with the law itself.

Politically, however, it is an enormous embarrassment that undermines confidence in the architects of the law and contributes to the prevailing notion of the ACA being a gigantic blunder. This perception is aided by the fact that, on the whole, the ACA impacts a very small portion of the population.

Most people will continue to receive the same coverage through group or publicly-sponsored plans, just as they do now. The only thing they will likely notice in terms of changes is increased benefits in areas where their plans were not compliant prior. For those Americans, their understanding of the law will largely be driven by what they hear, watch and read. In that regard, the White House and the Democratic Party are losing both the battle and the war.