“The provision in the law was the manifestation of the assurance that if you have a plan you want to keep, you can keep it. Insurance companies that chose to strip away benefits from existing plans in the interim, that canceled existing plans in the interim, they took away that grandfathering opportunity. And that’s a reality.”
– White House spokesman Jay Carney, daily press briefing, Nov. 5, 2013
In defending President Obama’s now-discredited pledge that “if you like your health-care plan, you’ll be able to keep it,” the White House has repeatedly tried to blame insurance companies.
White House spokesman Jay Carney’s statement above, accusing insurance companies of stripping away benefits, is typical. Columnists supportive of the White House have piled on, arguing that insurance companies should be blamed.
Meanwhile, Obama, in trying to tweak his original pledge, added this caveat earlier this week: “If you had or have one of these plans before the Affordable Care Act came into law and you really like that plan, what we said was, you could keep it if hasn’t changed since the law’s passed. You’re grandfathered in.”
But there’s an interesting wrinkle to this story that few appeared to have understood. The main culprit is not whether or not the insurance industry has changed a plan that ran afoul of the administration’s regulations — but the law’s effective date. Let’s explain.
We’ve noted before the tight regulations that the Department of Health and Human Services wrote while implementing the law, which affected “grandfathered plans,” those obtained before the law was signed on March 23, 2010. That’s what Carney is referring to when he claims that insurance companies are taking away benefits — though that is just one of a myriad of provisions that could affect a plan’s grandfathered status.
But how many people actually would have kept their individual plans that long in the first place? HHS, when it drafted the interim rules, estimated that between 40 and 67 percent of policies in the individual market are in effect for less than one year. “These estimates assume that the policies that terminate are replaced by new individual policies, and that these new policies are not, by definition, grandfathered,” the rules noted. (See page 34553.)
That’s a large percentage of the plans — but it’s actually bigger than that, given the effective date. We dug into the key research that prompted this estimate, a study titled “Patterns Of Individual Health Insurance Coverage, 1996–2000.” The study noted that, for most people, buying individual insurance is a temporary condition:
“Roughly two-thirds of spells began or ended with employer-sponsored coverage. Eighty-five percent of those with such coverage before a spell of individual coverage returned to an employer-sponsored plan. Thus, more than half of all individual-coverage spells (58 percent) bridged periods of employer-based insurance.”
The study included an interesting chart, based on the experiences of more than 6,000 people, that showed how long a person had a “spell” of individual coverage. The median spell length was only 8 months. Here are the key points:
Less than 6 months: 48.2 percent
6-12 months: 16.3 percent
13-18 months: 13.7 percent
19-24 months: 4.8 percent
More than 24 months: 17 percent
Of course, the Affordable Care Act was enacted more than 44 months ago. Using the data available in the chart, we roughly calculated the Gamma distribution curve beyond 44 months. Under our model, only 4.8 percent keep the policy longer than 44 months — and that is likely an overestimate.
Translated, that means about 95 percent of people now getting cancellation notices likely purchased their plan after the effective date of the law.
A different study of a single state (California), also cited by HHS in the regulations, found that only 24 percent of people with individual coverage kept their plan for more than 48 months. In other words, between 75 and 95 percent of people in the individual market likely never had a chance to get a grandfathered plan.
This should not be surprising. After all, the March 23, 2010, effective date is so obscure that likely few people in the individual market paid much attention to it.
(Note: there is a percentage of people who, because of an apparent loophole in the law, were able to take a one-time deal from some insurance companies to extend their plan through much of 2014, but it’s unclear how many people were given a chance to grab this opportunity — which of course will lapse next year. The administration never issued clear guidance on whether this was possible, and at least 13 states prohibited it or allowed it with restrictions.)
During the drafting of the health-care law, insurance companies had wanted to extend the effective date for grandfathered plans until Dec. 31, 2013, which would have meant that few at this moment would be complaining that they had lost a plan they liked. Of course, that would have also meant fewer potential customers for the Obamacare exchanges in the first year.
Update: The White House did not initially provide an on-the-record comment but Carney responded at his daily new briefing. “You get no argument from us that there’s a lot of churn that preexists the ACA in this market,” he said. “This section of the insurance market has always been the most volatile. It’s where people come in and out.”
Update, Nov. 11: For an alternative look at what this data might mean, read this critique by economist Dean Baker.
The Pinocchio Test
Blaming the insurance companies can only go so far. First of all, the administration wrote the rules that set the conditions under which plans lose their grandfathered status. But more important, the law has an effective date so far in the past that it virtually guaranteed that the vast majority of people currently in the individual market would end up with a notice saying they needed to buy insurance on the Obamacare exchanges.
The administration’s effort to pin the blame on insurance companies is a classic case of misdirection. Between 75 and 95 percent of the problem stems from the effective date, but the White House chooses to keep the focus elsewhere.
Check out our candidate Pinocchio Tracker