(Photo by Jonathan Alcorn/Reuters)
(Jonathan Alcorn/Reuters)

Joel Ario is the former director of the office of health insurance exchanges at Health and Human Services and current managing director at Manatt Health Solutions. Before that, he served as the insurance commissioner in Pennsylvania and Oregon. He was the regulator who oversaw any changes that insurance companies wanted to make to their individual market plans -- so I gave him a call to discuss all the changes and cancellations happening right now. What follows is a transcript of our conversation, lightly edited for length and clarity. 

Sarah Kliff: What do you think about the changes we are seeing in the individual market right now, particularly the cancellation notices?

Joel Ario: Point number one is that it still remains true that if an insurer did not change a plan since the law passed in March 2010, it can stay. That comment has been made by various people and continues to get an angry reaction from the insurance industry.

Point number two quickly comes after that, which is that it's a good thing that they are changing these policies. That's the nature of improvement, where the insurance industry learns more about what subscribers like and don't like. So, yes, it's true they did not have to take their policy out of grandfathering, but it's a good thing that they are, not a bad thing.

SK: I wanted to ask you about your experience as an insurance regulator. Before the health-care law, would you see a lot of cancellations in the individual market?

JA: When somebody has an individual policy, they have guaranteed renewability. So you think, once I get in, I'm protected, and they can't raise my rates because of my health status. When I was running Pennyslvania's insurance market, I would constantly see companies changing their coverage.

The insurer would offer a new policy, and the insurance company would say, look at how great this policy is. And I would ask whether they were taking everybody, and they would say no, we'll take the people who pass underwriting. The only people who stay in the old policy then are the people who can't pass underwriting. So there you'll have a risk pool with unhealthy people.

SK: And I'd imagine their rates would go up?

JA: Yes, because they could rate each policy. A lot of people have left the original policy, and so they raise the rate. This was the question I got asked in one meeting I was in with the president before I got the job [at HHS]. And it was a question I would ask when I would see an insurer submit a 30 percent increase on some policy. My next question would be who is getting a decrease, because I know your company is not getting a 30 percent profit margin.

That all is changing. And that was the question I got asked by the president, why do these guys have to slice and dice the risk pool?

SK: How does that take us to the situation we have right now?

JA: We come to the current situation in that kind of context. The people who are probably most upset are people who have been doing pretty well over time. They might not even realize exactly how this happened. But they're the healthy people who have been offered new coverage, and they're pretty comfortable with that.

SK: If these are all the really healthy people, why would insurance plans cancel these products? That would give the people they want the most the opportunity to switch to one of their competitors.

JA: One way to think about that is the issue of insurers wanting to renew their individual book of business late in 2013, so people can extend their policies outside of the new risk pool into the new year. That’s an example of people who end up keeping their own policy will be people who are healthy and continue to be profitable. So in the short term, it's not surprising insurers would want the best of both worlds.

Over time though, anybody who is in one of those risk pools is no longer meeting the requirements of the law. And people generally aren't getting healthier. They get sicker. So the insurers are saying, why do we want to keep those policies. Let's just move everybody toward the new ones.

SK: What do you think about the people who are really upset about their plans being canceled, who say they're going to have to pay a lot under the health-care law?

JA: The people you commonly hear from don't mind having a policy below bronze, and don't want to pay for bronze or silver or gold. And as long as they stay healthy, that will be a good policy for them. What they don’t realize is they’re one step away from losing security if they do get sick. But right now, they're getting what feels like good coverage that, due to underwriting, is at a good rate.

It's generally true that if you take the people who are a bad risk, and clean them out, those who are left get a good deal.

Right now you have stories of people losing. But once the law goes into effect, and people have new health security, the stories will play in an opposite way. So you see this is, in the short-term, hurting the law, but the long-term factors here are very much in favor of the law. Assuming the Web site gets fixed.

SK: What do you think about the problems with HealthCare.gov, and what they mean for premiums in the new exchanges?

JA: I think it's not going to have a big effect in 2015 because one, there’s not going to be very much experience from 2014 to inform rates in 2015 because they have to be filed pretty early. So the 2015 rates are going to be set pretty close to 2014 rates.

By 2016, there will be some significant experience, and you'll know a bit about what is the new equilibrium. If there was a single most critical issue to the success of the ACA it would be that risk pools in the exchanges are large enough to have a balance of healthy and sick.

The thing you always know is that there is a group of people who will fight through any obstacle. It’s a direct relationship between difficulty of access and likelihood of a balanced risk pool. That's why it's so critical to get the Web site fixed.