The trouble with Obamacare’s most popular promise

November 4, 2013

Health-care consultant Bob Laszewski buys insurance on the individual market in Maryland. His plan's benefits are excellent. "I can access every provider in the national Blue Cross network –– about every doc and hospital in America –– without a referral and without higher deductibles and co-pays," he writes.

And there's no catch. "My plan covers about everything," he continues. "Never had a procedure for either my wife or myself  turned down. Wellness benefits are without a deductible. It covers mental health, drugs, maternity, anything I can think of."

But his plan is ending. The replacements all have tighter networks, higher deductibles and higher premiums. And Laszewski isn't alone. Many Americans who currently buy insurance on the individual markets are seeing their plans canceled and finding the replacement plans have higher premiums or stingier benefits. For them, President Obama's promise that "if you like your plan, you can keep it," is proving a cruel hoax.

These cancellations are the direct and inevitable result of Obamacare's most popular promises: That it would put an end to discrimination based on preexisting conditions, that it would limit discrimination against the old, and that it would make sure your health insurance actually covers you if you get sick.

That sounded good every time the president said it. But part of the reason it sounded so good is that the people benefiting from this discrimination didn't know they were benefiting from it. But people in the individual market right now are paying less because of discrimination against the old and sick. When that discrimination ends, a lot of them will end up paying more.

I don't have any special knowledge of Laszewski's plan. But the likely explanation for why his rate is going up is reasonably simple: Sick people will be able to join his plan, too.

A plan like the one Laszewski has is extremely attractive to anyone who is sick, or thinks they might one day get sick. So insurers tend to discriminate for those plans aggressively. That's not to say no one who joins the plans ever gets sick. They do, and they're happy to have such excellent coverage when that day comes. But the premiums are much lower because the insurer is keeping out the people who their actuarial models say will need the plan most.

The Affordable Care Act changes all that. Insurers in Maryland can no longer turn people away because they're likely to get sick. That means they have to assume that the average applicant in a plan like Laszewski's is about to get a lot sicker -- and that means they have to raise the premium. To return to the health-care trilemma, Laszewski's plan just went from here:

bob1f

To here:

bob plan 2

That's bad for Laszewski, who also makes too much money to qualify for subsidies. But it's good for the people who couldn't get into the plan previously. Laszewski's low(er) premiums were a function of the fact that they literally couldn't buy the insurance. Now they can. The previous system was better for Laszewski and terrible for them. The new system is worse for Laszewski but vastly better for them.

None of this is Laszewski's fault, of course. He's right to feel burned by President Obama's promise that people who like their health insurance can keep it. That's true for most people, but it's false for some of the people buying insurance on the individual market right now.

But all the possible solutions have tradeoffs. Laszewski's preference, he said in a recent interview, would have been for the administration to grandfather in more existing insurance plans. That would've meant higher insurance premiums in the exchanges, as healthier people who are able to buy into the individual market now would have just stayed there. High-risk pools or any other kind of direct, government-provided insurance or subsidy for the sick needs to be paid for by someone.

There are no easy solutions to the health-care trilemma. Someone always loses.

The political difficulty of this period, however, is being magnified for the Obama administration because Obamacare's Web site remains such a mess. The White House expected that these cancellations would come at a time when millions of Americans were signing up for low-cost health insurance that they couldn't afford or weren't being allowed to buy before. For every loser, there would be many winners. But the losers are learning they lost at a time when the winners still don't know that they won. So rather than the media having some stories of "rate shock" and some of "rate joy," it's all rate shock.

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