As a political matter, I understand the desire for Democrats to get out of the way of pissed off middle class people who actually have to pay a little more to get good health insurance that actually pays out. As a policy matter, I really don’t care that there are some losers in a political process. However politics creates the contours of policy and 50 Senate Democrats on Jan. 5, 2015 creates much better policy outcomes than 47 Senate Democrats.
Sen. Landrieu has an elegant work-around to the matter that individual insurance policies are getting cancelled. Here are the major points:
- Date change of grandfather status from day of PPACA being signed into law to 12/31/13 for individual only plans.
- No new enrollment allowed into individual plans
- Insurance companies must continue to offer grandfathered plans until no subscribes elect to renew
- Currently covered individuals on newly grandfathered plans are Exchange and subsidy eligible.
- Annual renewal notice stating that the insurance being bought is crap insurance.
- Cancellation notices that require actual reasons with relevant citations for cancellation — ie not “Obamacare made us do it”
This is an elegant kludge that nicely gets around the political problem without causing long term damage to Obamacare’s risk pools.
The key item as to why this is not serious damage to the risk pooling mechanism is point #2. The individual insurance market is a high churn market. People get on it for short time periods until something better comes along through either group policies or government programs in most cases. With the introduction of Exchanges and subsidies, the universe of “something” better has gotten larger and more accessible to more people. As long as the newly exempted risk pool are only current enrollees in non-compliant policies, natural churn will quickly make these plans uneconomical. For instance, the work that I do for my company is scale invariant — the same task that impacts eleven members takes the same time as an identical task that impacts fourteen thousand members, but my costs are spread out to either several dollars per member or fractions of a penny. And at that point, point #6 comes into play and the health plans will have to either say the plans are uneconomical at which point the remaining young and healthy people move to Exchange risk pools or explain in a seven step process how the Landrieu Amendment forces cost amortization over decreasing population bases and thus blame Obamacare. If that is the case, the Exchange risk pool does not improve as numerous previously young invincibles keeled over from boredom.
If this passes, the risk pool is a little bit older, and a little bit sicker than it would otherwise be in the Exchanges. That is okay, there are numerous risk and cost transfer mechanisms built int the law. A slightly sicker and more expensive risk pool in 2014 that normalizes as the grandfathered individual plans lose members in 2015 and 2016 would work out fine. The subsidy costs would still come in massively below initial CBO estimates.
The key is to the policy change is whether or not the grandfather plans are allowed to enroll new individuals. If they are not, it is a tweak to provide political cover without damaging the underlying law. If new enrollees are allowed, it is a full fledged flanking attack on the law.