Obama offers reprieve on insurance cancellations, but will it work?

Under intense bipartisan pressure, President Obama has taken steps to fulfill his longstanding promise on health insurance reform – that “if you like your plan, you can keep it.”

Mr. Obama announced Thursday that insurance companies will now be allowed to renew for one year plans on the individual market that they had canceled because they did not comply with the new, higher standards for coverage under the Affordable Care Act (ACA).

Hundreds of thousands of Americans had received cancellation notices, outraging some – and spurring bipartisan efforts in Congress to legislate an extension of the plans. In the Senate, Democrats deemed vulnerable in next year’s midterm elections led the charge.

Obama also admitted that he had erred in making a blanket promise that people would be allowed to keep their old plans – and thus, their health-care providers – when the mandate to buy insurance under the ACA was implemented.

“There is no doubt that the way I put that forward unequivocally ended up not being accurate,” the president said at a press conference in the White House briefing room. “It was not because of my intention not to deliver on that commitment and that promise. We put a grandfather clause into the law, but it was insufficient.”

Still, Obama’s administrative fix offers no guarantee that insurers, or the state insurance commissioners who regulate them, will go along – or if they do, that consumers will like what they are offered.

In his remarks, Obama made clear he wants as many people as possible to buy their insurance on the new exchanges, and he promised that by Nov. 30, the majority of people who go to HealthCare.gov “will see a website that is working the way it's supposed to.”

Obama’s fix does not allow insurance companies to sell the old-style plans to new customers – just renew the plans of people who already had them. But that alone raises the possibility that the exchanges will now tilt more heavily toward older, less-healthy consumers than they otherwise would have.

People who buy insurance on the individual market tend to be healthier than average, because they have been able to pass “medical underwriting” – that is, they were less likely to have a preexisting condition that in the past allowed an insurer to deny coverage.

A key industry trade group warned that the rules change could “destabilize the market” and result in higher premiums.

“Premiums have already been set for next year based on an assumption of when consumers will be transitioning to the new marketplace,” Karen Ignagni, president and CEO of America’s Health Insurance Plans, said in a statement. “If now fewer younger and healthier people choose to purchase coverage in the exchange, premiums will increase and there will be fewer choices for consumers.”

Ms. Ignagni called for “additional steps” to stabilize the marketplace and “mitigate the adverse impact on consumers.” She did not elaborate on what those steps might be.

The ACA provides protections for the insurance industry during the transition period, such as “risk corridors.” In the event that industry costs end up being higher than expected, the federal government shares some of the loss with the insurers.

“The risk corridors mean that if costs end up being higher as a result of some people being able to keep their old policies, insurers won’t lose as much money,” says Larry Levitt, a senior vice president at the nonprofit Kaiser Family Foundation in Menlo Park, Calif. “They won’t incur the full losses. But they would still incur losses.”

The question now is whether the health insurers and the commissioners take the president up on his offer to reinstate plans on the individual market. Insurers that choose to extend the old plans must now come up with prices for 2014, which must be approved by the respective state insurance commissioners.

In a statement Thursday, the National Association of Insurance Commissioners expressed concern about these issues. "[I]t is unclear how, as a practical matter, the changes proposed today by the President can be put into effect," it said. "This decision continues different rules for different policies and threatens to undermine the new market ...."

Before Obama’s announcement, some insurers had anticipated that the administration would allow canceled plans to be reinstated, but they said there was not enough time to change gears before Jan. 1, the start of the new plan year for many consumers.

Obama said that insurers extending current plans must inform customers about two things: First, a list of the protections that the renewed plans will not include. Second, that the marketplace offers new options with “better coverage” and tax credits that could bring down the cost.