A trio of face-saving changes to Obamacare proposed by conservative Democratic senators would do significant damage to the law, according to health policy experts.
Sen. Mary Landrieu (D-LA) wants to make sure people can keep their insurance plans even if they fail to meet basic benefit standards under Obamacare. Sen. Joe Manchin (D-WV) wants to delay by one year the tax penalty for failing to comply with the individual mandate. And ten Democrats want to give people more time to enroll on the exchanges.
These proposals come in response to the political fallout of Obamacare’s woeful and embarrassing enrollment launch one month ago. But they carry a potentially steep price: each harms the law’s core goals by potentially destabilizing the market and raising premiums, experts and the insurance industry warn.
“I think each of these [proposals] would be significantly disruptive to the law’s goals,” said Tim Jost, a professor at Washington and Lee University and leading expert on Obamacare.
Landrieu: Let People Keep Their Substandard Plans
Landrieu — who faces a potentially tough re-election battle next year — announced legislation Thursday to let people on the individual market keep their current insurance policy for as long as they continue paying their premiums. This would apply to plans that fail to provide “essential health benefits” or meet the law’s standard for “grandfathered” policies that can continue, and would thus be canceled or replaced.
Part of the problem is that this would unwind Obamacare’s guarantees of quality coverage and affordable prices, which were the basis of two important — and popular — market reforms under Obamacare: community rating (insurers cannot charge sick people more) and guaranteed issue (insurers cannot deny coverage to anyone).
“If what she’s saying is you can keep your health plan forever if you like it, that basically repeals the market reforms,” Jost said. “You’re continuing to allow people to buy a defective product. You’re segmenting the risk pool again with respect for coverage. Does that mean you can say you’ll cover physical health without mental health? Does that mean you don’t have to cover maternity coverage? … The whole idea here is we’re trying to create a community — a system based on mutual aid rather than everybody paying for exactly the care that they are likely to need in the next few moments.”
Landrieu’s plan could also disrupt the premiums set by insurers because a chunk of their expected customers would no longer be enrolling in the marketplaces. “Mechanically that’s very difficult,” Jost said. “It basically denies people the community-rating advantages that were the whole reason — or one of the reasons — for the law in the first place. … So you’re just moving the problem down the road a bit, but in the meantime it really messes over the insurance companies because they’ve written their premiums based on knowing who their pool would be, and that’s based on knowing what sorts of people would sign up early on.”
Brad Dayspring, a spokesman for the Senate GOP’s electoral arm, boasted to TPM that “Landrieu is championing legislation to destroy Obamacare.”
Manchin: Delay The Individual Mandate
Manchin’s proposal would give uninsured Americans a one-year grace period to comply with the law. The current deadline to buy insurance on the marketplaces or pay a tax penalty is March 31, 2014. He wants to give them an extra year — perhaps until January 2015, as he suggested to TPM — and if they fail, make them pay the fee in their following tax return.
This undermines the core purpose of the individual mandate: to bring a large pool of young and healthy people into the system in order to defray the costs of caring for older, sicker people. A one-year delay means a potential one-year lag in making this happen. And that’s a problem. It could initiate, right from the get-go, the “death spiral” wherein mostly sick people enroll and insurers raise premiums to cover their costs. Once that begins, it would be difficult to reverse because growing numbers of young and healthy people may opt to pay the penalty instead of buying expensive coverage they doubt they’d need anytime soon.
“The mandate penalty is relatively small for 2014: $95 or 1 percent of your taxable income, whichever is greater,” said Nick Bagley, a health policy expert and professor of law at the University of Michigan. “Since the young as a group don’t tend to make a ton of money, the penalty won’t hit many of them all that hard.”
The insurance industry cautioned that a mandate delay may force insurers to raise costs.
“The individual mandate is inextricably linked to the insurance market reforms included in the health care reform law,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the industry’s top lobbying group. “In the 1990s, several states enacted insurance market reforms without achieving broad participation and it failed. Premiums increased dramatically, consumers and employers had fewer coverage choices, and the number of uninsured increased. To avoid repeating the state experience, the Affordable Care Act includes a mandate that everyone purchase coverage and established defined open enrollment periods to incentivize young, healthy people to purchase and maintain health insurance rather than waiting until after they get sick or injured to sign up.”
Manchin’s bill is still being drafted. He has long opposed the individual mandate.
10 Dems: Extend The Enrollment Deadline
Nine Democratic senators — nearly all from red or purple states — are supporting Sen. Jeanne Shaheen’s (D-NH) push to extend the open-enrollment period beyond March 31.
Some experts doubt this would be a big deal. “An open enrollment extension merely offsets a period in early 2014 during which enrollment was essentially impossible due to website woes,” said Austin Frakt, a health economist at Boston University. “Not much room for harm there.”
But the health insurance industry begs to differ.
“The administration’s proposal to align the individual mandate penalties with the open enrollment sign-up period ending on March 31 is consistent with what health plans assumed in their premiums for next year,” said Zirkelbach of AHIP. “Going beyond this proposal by delaying the individual mandate and/or extending the open enrollment period past March 31 could have a destabilizing effect on insurance markets, resulting in higher premiums and coverage disruptions for individuals and families.”
But as Frakt and Jost both pointed out, a firm open-enrollment period helps contain the adverse selection problem considering that sicker people — or people who get injured unexpectedly — are likelier to sign up toward the end.
“The longer you give people to enroll without a penalty, the longer people will wait and see, until maybe something goes wrong,” Jost said.
These ideas would likely be moot if the Obama administration keeps its promise of fixing the HealthCare.gov website problems by the end of November. Democratic leaders aren’t about to start dismantling the law quite yet after weathering years of brutal political attacks. But if the website isn’t operational in time, the pressure to enact these sorts of carve-outs would grow. And while they may be politically attractive, they would substantially damage the law.
“If the website is running by the end of November, people will have four months to enroll, which is more than enough time,” said Jost. “But if we’re at March 1 and the website isn’t fixed, everyone is going to be begging for an extension.”