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By: Seth Kirby
In spite of President Obama’s assurances during his push to pass the Affordable Care Act (“ACA”) that individuals would be able to keep their existing health insurance, thousands of Americans have received notices that their plans have been terminated because they do not meet the requirements of the new law. These individuals have now been forced to shop for new plans that provide the vast array of coverage that is mandated by the ACA. In doing so, they have come to realize that the new plans, which must provide no copay wellness exams, coverage for pre-existing conditions, maternity care, and other benefits, are far more expensive than their prior plans. To add insult to injury, many of these individuals are now discovering that this increased cost will not be offset by tax credits because their income exceeds the subsidy thresholds. This perceived bait and switch, combined with the technological failures of the government’s on-line marketplace, has led to widespread outrage over the implementation of the ACA.
The Obama administration has attempted to take several steps to salvage the public perception of the ACA. The first step has been a noticeable attempt to rebrand the health care mandate by eliminating references to the ACA as “Obamacare.” In his recent November 14, 2013 address on the health care mandate, he studiously avoided the term “Obamacare” opting instead to use “Affordable Care Act” throughout the presentation. Somewhat surprisingly, this marketing tactic seems to work. Recent opinion polls show that opposition to “Obamacare” is nearly 10% higher than to the “Affordable Care Act” even though they are one in the same. Apparently, a rose by another name has less thorns.
On a more substantive level, during his November 14th address, President Obama stated that, subject to state approval, carriers would be allowed to continue to issue non-compliant policies for an additional year in order to allow more time for an orderly transition. While this extension was presumably intended to address the outcry over the mass cancelation of non-compliant plans, it appears to be nothing more than a political sound bite that will not result in any real change. Indeed, as of today, only 12 states have agreed to allow carriers to extend their non-compliant plans for a year, while several other states, including California and New York, have formally rejected the proposal.
Not only have two of the most populated states refused to accept the administration’s proposed Band-Aid, but most health insurance companies have refused to reinstate or continue the non-compliant plans. The reason for the refusal is a simple matter of premium calculation. The non-complaint plans were typically issued to healthy individuals that wanted coverage for catastrophic health care costs. The plans they obtained did not include the frills required by the ACA, and they were restricted to a pool of low-risk insureds which allowed the associated premiums to be low. To comply with the ACA’s mandate of coverage regardless of pre-existing conditions and provide extra benefits such as maternity care and no copay wellness exams, the carriers need the “good” risk insureds to join the pool of “bad” risk insureds in order to spread the risk and set premiums at an semi-acceptable level. Allowing the “good” risk insureds to opt out for the first year of the ACA damages the pricing model and is unacceptable to most, if not all, carriers. I suspect that the administration is well aware of these insurance pricing realities but chose to announce the extension of non-compliant plans for political cover. Ultimately we will likely all discover that providing more coverage to more people costs more money.