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All across America, insurance company executives and insurance commissioners are doing spit takes

(Updated 11/14/2013)

Obamacare: despise it or hate it, it’s now the law of the land and we all need to accept it and make it … wait, what’s that? The President just changed the law? Okay then.

As you know, people and Republicans have been making a big noise, first about the continuing web site enrollment woes, and then about insurance company customers who are getting cancellation notices for their insurance policies after the President emphatically said for three years that “if you like your plan, you can keep your plan.” (You most likely couldn’t keep your plan but in fairness to the President, he probably thought nobody would want to.) In response to this less than joyful noise, the administration has come up with an administrative fix that they think will put the screws to the insurance companies they blame for the mess, but is almost certain to backfire: they’re allowing insurers to reinstate the cancelled plans if the various state insurance commissioners permit it.

This scheme may temporarily help the administration because they can now deploy the Otherguy Overby defense (which they’ve used with some success in the past) and refocus the popular ire on the insurance companies that will probably not be able to reinstate most of the cancelled plans, or at least not anytime soon. I say “temporarily help” because even though people are easily distracted, if they can’t get their plans back then they will eventually remember who it was told them that they could keep their plans.

Beyond that detail, though, lurk other issues. Insurance companies are going to hate this because they just spent months if not years devising new, Obamacare-compliant policies, and reinstating the old policies will be an actuarial and programming nightmare that may not even be possible ā€” and is almost certainly not possible in the six weeks remaining before many of those policies expire on January 1. Insurance commissioners in states where insurance commissioners have actual powers, which isn’t all of them, have to decide whether or not reinstating the cancelled policies is 1) feasible and 2) survivable.

Even if some companies miraculously get the math done before the end of the year, they will have no idea how many people will want to keep the plans because one of the requirements is that along with telling people they can keep their plan, they have to send a letter detailing all the reasons people might not want to keep their plan. So they would really have no idea whether the plans are going to make money or lose money. Boo hoo for insurers, I know, but putting them in that position won’t engender cooperation with the administration on other issues.

Aside from the issues with insurers and regulators, there’s the problem that some people may get to keep their plans while other people may not, and it will vary from state to state and very possibly from region to region within a state. As we noted earlier, the Otherguy defense can only take you so far; it might work if you just need a few hours head start to get out of Dodge but it ain’t going to hold up if people know where to find you for the next few years.

Meanwhile, there’s the web site issue. It’ll be a couple of weeks yet before we know how much of an enduring clusterfuck the federal exchange will create. People who aren’t in urgent need of a new plan are probably fine so long as nothing catastrophic happens to them in the next two or three months ā€” surely the thing will be fixed in plenty of time before the March 31 deadline to buy insurance without incurring the penalty. (Right? Surely?) The critical need is for people who are under care now and can’t afford any interruption of it. They have to purchase a new plan by December 15 or risk losing their coverage and the treatments that go along with it. The first person who dies as a consequence of that will probably take Obamacare to the grave with her.

Also meanwhile, there’s a wee bit of a political problem developing for Democrats. While one can never, ever count on Republicans not to do something catastrophically stupid, Democrats have already lost the advantage over Republicans that they had accrued by way of the government shutdown and impending default. Gone, vanished. Perhaps they can resuscitate it if things go smoothly from here on out with Obamacare and whatever else comes up, but as we have scientifically proved, things will not go smoothly. It’s up to Republicans to pull the Democratic fat out of the fire once again.

If only there were some alternative to this malevolent machine.

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UPDATE: This is sort of classic. President Obama is meeting with insurance company executives the day after he jammed them up rather than, say, the day before.

16 comments to All across America, insurance company executives and insurance commissioners are doing spit takes

  • JackD

    What does keep your policies mean? Under the prior law,those policies could be cancelled, modified as to rates, deductibles, and recession procedures without regard to the ACA. It’s hard to believe that the impact on the insurers will be meaningful at all.

    • It means specifically keeping the policies that were cancelled. After taking a look at the law I’m unclear on how the companies can legally do this without a legislative fix, but apparently the administration are satisfied that it’s okay. I’ll be surprised if it doesn’t go to court, though.

      Regarding the inconvenience to the companies, it’s fair to deduct some degrees of difficulty on account of they would whine no matter what. However, they have no way of knowing how many people are going to keep which policies, which makes their previous actuarial stuff basically worthless and also screws them up on the exchange policies, which are priced according to the number and nature of people they thought would be moving from the cancelled plans into ones on the exchanges. So they have legitimate concerns. It’s going to be a weird six weeks.

  • After taking a look at the law Iā€™m unclear on how the companies can legally do this without a legislative fix,

    possibly he knows it’s just something soothing he can say because no way are the insurance companies going to retool now.

    • Hey, Hipparchia. Thanks for stopping in. I think some companies will give it a try, but if some do and some don’t then the political situation gets even more dicey. Part of the strategy here was to put the onus back on the insurers, but that’s not going to work in states where they’re prohibited from extending the policies. I’m not sure how many supporters of the law take seriously the possibility that it could be in real jeopardy in fairly short order if the fallout from this mounts, and if the people who need to to enroll through the federal exchange before December 15 aren’t able to do so.

      It’s just such an extraordinary thing to find a way to make insurance companies look like victims. More of that 11-dimensional chess, I guess.

  • JackD

    “It means keeping the policies that were cancelled.” For how long? Within those policies are provisions allowing for cancellation, recission, and ability to modify, all of which are in conflict with the ACA. In other words, to take one example, a policy could be reinstated just long enough to be cancelled again. What all of this is really about is well represented by the front page headline on the Chicago Tribune today: “Policy reprieve calms Dems”. It will create some confusion for awhile but will not amount to anything serious, financially, for the insurers and may, indeed, “calm the Dems”.

    • The policies will be in force for a year. Allowing people to keep these plans isn’t going to roll the clock back four years. Arbitrary cancellations and recission and other things that were banned in 2010 aren’t suddenly going to be allowed again. The reason the plans are being cancelled is that they don’t cover all the things Obamacare requires them to cover as of 2014. Most of these are plans that were written or significantly modified after 2010 and couldn’t be grandfathered.

  • JackD

    Do you have a source for what you claim about what is not going to be allowed?

  • JackD

    Sure. The President announced that persons holding policies not conforming to ACA standards could renew them. What do you think “them” means? It is the policy that was previously cancelled. That policy contained whatever exclusions, definitions, and cancellation provisions and whatnot that it did. By renewing the policy, one renews it with all of its provisions. I didn’t hear him say that anything in such policies could not be enforced.

    • You’re conflating coverage with outlawed practices. Rescission is illegal as of 2010 except in cases of fraud by the policyholder, and even then the claim has to be arbitrated. Coverage can’t be arbitrarily cancelled. Those are practices which the law has prohibited since it passed, or shortly thereafter, no matter what plan you’re on. Beginning in January of 2014, policies have to meet the coverage requirements, including limits on deductibles and total out-of-pocket expenses. It’s those requirements that the cancelled policies don’t meet, and the “fix” is that these plans with non-compliant coverage can be extended for another year. That’s it. Insurance companies are not being allowed to resurrect banned practices; they’re just being allowed to extend non-compliant coverage for another year.

      I’m quite sure that this is correct, but if you have something that says otherwise I’ll be happy to take a look at it.

      ** Adding … here’s the most complete story I’ve seen so far on the problems inherent in the fix.

  • JackD

    The policies that were grandfathered under the ACA were those in effect before the effective date of the ACA and were not, therefore, subject to the restrictions you cite. The New York Times article you cite is informative, I agree. If what the administration is talking about are policies issued after the effective date of the act, then your point is well taken. In any event, I continue to believe that aside from press hysteria, the financial impact on the industry is minimal and the number of individual insureds who will actually be affected adversely are also minimal. If they get the exchange working, my prediction is that this too shall pass.

    • I don’t know how to explain this more clearly. I guess the problem is that you just don’t believe me, but for the sake of the old school tie I’ll give it one more try.

      You misunderstand what the grandfather clause covers. It does not exempt insurance companies from the features of the law regulating their behavior. The coverage provided by the policies was grandfathered, not the ability of an insurance company to retroactively rescind coverage or to cancel it for no reason. Absent demonstrated fraud or intentional misrepresentation of material fact by a customer, those practices are gone, can’t happen, illegal no matter what policy you have or how long you’ve had it. Done, dead, finito, morti. The law did not create one class of people protected from those abuses because they bought plans after 2010, and another class of people who are unprotected from those abuses because they bought their plans before 2010.

      What the law did do is allow people who have plans issued before the law passed to keep their coverage for as long as a) they want to and b) the insurance company continues to offer it. So if in 2009 you bought a plan with no prescription benefit, a $25,000 deductible, 50% copays and a network that includes only naturalized Cuban-born Santeria practitioners residing in Evanston, and you love this plan, you can keep it as long as it remains available if that’s what you want to do. But as of 2010, the insurance company can’t rescind it without proving fraud on your part, or cancel it just because, because doing those things has been illegal since the law passed no matter the status of your plan. That’s the upside. On the downside, you can never get an Obamacare subsidy for it if it doesn’t meet the Obamacare coverage requirements.

      As it happens, almost all of the cancelled policies at issue now are ones that aren’t grandfathered, either because they were sold after the law went into effect or they were modified to an extent that under the regulations qualifies them as a new plan (only about a third of existing plans are grandfathered, and they’re mostly employer-based ones). But even if they were grandfathered, the issue would be that the coverage does not meet the Obamacare benefit standards that are about to go into effect, not that the policies allow insurers to rescind or cancel coverage without cause.

      The only difference between pre-law plans and post-law plans is that beginning in 2014, the post-law plans have to meet the minimum Obamacare coverage requirements. For instance, all of the non-grandfathered policies that are in effect on or after January 1 of 2014 have to include what are called minimum essential benefits. Grandfathered plans do not have to offer all those benefits. Obamacare places limits on deductibles and out-of-pocket expenses. Grandfathered plans don’t have to observe those. Those requirements are what Obama’s “fix” addresses: as of Thursday, the cancelled individual post-law plans join the grandfathered ones in immunity from the requirements, but only for an additional year. Grandfathered plans can be maintained for as long as the company keeps offering them and the policyholders keep renewing them.

      But there are no plans, grandfathered or otherwise, that allow insurance companies to continue the rescission and cancellation practices reformed by the law.

      Regarding the financial impact on insurance companies, sure, it might be negligible, but that’s mostly because they can pass any additional costs through to both the feds and their customers. The problem with throwing off their estimates of how many people of what age in what kind of shape will buy a particular plan is real. The political problem posed by people in one state getting to keep their plans and people in another not, is also real. And, of course, the people who are finding themselves in this situation exist as people and not just as a percentage of the population, which is something I think the administration didn’t grasp.

      Anyway. That’s all I got to say on the subject.

  • JackD

    It’s certainly not a matter of not believing you. It is a matter of being conscious of the ability of insurance counsel to manipulate the interpretation of regulations and the perception that some of the regulations are ambiguous. For example, one prohibits cancellations without cause from canceling a policy from the beginning but allows it prospectively. For a person under treatment that’s pretty significant. For another, litigating whether or not false information in an application is intentional is not as difficult as you may think. While the economic effects you cite are real, I continue to maintain that if they fix the website, this will pass and the possible imbalances in covered individuals caused by the extension will also pass when the extensions expire. Sorry to extend this. I don’t expect a reply and won’t respond to one unless invited to do so. Thanks for honoring the old school tie.

    • One of my quarrels with the law is that it was largely written by insurance companies, so I’m completely in accord with your sense of the vulnerability of it to manipulation — my point was just the one about what was grandfathered and what wasn’t. Yes, if they fix the website in time to prevent any interruptions of coverage at the beginning of next year, all may be well. I think that’s unlikely, but it could happen. The problem with the unequal treatment of people from state to state is still going to be an issue, though. And already, the brouhaha has cost Democrats the advantage Republicans handed them with the shutdown, although one can probably reply on the latter to make up for it somehow.

      I always welcome your replies and never demand them.

  • N.T.

    You ignorant putz – we sure as hell don’t need to accept this NAZI forced Bullshit. This is nothing more than the same crap the Clintons tried to push on us. Don’t you understand that the option to opt out is available to everyone. It’s the perfect way to tell them to shove their draconian bullshit straight up their ass. Do not operate out of fear else all is lost. The American people are sick of the corruption and lies and will no longer stand for it. The best way to do that is to just not participate. BTW, the enrollment statistics are grossly overinflated; more lies from a corrupt, usurped government office.

    • Jaysus, I should stop in here more often. You’re right — you know who else foisted a plan stupidly mandating the purchase of private health insurance on the 45% of his nation’s population not covered by one or another of the government health care plans? That’s right: Hitler! Ovens! Extermination!Run, while there’s still time!!!!!