Wednesday, March 5, 2014

Extending the Obamacare Cancelled Policy Moratorium––One More Contortion in the Pretzel

The administration has confirmed that the individual policies that were supposed to be cancelled because of Obamacare can now remain in force another two years.

For months I have been saying millions of individual health insurance policies will be cancelled by year-end––most deferred until December because of the carriers' early renewal programs and because of President Obama's request the policies be extended in the states that have allowed it.

The administration, even today, as well as supporters of the new health law, have long downplayed the number of these "junk policy" cancellations as being insignificant.

Apparently, these cancelled policies are good enough and their number large enough to make a difference come the November 2014 elections.

As a person whose policy is scheduled to be cancelled at year-end, I am happy to be able to keep my policy with a better network, lower deductibles, and at a rate 66% less than the best Obamacare compliant policy I could get––presuming my insurance company and state allow it.

But for the sake of Obamacare's long-term sustainability, this is not a good decision.

The fundamental problem here is that the administration is just not signing up enough people to make anyone confident this program is sustainable.

Yes, the law's $20 billion "3Rs" health insurance company reinsurance program will prop up the program through 2016––and even be enhanced because of these changes. But then the "training wheels" come off and the program has to stand on its own. As I have said on this blog before, I don't expect the insurance industry to be patient past 2015 before it has to begin charging the real cost of the program to consumers.

The administration now claims that it signed up 4 million people as of late February. Of course, that number is inflated. It has been widely reported; including here at the New York Times, that about 20% of the people who enrolled in January never paid their premium and were cancelled. Carriers are telling me that another 2% to 5% of those January enrollments never paid their second month's premium.

So, that 4 million Obamacare enrollment number is likely more like 3 million.

The Kaiser Family Foundation has said that 17.2 million people are eligible both for the new health insurance exchanges and eligible for a subsidy. Because the direct enrollment function hasn't been working, the only place a person can get a subsidized policy is on the exchanges.

In reporting their enrollments in February, the administration said that 82% of the exchange enrollments were getting a subsidy.

That means only about 2.5 million subsidy eligible people (82% of 3 million) have so far signed up and paid for their coverage out of a total of 17.2 million eligible––or about 15% of the total the Kaiser Family Foundation estimates are eligible.

And many of these already had coverage––they aren't coming from the ranks of the uninsured that are the people this program was really designed to get to.

Even if the administration gets 20%, or 25%, or 30% of the eligible group signed-up by March 31, that is nowhere near enough to create a sustainable pool. The long-time underwriting rule calls for at least 70% of an eligible group to participate in order to get enough healthy people to pay for the sick who will always show up first for coverage.

Supporters will cite the Congressional Budget Office (CBO) projections saying a third of the eventual participants will sign up each of the first three years. Why would they? If Obamacare, with all of the attention and promotion it is getting, is not attractive the first year, particularly because of its steep deductibles compared to the after-subsidy premium people must pay, then why would it be attractive in the third year?

The response might be that the fines for not buying coverage will eventually more than double and force these people to finally buy coverage. Think about that. People don't want to buy this and the solution is to fine a family making $60,000 a year $1,500? If the cancelled policies are creating an election-year nightmare for the Democrats, think about how politically problematic big fines for not buying an Obamacare policy that consumers don't want would be in the 2016 presidential election year.

The health insurance plans participating in Obamacare are a very worried group right now.

The employer mandate has been pushed back twice. Enrollment deadlines have been ignored and delayed. Now, the requirement to cancel non-compliant policies has been deferred twice.

The carriers need the average 35% baseline premium increase they were going to get by converting the old individual health insurance policies, that generally reflect a much healthier group, to Obamacare in order to offset the generally much sicker group that was always going to make up the new Obamacare risk pool.

Why should the insurers believe these policies would ever be cancelled and converted to Obamacare by the end of 2016? Will the Democrats have less of a political problem in 2016?

Will the administration next suspend the individual mandate and its fines for not buying a compliant policy? How can you let me off the hook with my old policy and force my neighbor to buy the more expensive policy?

If the administration is willing to let employers off the hook, and now these people who had individual coverage before, why won't it let the people who don't want to buy an Obamacare policy off the individual mandate hook rather than have them be angry in an election-year––2014 and 2016?

All of these delays are just tinkering around the edges of a law that is deeply flawed.

The biggest flaw is that the product the Obama administration is trying to sell to consumers is not the product people want to buy.

Rejiggering deadlines until this thing is contorted like a pretzel is exactly the wrong thing to do.

Obamacare needs a fundamental fix.

I have to believe that even its most ardent supporters are coming to that realization.
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