Opinion: Obama Administration Erred in Opening Up Hardship Exemption

Joel Anderson |

The Obama administration may have made a serious error in judgment when it opted to open up the so-called “hardship exemption” to anyone whose health care plan on the individual market was canceled as a result of the regulations included in the Affordable Care Act. Certainly, the overall merits of this bill have been debated ad nauseum (and won't be further debated here), but President Obama is clearly not among its critics. He's clearly invested in the success of Obamacare. Heavily invested. So invested that the historical legacy of his entire presidency may hinge on its success.

Which is why it's hard to understand why he would do what he did on Friday. The move was made for political reasons, it's just hard to identify that there's any political benefit.

Obama's Broken "Promise"

This came as a response to mounting political pressure stemming from the perception that President Obama lied when he stated that people who liked their plans “will be able to keep it.” A statement that may have seemed innocuous at the time, and was largely true for the vast majority of the insured public, but has since proven to be false for a specific subset of the policy. As such, it constitutes a broken promise on Obama’s part.

At its core, Friday’s announcement, in combination with the previous adjustment to the law to allow insurance companies to continue offering plans that failed to meet it's minimum standards, would seem like no-brainers. Reacting to an angry public, who have legitimate criticisms that his previous statements proved to be false for some, Obama is simply righting a wrong. He’s giving those people whose plans were canceled, and who can’t find a comparably priced plan, a chance to avoid choosing between a plan with much-higher premiums and having to pay a tax penalty for not having insurance.

However, the conceit that was made on Friday may not ultimately prove to be all that minor. What’s more, regardless of how one feels about Obamacare (and it certainly has rabid supporters and detractors alike), this move has the feel of an overreaction to a short-term political issue that could have long-term political consequences that vastly outweigh the current problem.

Move May Hurt Obamacare's Chances for Success

In essence, President Obama may be undermining the overall success of the exchanges to satisfy a handful of Democratic senators facing a tough reelection fight. Which might make sense if this were just some other bill, but it’s not. This is the signature piece of legislation his administration, and the Democratic Party, has to show for the bloody political fighting that has consumed Washington since January of 2009. The success or failure of the administration, Obama’s legacy, and, some would argue, the very viability of liberalism in America, hinge on the success of Obamacare and its exchanges.

And that’s the crux of the problem with Friday’s response: it doesn’t really matter. The midterm elections in 2014 are most likely going to swing based on the success or failure of this bill. If the exchanges fail, no one will remember the administration’s efforts to offer shelter to these people who had their plans canceled. And if the exchanges are a success, no one will remember Obama’s broken promise anymore. Come November, this move is probably going to be a distant memory, and the very real aftermath of the final enrollment numbers we’ll get in April will be the only issue that matters in battleground states and districts.

And this move does have the potential to undermine the exchanges. By expanding the entire individual market into one, big, collective risk pool, Obamacare stakes its success on getting enough young, healthy people (who are profitable to the insurers) to enroll to balance out the people with sky-high medical costs (who are big losers for insurers).

Young People in Exchanges a Key to Obamacare

And who are these people whose old policies are getting canceled? For the most part, they’re exactly the sort of people Obama needs on the exchanges. The reason many policies are getting canceled is because the law added minimum levels of coverage that a plan had to offer. If your plan was a band-aid that had a massive deductible and huge copays, offering very little in the way of actual coverage, it most likely had to go away. And those are precisely the sort of cheap, low-premium plans that healthy young people previously gravitated to.

Getting people like this into the exchanges is the one key issue that has long been a source of debate. It’s the whole reason the insurance companies fought hard to include the individual mandate. Because the concern was, without the tax penalty, these people would stay away. And without them, the economics don’t work. In order to prevent themselves from hemorrhaging money, insurers would have to raise premiums on all their plans, squeezing out even more people and creating what has been referred to as a “death spiral.” In fact, some of the law’s critics believe that the individual mandate already doesn’t go far enough, failing to offer a large enough penalty to really incentivize people to get insurance.

So it’s with this in mind that the decision to give these millions of people a chance to avoid getting insurance seems a curious one for the administration.

Obama's Decision: Makes Sense?

If it were a relatively minor piece of the law, it might make sense. But it’s not. It’s the lynchpin of the entire system. It’s the very element of the law that has been the center of the most debate and skepticism. From the very start, even the law’s biggest supporters have had real concerns that there wouldn’t be enough young people signing up. Now, the administration is making a move that will definitely keep a large number of young people out of the exchanges.

And if the people losing their plans were being placed in great hardship, it might make sense. But the law already accounts for them. There are subsidies that ensure the portion of their income being paid in premiums is capped, and the hardship exemption, which allows those people who genuinely don’t have access to an affordable option on the exchange off the hook for the tax penalty, already protected them from getting stuck with a plan they couldn't afford. What’s more, these people will be getting much better plans with more coverage, and preventive services covered without a copay. While one can probably find anecdotal examples of individuals having real trouble, they clearly represent the exception and not the rule. People whose plans were canceled as a result of the law will be signing up for better plans with subsidies in place to ensure that the premiums are affordable even if they're higher than they were.

And if the administration and the Democratic Party stood to grab any real political gain by undermining the exchanges, it might make sense. But, while only time will tell if they have or not, it’s hard to believe that there are any Democratic senators who are going to eke out a close win based on this move should the exchanges collapse. More likely, those people are going to lose whether Obama throws them this lifeline or not. And, likewise, if the exchanges are a success, with the enrollment numbers they need, those senators probably aren’t going to end up losing because of issues with Obamacare.

Rather, it seems as though this move was focused entirely on winning one or two news cycles. Which, given its potentially disastrous long-term consequences, doesn’t really make much sense.

Obama, Democrats, Are Tied to Obamacare...For Better or Worse

Since the day it passed, the Obama administration and the Democratic Party have seemed all too willing to run from this law. They have acted in a way that seems to indicate terror at what they have wrought and a willingness to believe the doomsday predictions from the law’s critics. However, for better or worse, the Democratic Party’s future, at least in the near term, appears to be tied to this bill. Be it a buoy that will keep them afloat or an anchor that drags them under remains to be seen, but what is certain is that they are inexorably moored to it. And as such, it seems as though the most prudent course of action, both from a public policy and a political standpoint, would seem to be doing everything in their power to make it a success.

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