Here’s Why Obamacare’s Health Plan Change Worries Insurers
— Aetna (@Aetna) November 15, 2013
In a Thursday news conference from the press briefing room of the White House, President Barack Obama addressed the outrage that has grown since insurance companies began issuing policy cancellation notices en masse last month by rephrasing his oft-repeated “If you like your current health insurance plan you can keep it” pledge. He said:
“Already, people who have plans that predate the Affordable Care Act can keep those plans if they haven’t changed. That was already in the law. That’s what’s called a grandfather clause. It was included in the law. Today, we’re going to extend that principle both to people whose plans have changed since the law took effect, and to people who bought plans since the law took effect.”
The problem is that the president’s adjustment may not be plausible, as the the National Association of Insurance Commissioners warned on Thursday. Similarly, Aetna (NYSE:AET) expressed concern about the destabilizing impact the change will have on the market.
During the years that separated the passage of the Affordable Care Act in 2010 and the implementation of its cornerstone provision — the online insurance marketplaces, which launched October 1 – many health care experts cautioned that such a promise could not be upheld to everyone who already bought insurance policies in the private insurance market.
After all, the Affordable Care Act does not include any provisions to prevent insurance companies from deciding not to offer certain insurance products. Now that millions of individuals have been informed that their policies will be terminated at the end of the year, Obamacare detractors have ammunition that the president over-simplified and over-generalized when he made that promise.
As originally written, the health care reform law said that policies in effect as of March 23, 2010 — the day the Affordable Care Act was signed into law — would be “grandfathered,” meaning consumers would be allowed to keep those policies even if they did not include the 10 mandatory benefits that all health insurance plans are required by the Affordable Care Act to provide.
However, regulations later written by the Department of Health and Human Services narrowed that provision. As HHS Secretary Kathleen Sebelius wrote in a in a June 14, 2010 blog post announcing new health care regulations, if any part of a policy was significantly changed since that date — including the deductible, co-pay, or benefits — the policy would not be grandfathered.
The reasoning is that the Affordable Care Act was designed to eliminate “substandard policies that don’t provide minimum services,” White House Press Secretary Jay Carney said after the policy cancellations began to make news. He then added that the “80-plus percent” of Americans with employer-sponsored insurance or covered by government programs will be unaffected.
For a time, the administration expressed a glass-half-full take on the cancellations. During Sebelius’s testimony before the House of Representative’s Energy and Commerce Committee earlier this month, she maintained that the cancellation of policies was a justifiable side effect of the health care reform because the new policies will give Americans better benefits and more consumer protections. But now, “the bottom line,” according to Obama, is that “insurers can extend current plans that would otherwise be canceled into 2014, and Americans whose plans have been canceled can choose to re-enroll in the same kind of plan.”
Yet Jim Donelon, president of the National Association of Insurance Commissioners, expressed concern at the the fact that the president had decided the federal government would employ its “enforcement discretion” to delay the enforcement of the Affordable Care Act’s market reforms for current insurance plans.
“This decision continues different rules for different policies and threatens to undermine the new market, and may lead to higher premiums and market disruptions in 2014 and beyond,” he said in a statement released Thursday. “In addition, it is unclear how, as a practical matter, the changes proposed today by the President can be put into effect. 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.”
A tweet from Aetna’s official Twitter account called the changes destabilizing. Furthermore, for those changes to be made, the insurer said that the cooperation of state insurance regulators will be needed.
— Aetna (@Aetna) November 15, 2013
“State regulators will need to allow us to update our policies and secure appropriate rates so we can get these plans back in the market,” Aetna spokeswoman Cynthia Michener said in a statement to Reuters.
On Friday, Obama met with insurance company executives at the White House to assuage their worries. According such executives, the biggest problem is that the premiums in the new federally facilitated and state-run insurance exchanges were calculated based on the assumption that young, healthy, and therefore cheap-to-insure individuals would be moved into the new marketplaces because their cheaper plans would not comply with the Obamacare’s new requirements that policies offer particular benefits.
If those healthier individuals stick with their current plans, the risk pools of the insurance exchanges will be dominated by older, sicker people who are more likely to find affordable policies through the exchanges. Exchange risk pools must be broad enough to balance out the proportionally higher medical costs of the sicker and older individuals who will likely be among the first to sign up.
Policy prices have already been set for 2014. If current rates are not profitable, insurers could hike premiums the following year, which could cause more people to drop out of the system, causing a self-perpetuating cycle of higher premiums and fewer enrollments. Alternatively, insurers could also leave exchanges, decreasing the competition needed to keep policy prices low. Either way, insurance offered on the exchanges could become less affordable, possibly undermining the success of the reform.
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