The Obama administration announced a change in the administration of its signature health care legislation, reacting to political pressure but potentially undermining the long-term viability of its exchanges in the process.
The announcement, which came as a surprise to many, comes only days before the key Dec. 23 deadline to sign up for coverage that would begin on Jan. 1.
New Options for Individuals with Canceled Policies
Issued in a bulletin from the Department of Health and Human Services’ (HHS) Center for Medicare and Medicaid Services (CMS), the change will allow those individuals whose coverage was canceled as a result of the new regulations to file for a “hardship exemption” that may allow them to avoid the tax penalty for not having insurance or sign up for a “catastrophic plan,” a cheap, bare-bones plan that’s exempt from the coverage requirements of the Affordable Care Act.
The hardship exemption has always been a part of the law, allowing those people whose exchanges fail to include affordable options for them to avoid having to pay the tax penalty for getting coverage. Catastrophic plans, which have lower premiums but offer much less coverage than otherwise allowed under the new law, were initially only available to those individuals under the age of 30 who were eligible for a hardship exemption.
In many cases, insurance companies canceled certain policies because they failed to meet requirements for the level of coverage necessary in the new law’s regulations. As a result, the new plans available to individuals, which typically offered significantly more coverage, often had much higher premiums.
Obama Caves to Political Pressure
Motivating the decision by the administration may be persistent political pressure, particularly that from within his own party. Those Democratic lawmakers running in competitive states of districts have threatened to break ranks and side with Republicans trying to change the law more drastically. This prompted Obama’s move to allow for insurance companies to continue offering certain plans next year along with his public mea culpa on Nov. 14.
Friday’s change was apparently pushed by a group of Democratic senators, many of whom face tough reelection battles next year.
Insurance Companies Critical, Could Hurt Exchanges
However, the most recent round of changes has garnered the ire of insurance companies, which see this as another move potentially eroding the individual mandate that acts as the base of the exchanges and the law. By allowing millions more Americans, many of whom are most likely among the “young invicibles” deemed essential to the success of the exchanges, the administration may be disrupting the key balance of the underlying risk pool.
“This latest rule change could cause significant instability in the marketplace and lead to further confusion and disruption for consumers,” said Karen Ignagni, president of America’s Health Insurance Plans.
If the exchanges fail to sign up enough new customers, or enough customers with limited medical costs, the costly new regulations levied on the insurance companies; like guaranteed issue, reduced age bands, and restriction on profits; could prove overly burdensome for private insurers and ultimately result in the entire individual market becoming more costly.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer