This is how Obama plans to un-cancel insurance policies

November 14, 2013

EPA/SHAWN THEW

I hear that the president just changed Obamacare. Give me the simplest possible explanation of what happened.

The White House is giving health insurance plans the option to keep selling plans that don't comply with the Obamacare for one more year.

How does that change the law?

Prior to this morning, any insurance plan offered after Jan. 1, 2014, had to comply with new Obamacare requirements. These are things like covering essential health benefits, such as maternity care, accepting all consumers and not charging people higher rates if they have a pre-existing condition.

Let's say you bought an insurance plan in April 2013 that did not cover maternity care (maybe you're male, maybe you're over 60 -- these details are less important). You would have bought a one-year contract that ran into 2014. April 2014 rolls around and you can't renew your plan: It's 2014 and the plan doesn't meet the health law requirement to cover certain benefits.

So now my insurance company would have to renew my plan?

Not quite: What Obama did today wasn't force all insurance plans to keep offering their products. That would be pretty difficult (and possibly illegal) given that health carriers take products on and off markets all the time.

Instead, President Obama is giving two key players the opportunity to make two key decisions. He's giving insurance regulators the opportunity to allow health insurers to sell some plans that they weren't allowed to sell, prior to this morning. If the insurance commissioners decide to give plans the go-ahead, it's then up to health insurers whether they would want to renew these policies.

Why wouldn't insurers want to keep offering these policies? It's pretty much guaranteed customers!

This is actually a pretty tricky decision for insurers, especially for those that are selling in the health insurance law's new marketplaces. Months and months ago, they submitted the insurance premiums they planned to charge on the exchanges. These premiums assumed that some of their current customers  would move into those new policies.


This ad, created by a Colorado non-profit, is meant to encourage young men to purchase health coverage.

The people in the individual market right now tend to be relatively healthy--that's the whole reason that insurers decided to offer them coverage in the first place. One senior White House official estimates that one-quarter of these subscribers are under 25. They are, in other words, the nice young gentlemen (and ladies!) who put the proverbial "bro" in "brosurance."

If insurance companies leave all the bros and younger women in these old products, then that likely means average health care costs among their exchange population will go up. This is why the trade group that represents insurers worries that "changing the rules after health plans have already met the requirements of the law could destabilize the market and result in higher premiums for consumers."

So what will insurers decide?

That's a bit hard to game out. On the one hand, this puts the blame squarely on insurers if they do not decide to renew their products. Obama hinted at so much when he said, "What we want to do is to be able to say to these folks, you know what, the Affordable Care Act is not going to be the reason why insurers have to cancel your plan." It's fair to guess insurers are especially worried about angering consumers--and then sending them to a marketplace with a ton of their competitors.

But, as mentioned earlier, keeping people on separate insurance plans could mess up their whole business plan for the new exchanges. So it's a bit of a balancing act for insurance carriers.

"To the extent that people cannot or would not participate on the exchange, that would diminish the size of the pool," says Brad Wilson, chief executive of BlueCross BlueShield North Carolina. "We don't know how many people that would be and that's part of the analysis, how do you balance the equities?"

How does this all work?

Nobody really knows! Okay, that's a bit of an overstatement, but the people who need to figure it out - the state insurance commissioners - say they're a little bit bewildered right now about the logistics of all this. A lot of cancellation notices have already gone out the door. Do insurers need to send a follow-up letter? Will states have to issue new regulations? Can insurers even come up with premiums for these new plans this late in the game?

"It is unclear how, as a practical matter, the changes proposed today by the President can be put into effect," Jim Donelon, president of the National Association of Insurance Commissioners, said in a statement. "In many states, cancellation notices have already gone out to policyholders and rates and plans have already been approved for 2014.  Changing the rules through administrative action at this late date creates uncertainty and may not address the underlying issues."

How many people will get their cancellations reversed?

That's incredibly hard to game out right now. Insurers are just hearing about this change--as are regulators--and they're putting their heads together to decide whether it makes regulatory and business sense to keep offering these policies.

What does this mean for the Affordable Care Act?

Politically, it could be helpful: There have been lots of legislators clamoring for some kind of change in this arena, so today's announcement might quell some of that political tumult.

Policy-wise, though, there are a lot of health law supporters who are really worried about what this means for the measure. They think that segregating  some of the healthy people out of the exchanges is really bad for the Affordable Care Act. It would likely raise premiums, but nobody is sure by how much.

Is there a way to fix that problem?

Maybe - as the New Republic's Jonathan Cohn astutely points out, the administration is looking at beefing up the health law's "shock protectors:" policies already in place to help insurers out if they get subscribers who are much sicker than they expected. This includes different piles of funding, that will be doled out to insurers who end up with sicker consumers. This could help guard against premium increases.

The last time I read one of these super long explainers on health policy there was an adorable animal at the end. So, can we do that again?

Obviously. Here is a penguin being tickled and giggling.

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Lydia DePillis | November 14, 2013