Why are private individual (and future employer-based) insurance plans getting cancelled?

31 Oct

Informative Forbes article on the expiring Affordable Care Act “grandfather clauses”

If you read the Affordable Care Act when it was passed, you knew that it was dishonest for President Obama to claim that “if you like your plan, you can keep your plan,” as he did—and continues to do—on countless occasions. And we now know that the administration knew this all along. It turns out that in an obscure report buried in a June 2010 edition of the Federal Register, administration officials predicted massive disruption of the private insurance market.

On Tuesday, White House spokesman Jay Carney attempted to minimize the disruption issue, arguing that it only affected people who buy insurance on their own. “That’s the universe we’re talking about, 5 percent of the population,” said Carney. “In some of the coverage of this issue in the last several days, you would think that you were talking about 75 percent or 80 percent or 60 percent of the American population.” (5 percent of the population happens to be 15 million people, no small number, but let’s leave that aside.)

By “coverage of this issue,” Carney was referring to two articles. The first, by Chad Terhune of the Los Angeles Times, described a number of Californians who are seeing their existing plans terminated and replaced with much more expensive ones. “I was all for Obamacare until I found out I was paying for it,” said one.

The second article, by Lisa Myers and Hanna Rappleye of NBC News, unearthed the aforementioned commentary in the Federal Register, and cited “four sources deeply involved in the Affordable Care Act” as saying that “50 to 75 percent” of people who buy coverage on their own are likely to receive cancellation notices due to Obamacare.

But Carney’s dismissal of the media’s concerns was wrong, on several fronts. Contrary to the reporting of NBC, the administration’s commentary in the Federal Register did not only refer to the individual market, but also the market for employer-sponsored health insurance.

Section 1251 of the Affordable Care Act contains what’s called a “grandfather” provision that, in theory, allows people to keep their existing plans if they like them. But subsequent regulations from the Obama administration interpreted that provision so narrowly as to prevent most plans from gaining this protection.

“The Departments’ mid-range estimate is that 66 percent of small employer plans and 45 percent of large employer plans will relinquish their grandfather status by the end of 2013,” wrote the administration on page 34,552 of the Register. All in all, more than half of employer-sponsored plans will lose their “grandfather status” and get canceled. According to the Congressional Budget Office, 156 million Americans—more than half the population—was covered by employer-sponsored insurance in 2013.

Another 25 million people, according to the CBO, have “nongroup and other” forms of insurance; that is to say, they participate in the market for individually-purchased insurance. In this market, the administration projected that “40 to 67 percent” of individually-purchased plans would lose their Obamacare-sanctioned “grandfather status” and get canceled, solely due to the fact that there is a high turnover of participants and insurance arrangements in this market. (Plans purchased after March 23, 2010 do not benefit from the “grandfather” clause.) The real turnover rate would be higher, because plans can lose their grandfather status for a number of other reasons.

How many people are exposed to these problems? 60 percent of Americans have private-sector health insurance—precisely the number that Jay Carney dismissed. As to the number of people facing cancellations, 51 percent of the employer-based market plus 53.5 percent of the non-group market (the middle of the administration’s range) amounts to 93 million Americans.

Will these canceled plans be replaced with better coverage?

President Obama’s famous promise that “you could keep your plan” was not some naïve error or accident. He, and his allies, knew that previous Democratic attempts at health reform had failed because Americans were happy with the coverage they had, and opposed efforts to change the existing system.

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