Why the ACA "Fix" for Cancelled Plans Isn't a Good Idea

November 19, 2013

From the desk of

SHADAC Director Lynn Blewett

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The Obama administration announced on November 14th that all existing policies in the individual market will be allowed to continue through 2014, whether or not the plans meet ACA standards. This decision was driven by significant backlash in the face of plan cancellation notices sent to many people insured through plans purchased on the individual market.

What so many in the press and pundit world fail to acknowledge is that the population insured in the individual market at present is relatively small and transitory: According to the National Health Interview Survey (NHIS) roughly five percent of the US population gets its coverage in the individual market (compared to the approximately 18 percent of the population that has no coverage at all). And many of the people purchasing individual coverage move in and out of the market based on whether they have a job and whether that job offers health insurance coverage. Morever, those likely to keep their individual policies have lower premiums, which are typically associated with less generous plans that have high deductibles, limited benefits, and strict low maximums on lifetime payouts. 

It is clear that the launch of the health insurance exchanges, coupled with the individual mandate, is a heavy lift, but the potential payoff in the expansion of high-quality coverage is clear as well. Yes, signing up for coverage has not gone as smoothly as hoped, and maybe it will take a while to fix the enrollment process for the federal exchange, but millions of people will eventually get coverage that they don’t have now, and coverage standards will be higher. Yes, there will be some who will see price increases during this transition and will need to pay more out-of-pocket for their new comprehensive coverage – but most of us will not experience a significant change. The success of the exchanges, however, will be in jeopardy if current individual-market plans, which are cheaper by virtue of their lower quality and their ability to exclude the sickest Americans, are extended: Their extension would incentivize the healthiest enrollees to avoid the exchanges, essentially turning the exchanges into high-risk pools and driving up the cost of exchange coverage.

Now, it appears, the problem is back in the states’ hands (since health insurance is still regulated at the state level) and, to an extent, in the hands of the private insurers (since they do not have to continue offering current policies even if a state allows it). Each state will need to assess whether to allow for a one-year extension of existing plans, and some states—likely those with looser insurance regulations—will choose to do so. Whatever happens across the US, however, we will hear the same loud complaints of resistance next year when the plans are required to change. I say bite the bullet now and push through. There will always be winners and losers, and as far as the numbers go – more people gain than lose from reform of the individual market. Now is not the time to change course.