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Wednesday, October 30, 2013

The Obama Administration's Disingenuous Reaction to Canceled Policies

Let me start by saying that I support the goal of universal health coverage and I supported most aspects of the Affordable Care Act as passed by Congress (though I never accepted a commerce clause power to impose an individual mandate - I'm perfectly comfortable with the mandate operating as a tax penalty). That said, I continue to be troubled by the impact of the Affordable Care Act on the individual market. But I'm bothered more by the disingenuous response from the Obama administration - they're claiming that individual plans were grandfathered and are being canceled by the choice of the insurers. This is not correct. The actual legislation did have  a grandfather provision that should have allowed people to keep their insurance - as the President repeatedly assured the public.

But the implementing regulations (see page 34560), as written by the U.S. Department of Health and Human Services, altered the grandfather provision such that any changes to a grandfathered plan, as small as a $5 increase in co-pays, would require that the plan meet the minimum requirements of the ACA. Plans change yearly - co-pays, deductibles, premiums - so the regulations essentially guaranteed that most grandfathered plans would be canceled by the time of implementation. The proof of this can be found in the regulations as published in the Federal Register. The Department of Health estimated that 50-75% of the 14 million people with insurance on the individual market would lose their coverage. So it's simply untrue for the Administration to deny responsibility - the regulations came from the Executive branch and because they are regulatory and not legislative they could be undone by the Administration. It was a conscious choice to have these insurance plans disappear. And the President continued to assure people they could keep their existing plans even after the estimate of 50-75% cancelation of coverage for the 14 million in the individual market was published. 

The other argument from the administration is that these folks who lose their existing coverage will now receive much better coverage than they did under the canceled plans. But this better coverage comes at a price and in many cases very severe price increases. Some of the people will qualify for subsidies while others won't. And premium increases are so steep in some cases that even with the subsidy out of pocket costs will be higher. Of greater concern are the very high deductibles allowed by the ACA. So many people are now facing higher premiums AND thousands in deductible costs. High deductibles have been shown to discourage health care utilization - challenging the claim that people will be better covered.
Then there is the argument that folks will get subsidies. The subsidies come in the form of tax credits. Folks have two choices - they can wait until they file their taxes and receive a lump sum subsidy OR they can have the government send the money from the estimated credits to insurers each month. Under option one, you're required to shoulder the full cost throughout the year and then get repaid at tax time (without interest). Under option two, you must estimate your income for the year and then your monthly subsidy will be based on the estimate. If you underestimate, you will be required to repay the government come tax time. Many of the folks in the individual market are self-employed and therefor lack easy to predict income.

The subsidies phase out as income rises and any person earning more than $46,000 per year, or a family earning more than $94,000, receives no subsidy. NBC news provided the example of George Schwab of North Carolina - his existing plan for he and his wife cost $228 per month, but it was canceled. The best price he's been able to find so far is $948 per month. According to the subsidy calculator provided by the Kaiser Family Foundation even if Schwab and his wife earned as little a $45,000 per year - combined - the subsidy would bring the cost of their new plan down to $368 per month. That's a 50% increase even after the subsidy - assuming they earn no more than $45,000 per year. If they earn $55,000 per year their premium costs, after subsidy, would nearly double. The Schwabs would need to have combined earnings of $35,000 per year or less to qualify for a subsidy sufficient to bring the cost of their new plan below that of their canceled plan.  And none of this takes into account the fact that minimum coverage plans allowed under the affordable care act have large deductibles.
Based on the Administration's own estimates, the coverage of upwards of 10 million people will be disrupted. The ACA will extend coverage to 32 million of the roughly 50 million uninsured - this is a laudable accomplishment. But to me, the extension of new coverage does not justify the disruption of so many existing plans. Especially given that the disruption of those plans is not essential to the ACA. In fact, it increases the overall cost of the law due to the new subsidies unanticipated during the legislative stage. And these subsidies will simply serve to enrich insurance companies.
Legislation is set to be introduced in the House to overrule the regulations and reinstate the grandfather provision. But I doubt Harry Reid will allow a vote in the Senate and at this point, many plans have already been canceled. Ten Democratic Senators have signed a letter requesting a delay of the individual mandate. This should be done to allow time to sort out some of these serious problems. Unfortunately the GOP stance appears to be "no help to fix the law" and the Democratic approach appears to be no willingness to acknowledge this very serious problem. So 10 million Americans will continue to receive cancelation notices.