• Three reasons the individual market “fix” wouldn’t entirely undermine Obamacare

    Obama’s “fix” for the individual market has a lot of potential holes, apart from whether it’s even legal. First, state insurance commissioners need to decide whether or not to implement the policy. At least some states (Washington and Arkansas) won’t. Even if states adopt the provision, there’s nothing to suggest they would compel insurers to continue offering their plans into 2014, so they may be canceled anyway.

    Industry expert Bob Laszewski had this to say earlier in the week:

    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?

    But let’s set all that aside, and say that insurers in some states bend to consumer demand and decide to extend plans. There’s fear that it would cause selection into exchange plans to be too adverse because many of the “good risks” will stay in plans that were supposed to be canceled. Would this be catastrophic to reform, writ large? Probably not. Consider the following:

    1. Risk corridors—which I summarized in October—provide a pretty generous buffer against all things unexpected through the end of 2016 (beyond that, we get into trouble—but the administration is only talking about a one-year deal, so far). The short version is that risk corridors are insurance for the insurers, so a bad risk pool in year one wouldn’t cause the market to unravel. The administration’s letter to insurance commissioners indicates that HHS will “explore ways to modify the risk corridor program final rules to provide additional assistance”, making them all the more important.
    2. The majority of people primed for the exchanges are uninsured, not coming from the individual market. It’s true that the uninsured are, on average, less wealthy and may also be less healthy. But the individual market also skews older, with individuals over 35 more likely to enroll than their younger counterparts. The young-old distribution of the uninsured is a little more equal, as you can see in this chart.* It’s a tricky business to try predicting consumer behavior—income and subsidy availability will matter, too—but it’s worth noting that people with nongroup plans only makes up about a third of the prospective exchange population; the impact of losing some people from the individual market may be overstated.exchangeelig
    3. The individual market is volatile. A Health Affairs study found that the median duration of these plans clocks in around eight months, with half lasting less than six months and two-thirds less than a year. This doesn’t necessarily reflect sick people are being dropped because of their health status—for many healthy individuals, nongroup plans are transitional coverage that they acquire while between jobs. The effective shelf life of these noncompliant plans is already short, and when new people cycle into the individual market, they’ll be required to shop on the exchanges.

    I don’t mean to suggest that this is pragmatic policy. It’s burdensome to insurers who canceled their plans in accordance with the ACA (and who don’t seem very keen on uncanceling them, anyway). In a world where the website was functional, this move wouldn’t be so politically necessary. Besides the president’s ill-chosen “if you like your plan, you can keep it” promise, the administration is facing a big mess if (when?) people experience coverage lapses because their plans are canceled and the HealthCare.gov glitches prevented them from buying new coverage by December 15.

    Like everything else involving the exchanges, this story is going to unfold at the state level, not nationally. It sets up an interesting tension: refusing to adopt President Obama’s fix could be seen as “a full-throated defense of the Affordable Care Act”,  which Sarah Kliff noted following Washington state’s decision to decline. But California—the state leading the nation in implementation—may be trying to accommodate the policy.

    Remember that this time last month, we were kicking around the idea of delaying the individual mandate for a year (which, frankly, isn’t off the table until the website is functioning well). The “like it/keep it” fix might be more confusing, but ultimately it’s less disruptive than mandate delay would be. Scale your histrionics accordingly.

    *The chart uses 2011 Census data for individuals above the poverty line, omitting the Medicaid-eligible. Relevant methodology here.

    Adrianna (@onceuponA)

    Share
    Comments closed
     
    • Number 1 reason the exchanges are failing: nobody knows what they are — the administration’s exchange marketing has been horrendous. More in line with thos post, however, let’s say the president manages to pass his quick fix, what makes you think insurers will care. They still face mass regulation, and as brought up by many on the left during October, the individual market is “small”, so why would the insurer want to work harder just to provide a temporary accomodation? Additionaly, although you argue against the risk pool dilemma, I can’t see why. Nobody is signing up for the exchanges (of the 100k+ that have, I wonder how many are sick) and now a sizeable chunk don’t have to. The adverse selection death spiral has begun!

    • In a narrow sense some insurance companies may benefit from this ruling. As an example my policy with Aetna in Ohio is grandfathered since I acquired the policy before March 23, 2010. According to Aetna, policy holders who acquired the policy after that date are not grandfathered and are being canceled even though the policy will continue for people like me in 2014. Since Aetna is not participating in the exchange it would make business sense for them to un-cancel those policies acquired after March 23, 2010, which are just like existing grandfathered polices because they could hold on to existing customers.They become the hero. This a much bigger dilemma for companies participating in the exchanges like Anthem since they are going to get a lot more money by pushing their customers into the exchange. Any way you slice it, they become the goat. Once again we are reminded that no good deed goes unpunished.

    • Addrianna
      Original risk corridor rule had set equations, ie, I think >3% of target, >3%, etc. and MCOs receive a specific percent compensation back.

      Now that the market might be upended, MCOs might find RC formula inadequate. The absolute dollar losses vs the relative ones, now that the baseline higher changes equation.

      Additionally, I have not seen cost estimates for what RC adjustments might cost. <2-3B I would think, yes? Still, who and how does money materialize? Interesting quandary for GOP. Helps MCOs (friend?) and ACA (foe) simultaneously. Appropriation or HHS slush fund?

      Brad

    • Of course the Administration move does not retroactively make the “like it keep it” claim true. The promise was not “if you like you plan you can keep it… for a year”, which is all they are offering. Even if it were possible to patch up the lie this late in the game, the “keep it claim” claim would remain a fabrication.

      I wonder how a state insurance regulator could possibly agree to let a company immediately start selling a policy without even submitting any of the, usually extensive, documentation? The regulators would have to declare the entire regulatory effort as completely meaningless.

      How could the regulator have an opinion on the appropriateness of the premiums when the market has been dramatically changed by the ACA? How could a regulator assure that the insurance company is properly budgeting for the expected expenses?

      It would be the height of irresponsibility. Sort of like cancelling the coverage for millions of people and making it impossible for them to sign up for new plans.

    • I think a couple of things need to be pointed out.

      1. In many states a death spiral only decimates the federal budget. In Kentucky the insurers can increase premiums by $50,000 per year and all that does it put $50,000 additional costs on the federal budget. It may be different in some states that have large uninsured populations above 400%, but many, if not most, of the uninsured are going to pass along increased cost through the subsidy to the federal government.

      2. What made these individual plans affordable in the past was that (1) they didn’t include all of the essential health benefits (2) they weren’t community rated and (3) they weren’t guarantee issue.

      It isn’t clear to me yet if the President said all 3 of those things still applied. If they do, then you have effectively created one insurance pool with fewer covered services and individual rating, and the exchange basically becomes a high risk pool, or a pool for very poor people who want their subsidy. That isn’t a tragedy for the individuals, but it probably is for the budget (see point 1)

      Either way, this was the time to endure the pain and force the change. I have a sneaking suspicion this change becomes permanent. There won’t be a greater incentive to finally scrap those plans next year, and if the Republicans make gains…all of a suddent they won’t be scrapping Obamacare…they will be extending or making permanent a concession that Obama himself approved.

      • “What made these individual plans affordable in the past was …”

        Yes. Exactly. Everyone who is claiming to “like” their plan is forgetting (in most cases in these comments, conveniently) that said plan would not be renewed if the insured became ill; getting sick puts you in a “preexisting condition” pool, and that plan you liked isn’t available for that pool. And as you get older, that cheap plan gets more expensive six times (instead of three times under ACA) faster than inflation. (I.e. actuarial costs as you get older go up six times, whereas ACA limits the difference to three). And don’t forget the annual cap on payouts: get really sick and you are bankrupt.

        So those “plans I like” are like cars without airbags. Fine until something distracts you and you hit a tree.

        • “that said plan would not be renewed if the insured became ill”

          Even though insurers do a lot of nasty things what you say above is totally untrue.

          Your other statements either have nothing to do with the plans people presently have or require an in depth comparison between plans and depend upon what the individual chose to buy.

          Risk adjustment with age:

          Insurance: The older patient who generally has more assets and a higher paying job pays for his own risk adjustment.

          ACA: Other people pay for the risk adjustment of the older group. Frequently they are younger with less assets and a lower salary. They are also more likely to have dependents.

          Annual cap: That depends upon the policy, but substituting a narrow panel which many insurers propose under the ACA might be far more dangerous to a greater number.

          Maybe the airbag of the ACA is filled with sharp rocks and broken glass.

    • I also have a genuine question.

      On this issue, and on the employer mandate the President has declared that he is not required to implement the laws passed by congress, at least not as they intended them to be executed. I know there is the transitional excuse for the employer mandate, and a similar excuse is being used here, but is there anything that prevents future presidents from using this idea, even on this law?

      What would stop a President Ted Cruz from unilaterally refusing to enforce the individual mandate, employer mandate, and allowing grandfathered plans to continue into perpetuity? Is the only hope really that Obama did it in a “transition period” so it was okay to ignore the law, but once we get through that period then the President;s hands are really tied.

      This whole episode seems to be putting the separation of powers on very shaky ground.

      • Very nicely put. The delay of the employer mandate has at least the fig leaf of ‘we haven’t been able to determine how to enforce it,’ thus making the delay at least somewhat legally defensible. This one-year delay, on the other hand, has no such cover – it’s purely ‘we’re getting a lot of flack for enforcing this law so we’re going to suspend it.’

        I’d suggest this is not terribly healthy for the rule of law.

    • Has it even been established that there is actual consumer demand for these crappy insurance policies? Not a few politically-motivated loudmouths yelling into a Murdoch/Koch-sponsored megaphone, but enough real live customers to make it worth continuing to offer these plans. Obama’s “fix” can easily be a case of “yeah-sure-fine-whatever, just go away and let us get these websites working”.

    • Well, not all are crappy policies. Some are low priced because the individual is low risk. They are in the cross hairs of the ACA, and they certainly have a complaint.

      Robin,

      Those are great points about the federal government being on the hook for price increases in the individual pool. Of course, it leaves the higher income people in this market on the hook for death spiral price increases. The higher the cost goes the harder it will be to defend the program in Congress. Remember, the ACA was supposed to save the nation money. If its cost spirals up, and the federal government is paying it, then any long term budget deal has to reopen this design. It could be another albatross politically.

      Of course, the logic that the federal government pays the increased costs only applies if federal subsidies for those in federal exchanges are found to be consistent with the law. The cases are winding their way through the courts, but there is a chance that only those in state exchanges will get subsidies. Then people in the individual market in most states will be on the hook.

      Presidents can do what they can get away with. There are both legal and political limits. It would be interesting to hear the legal arguments. So far the lawyers are saying they have not heard enough to form opinions on the justification. Ultimately, Obama has to get somethings through Congress. If they get angry enough about his retroactively rewriting laws that he wrote wrong the first time, they can freeze him out.

    • dr2chase,

      It is a mistake to continue calling them crappy insurance policies. Policies sold through the exchange provide free birth control and free preventive care (well visits, colonoscopies, etc,).

      Other than those two very real benefits, policies sold through the exchange are inferior to the individual market plans in every conceivable way.

      Most of the policies on our individual market were something like a $2,500 – $4,500 family deductible with $25 co-pays. Nothing flashy. The Health Benefits Exchange 2nd cheapest silver plan in our state is now a $9,200 deductible plan (80/20 after the deductible) with $25 co-pays for office visits.

      Sure, it covers substance abuse and maternity now, but you’re going to cough up $4,700 in extra deductible before it starts paying for anything besides a doctor’s visit.

      It is accurate to say that the exchange policies are much better insurance than high-rsk individuals would have been able to purchase, but they are also much worse than any policy that an individual would have actually purchased prior to healthcare reform. The only thing that makes them even somewhat attractive now is the generous subsidies that accompany them.

      If you were insured through the individual market, and you weren’t high risk, and you do not qualify for a subsidy…your insurance under Healthcare Reform is going to be far less comprehensive, or a great deal more expensive.

      If you were high risk, or are very poor, the opposite is true.

      But can we please quit disparaging plans that were far more comprehensive and reasonably priced than the current offerings.

      • Robin,

        “If you were insured through the individual market, and you weren’t high risk, and you do not qualify for a subsidy”

        and how many people is that? Ignore my assertion of crappiness, how large is this particular market? Is that large enough to justify continue offering these policies?

        Crappiness was not my main point. Market size was.

        • It is a good question. My point wasn’t that everyone is better or worse off. It is that the policies in that market were often far superior to the policies that have replaced them under healthcare reform.

          My best friend is a pastor…he gets to choose between a $398 a month family policy with a $4,500 deductible, 3 free office visits per person, and $25 co-pays on the individual market, or a $450 a month policy with a $9,200 deductible, $25 co-pays, free preventive, and substance abuse and maternity covered after he pays his deductible.

          The $450 is his net price after the subsidy. Neither one of those policies is amazing, but there is no way I would describe the second policy as “comprehensive” while simultaneously calling the first “crappy” or “barely insurance” or “an insurance plan that will still force you into bankruptcy.” All phrases used to describe policies that were previously sold on the individual market.

          The truth is that people have vastkly over-estimated the quality of plans on the exchange and under-estimated the quality of plans sold on the individual market. That was my only point.

          • But what happens to that $395 plan if the pastor gets sick? Will it get renewed at $395 + 10% typical inflation next year when he has a “preexisting condition”? Does it have an annual or lifetime cap?

          • Pastors are a special exception, they have been insured by a non-profit consortium of churches that have essentially put together a self-insurance network not available to the rest of us and not available to the religious who have become too sick to work.

            I was talking to a woman recently who enjoys one of those special, healthy person Anthem BC plans that is now going away because O’care doesn’t PROHIBIT this cancellation (not because O’care requires it). She has a great deal. The problem is that were she to become one of the 11% of women with breast CAor one of the 5% with colon CA or 50% with heart disease (lifetime risks) that “great” rate would go away anyway. Her policy does not have guaranteed issuance. As fabulous as it is to believe that we are never going have “bad health”, it’s pretty unlikely. I refer you back to my BIL who was born with two flaps in his aortic valve rather than three. Although he is completely healthy, he is completely uninsurable for any health matter. I have early OA in a never injured, very slightly congenitally malformed joint. I could probably get insurance that excluded the one limb like my mom did after she suffered a bad fracture in a fall. It would be great to be one of these lucky few who are safe in the knowledge that they will never be ill….

            • “Pastors are a special exception, they have been insured by a non-profit consortium of churches ”

              Ah. I see. Robin’s post is a lying sleaze using an example that is completely irrelevant to the claim said post claims to make; in particular it compares subsidized group insurance to private insurance.

              (Moderator: as before, that post really is a lying sleaze and needs to be called out on it. Please don’t reject this post; it may be rude, but it is factually correct.)

          • Also Democrats have proposed grandfathering the non-profit religious insurance program into the PPACA since it was omitted from the bill as an oversight. The Republicans have blocked this fix.

    • One last twist…

      I’m not sure if everyone is familiar with spend-downs in Medicaid. I don’t believe all states have them, but it is essentially a catastrophic safety net.

      In Kentucky you are responsible for your Medical monthly bills until they reach a certain percentage of your income. After that Medicaid will pay for everything (if you have kids).

      Considering that the family deductibles on these new plans is $9,200 for the silver…if you are just worried about catastrophic occurences it is much more cost effective to go uninsured. If I had a horrible accident tomorrow that was going to cost $100,000…Medicaid would require me to be responsible for the first $4,000 and they would pick up 100% of the remaining costs. This is despite the fact that I don’t qualify for ongoing Medicaid (my income is too high)

      It doesn’t work unless you have kids, but if you do it is a very cost effective catastrophic policy. Unless your income qualifies you for a generous enough subsidy to make a gold or platinum plan reasonable, spend-downs are a very viable option for catastrophic coverage.

    • And of course Marco Rubio is introducing legislation to repeal the risk corridor program.

    • Can you imagine how costly it is for insurers to replace individual policies in such a volatile environment?
      Insurers must have new premium revenues coming in to help pay for current claims.
      This is even more critical as the original pool ages (if, indeed, they stick around long enough in the original pool to actually age).
      And, remember, the ACA requires each insurer in every state to have only one risk pool for all their clients, whether in or out of the exchange.
      At National Prosperity Life and Health, we have innovative patented policies designed to remain in the original pool indefinitely.
      While not available for individuals until 2015, we will be insuring a few select large group self-insured plans in 2014.
      Don Levit

    • A $9200 deductible? I have not been on the MN website yet, but $9200 sounds incredibly high. Is that 4 family members at $2,300 each?

      More details please.

    • Bob,

      $9,200 is the family deductible on the Humana Connect Silver Plan offered in Kentucky. So basically it is a $4,600 individual deductible, or a $9,200 for any household size greater than 1. The Humana Connect Silvery Plan is the 2nd cheapest silver plan in every region of the state where it is offered…so it is the plan that is used to determine the subsidy for every other plan.

      That is their “Silver Plan” which is supposed to cover 70% of all costs. Their bronze plan has a $6,300 individual deductible ($12,600 family deductible)….and no co-pays…so you pay everything up until $6,300. Their gold and platinum designs escape me right now. I think it is $1,500 individual deductible ($3,000 family) for the platinum and $2,500 for the gold ($5,000 family) and both of those plans have co-pays.

      All of the plans have a $6,350 maximum out of pocket (or lower) for the individual and $12,700 for the family. These out of pockets appear to be nationwide standards for bronze and silver plans.

      Like I said earlier, people are over-estimating how good these plans are. The Co-op and Anthem plans being offered are better and have more variety, but Humana rigged the game so that they are the second cheapest silver and the plan that sets the premium. Low information purchases will be driven to Humana, only to find they have a $9,200 deductible.

      • This is the only silver plan? The low information buyer is a problem in any market oriented system.

        Steve

        • Sorry for the late response. Humana’s Silver Plan is approximately $100 cheaper than the next costliest silver plan. For people getting a subsidy it is actually better to be in a region not served by Humana, that way your subsidy is calculated based upon a more generous plan.

    • there is a terrific article in Naked Capitalist that exposes similar awful policies….

      ‘Michael Olenick Comprehensive Review of Obamacare”

      I guess the real question is this:

      why do insurers have to impose such high deductibles just to get to a semi-affordable premium?

      It is a complex answer and I only know pieces of it. Comments welcome.

      • I think that the amount of cross-subsidization is making lots of things look squirrely. I mentioned below one of my Dad’s friends who currently has a $2,100 premium on the individual market. Under ACA rules he is entitled to a plan that has the exact same design, and whose premium is no more than 300% of what a healthy 21 year old would pay.

        When you have to design a policy that you can offer to a sickly 64 year old for no more than 300% of the healthy 21 year old premium…on a population that has never had insurance…it just gets confusing.

        I am not sure if the plans will look more or less normal after a year of actual operation.

    • Robin, thanks for mentioning the Medicaid spend down program. It is a very decent safety net approach.

      However in many states it is limited to those who are under 21 or disabled or over 65.

      actually I would like to see a national spend down program as part of Medicare so we can get around stingy state legislatures.

    • You write:
      A Health Affairs study found that the median duration of these plans clocks in around eight months, with half lasting less than six months and two-thirds less than a year.
      How can the median duration be 8 months if half of them last less than 6 months?

    • David J Littleboy,

      There is nothing in my post that is a lying sleaze. Pastors may be entitled to certain special plans. I do not believe that is the plan this man has. For years he was in a religious based Medi-share program, our state outlawed those arrangements temporarily because they didn’t qualify as insurance (they are back now) he panicked, called up a local insurance agent, and took what was available.

      Everything I have posted on this site is an accurate representation of the costs and benefits of ACA.

      Just tonight I spoke with a 61 year old friend of mine who will be able to replace a $2,100 per month plan on the individual market with a $600 per month, unsubsidized, plan through the exchange. The plans are great for some people and not great for others. I am honest enough to address the costs and benefits that everyone faces, and admit when some plans aren’t what they were cracked up to be.

      If you want to be a robot and pretend everything is lollipops and sunshine without actually researching the products have fun.

      • Before someone chimes in that surely someone wasn’t paying $2,100 per month…he was. He is a wealth farmer that owns several thousand acres. He has had two his replaced in the past 5 years and that is what he gets charged when he is rated on his own health history.

        He can buy the platinum plan in his region for $598 without a subsidy. It comes with a $500 deductible, $1,500 maximum out of pocket. And is a 90/10 once the deductible is paid.

        I am concerned that most of his doctors will be out of network since the hospital where his hip replacements have been done is out of state. Other than that it is a great deal for him.

        And none of that changes anything I said earlier. I just happen to be open-minded enough to address each person’s situations individually.

        • Your examples seem to suggest that older and “sicker” people will benefit from the ACA while young and healthy people will pay higher premiums. As I understand it, that is the intentional design of the ACA. However, unlike the current individual market, the ACA ensures that the currently young and healthy will still be insured when they become ill or get older.

          • Adam, amongst many other problems with that type of reasoning one has to remember there is no guarantee that that young one will receive any social security or any Medicare. These are not government debts in the classical sense.

            If, however the government would make them the ACA a fixed debt then the story would be quite different.

    • thanks Robin.

      The company that is charging him $598 might be charging a heck of a lot more than that after year 1.

      Or they might have dropped out of the Exchange.

    • Adam, you are correct about the intentions of the ACA — but reality may be different. The ACA uses private insurance companies that may or may not stick around.

      Right now there are predictions that many insurers will desert the exchanges once reinsurance and risk corridors run out.

      Some insurers may even need a federal bailout before that time.

    • While the move endangers the short-term success of the healthcare law, it ensures its survival, even if it is temporary.

      Republicans are playing a full court press against the White House and Democrats for not upholding a promise made by the President in 2009 when he said: “If you like your health care plan, you’ll be able to keep your health care plan, period”. By extending existing insurance plans for another year, the President takes away a powerful political weapon from the Republicans. There is no doubt that the Republicans will continue their relentless attack on the healthcare law. But the dialogue during the next twelve months will focus on the insurance cancellations that will ensue in 2015 and not on the insurance cancellations of 2013 and 2014. And that may give the White House enough wiggle room to regain control of the narrative.

      More critically, the announcement buys the White House precious time with many Congressional Democrats up for reelection in 2014 and 2016. Congressional Democrats are receiving increased scrutiny from constituents who are fed up with the issues surrounding healthcare.gov and are angry over insurance cancellations. Even the President himself admitted yesterday that Democrats are under considerable pressure from the implementation failures of the healthcare law. Bloomberg News quoted him as saying, “there is no doubt that our failure to roll out the ACA smoothly has put a burden on Democrats”. The House voted today on a measure proposed by Republican Fred Upton of Michigan that would let Americans keep their existing insurance plans through 2014. The White House announcement provided cover for House Democrats who voted with the Republicans and allowed Democrats to take credit for the fix.

      The White House also knows that the administrative fix will not necessarily lead to higher premiums and a decrease in enrollment. The conversations surrounding yesterday’s announcement largely ignored the temporary risk corridors program, a relatively unknown program authorized by the healthcare law to mitigate premium fluctuations associated with unknown variables. According to the CMS, the program protects healthcare insurers against “inaccurate rate-setting by sharing risk (gains and losses) on allowable costs between HHS and qualified health plans”. This helps to ensure stable health insurance premiums in the insurance exchanges. It is possible that any premium fluctuations as a result of the fix will be contained by this program.

      Read more here: http://www.hirokawashima.com/why-president-obamas-fix-this-week-is-necessary/

    • If the people who are canceled end up able to enroll
      without coverage gaps and the plans and prices after subsidies are at least as good as what they had before, then everything could be OK.

      However, since the design relies on the healthy subsidizing the unhealthy, and the government not picking up the entire cost of those newly able to buy insurance, some people have to be worse off. And unhappy. Even letting them hold on to old policies for a year does not address the “like it, keep it” promise.

      Either these people get a permanent carve out, which would be the only way to honor the promise, or the issue just comes up again next year.

      Meanwhile, this assumes the subsidies in the federal exchange are upheld, and the repots of new policies featuring limited networks are isolated. Otherwise, policies on the federal exchange become unaffordable and the “like your doctor, keep your doctor” promise also will be exposed.

      Neither the subsidies nor the “like your doctor” problems will be solved by fixing the technical problems with the website.