Health care: Obama's fix for canceled plans throws insurers a curveball

Insurers cannot simply reissue old plans: They must recrunch numbers, refigure the benefits and rates for a complex array of populations, and then resubmit them to state regulators. Some states may not go along.

Health insurers across America woke up Friday to confront a looming administrative nightmare.

For more than a year or longer, they meticulously crunched the numbers for their 2014 health plans, conforming them to the new mandates of the Affordable Care Act (ACA). They navigated the labyrinths of Obamacare’s regulations, including the 10 essential benefits required for all plans, and they applied new rules that governed how they could calculate their costs.

Then they sent these plans to state regulators. Hosts of state actuaries throughout the country reviewed the calculations, approving some, requiring revisions for others. After this long and often tortuous process, insurance carriers finally presented their suite of 2014 plans to their customers – complete with approved yearly premiums.

But now, with less than 2 months to go before what was supposed to be a new era in American health care, President Obama is telling insurers that if their customers want to keep their old plans, they can keep them.

“It’s a whirlwind, my friend,” says David Oscar, communications chair of the New Jersey Association of Health Underwriters. “I’ve been dealing with Jan. 1 renewals since the beginning of November. Now I’ve got to go back? For me as a broker, as a person who represents insurance carriers, I have egg on my face, because now I have everybody sending me an e-mail saying, ‘Hey, Dave, I heard on the “Today” show this morning that I can keep my old plan.’ ”

Bowing to intense political pressure Thursday, Mr. Obama announced he would allow carriers to offer customers their old plans for one year, after millions of Americans received notice that their plans had been canceled. The cancellations had produced an uproar, and members of Obama’s own party were forced to scramble to defend the ACA, which had already been plagued by a disastrous rollout of its centerpiece exchange, HealthCare.gov.

The uproar stems, really, from the now-infamously emphatic words that the president spoke, among other times, in July 2009: “If you like your doctor, you will be able to keep your doctor. Period. If you like your health-care plan, you will be able to keep your health-care plan. Period. No one will take it away. No matter what.”

Now, this seemingly reassuring statement is threatening to unravel the signature legislation of his presidency – and perhaps his legacy, too. And Thursday’s rule change, meant to honor these words, is threatening to unravel the controversial law even more.

“I think it was a political move that undermined the objectives of Obamacare,” says Eric Raymond, chairman of BenefitVault, a Philadelphia tech company providing payment solutions for insurance brokerages. “I do think it created havoc for the individual carriers and employers – and for a purely political move.”

To reoffer old plans means to go through the whole process again – and some states may simply say no to that. Insurers cannot simply reissue old plans: They must recrunch numbers, refigure the benefits and rates for a complex array of populations, and then resubmit them to state regulators.

“Now you have to have the 50 states and Puerto Rico agree to offer the old plans,” says Thom Mangan, CEO of United Benefit Advisors, an employee-benefits advisory firm in Chicago. “And that’s not very easy to do. You’re going to have the more-liberal states say, nope, we agree with Obamacare, this is the way we’re going, even as the red states – who never wanted to be part of it anyway – say, fine by me.”

Indeed, in blue Washington State, where, unlike HealthCare.gov, the state-run exchange has rolled out with great success, the insurance commissioner rebuffed the president and announced his state would not be reissuing old policies.

“I do not believe his proposal is a good deal for the state of Washington,” Mike Kreidler, the commissioner, said in a statement. “In the interest of keeping the consumer protections we have enacted and ensuring that we keep health insurance costs down for all consumers, we are staying the course. We will not be allowing insurance companies to extend their policies. I believe this is in the best interest of the health insurance market in Washington.”

Allowing people to keep the plans they liked, many insurers worry, would be catastrophic for the new numbers they have already worked hard to crunch.

One key component of Obamacare, insurers point out, is getting younger and healthier Americans to pay for health insurance. This is necessary to help subsidize the higher costs of other individuals, who will be putting more pressures on a system already exploding in costs.

In the previous system, rates for the young and healthy were generally much lower: Since they generally don’t get sick as much, they were able to pay less, in a setup similar to safe-driver discounts. Indeed, it is many of these Americans who have seen their cheaper health plans canceled and have seen their rates increase.

Now, they can go back to these old plans – assuming states will allow insurers to offer them. But this will undermine the cost structure for those already on new Obamacare plans – those with preexisting conditions, say, who now cannot be denied coverage. These new plans were designed with the assumption that more premiums would be paid by the young and healthy.

“And here we are now, with no effective subsidy for those who cost the system more,” Mr. Mangan says. “I am absolutely terrified that the increases [in claims] that will come for the insurance companies in the next year ... will be monumental.”

In other words, Obama’s move to allow people to keep their old plans could put this year’s number crunching out of whack. “Let’s just say that there’s a 50 percent increase in [insurers’] costs, if that’s what the claims show. When they submit their numbers [to the states], insurance commissioners will say, absolutely not,” Mangan says.

The result, he emphatically predicts, will be that insurers will leave the exchanges altogether. “There will be very, very few commercial, publicly traded insurance companies ... that will be able to afford to stay in this if they have to be regulated.”

What’s more, the president’s move Thursday may lead many Americans to believe they can keep their previous rates, too.

“Now the consumer is going to have unrealistic expectations,” says Mr. Oscar of the New Jersey association. “They are going to be surprised, thinking, I was supposed to keep what I have, which to them might mean they can pay what they had been.”

Others see Obama’s move as undermining what he has long said – that the new plans replacing the old would be better, and in most cases cheaper, since millions would qualify for a subsidy.

“[Most] of those who lost their previous plans would have legitimately been better off, both individually and for the program as a whole,” says Mr. Raymond of BenefitVault. “And many of them will not even realize it now.”

All this might have been avoided had the president not made what most insurers already knew was an obviously misleading statement about keeping plans and doctors.

“I have to say, I wish the president had called the people who have boots on the ground,” says Oscar. “Every change they've made has caused us more grief, because we have to fix what the news puts out there on a daily basis.”