CONSEQUENCES NOVEMBER 14, 2013
The conundrum facing the White House and congressional Democrats on the new health care law is being framed in most accounts as a classic tradeoff of politics and policy. Many Democrats dearly want to vote for a revision that would allow people to stay on individual insurance plans that insurers are now cancelling, to quell a political storm that has coincided unhappily with the troubles of the healthcare.gov Web site where these people were supposed to be able to sign up for new and hopefully better plans. As has been noted, though, letting people keep those cancelled plans could have deleterious policy consequences if it means keeping the relatively young and/or healthy out of the new insurance exchanges.
But what if this is a mistaken opposition? What if, in fact, a major revision of the law would turn out to be just as politically risky for Democrats, if not more so?
The factor that is not being considered enough here is timing—no surprise, perhaps, in a town with famously short-term mindset. No, it’s not fun for Democrats to see President Obama’s approval rating at 39 percent and their big lead on the generic congressional ballot evaporate to nothing. But the midterm elections are still nearly a year away, despite what you might believe from the tinsel-in-October sort of stories that the political press is already pumping out. You know what is a lot closer to the midterm elections? October 2014, which is when insurers will be announcing premiums for 2015.
And that’s where the policy “fix” Democrats are now contemplating comes in. Allowing people who had their plans canceled to keep them means that many of them will not be going into the new exchanges. To the extent that the people who had the canceled plans were younger and/or healthier than the norm—after all, insurers pre-ACA could easily screen out the older and less healthy—their staying out of the exchanges will result in an insurance pool weighted toward costlier enrollees, the dreaded “adverse selection.” This would raise the likelihood that insurers would be raising rates on the exchange—which came in at relatively competitive levels for 2014, all in all—to much higher levels for 2015. And again, those rates would be announced in October 2014, just before the midterms. Health insurance industry lobbyist Karen Ignagni warned as much in a statement today in response to Obama’s proposed fix to allow insurers to keep offering the canceled plans: “Changing the rules after health plans have already met the requirements of the (Obamacare) law could destabilize the market and result in higher premiums.”
Jonathan Chait is farsighted enough to get this:
Undermining Obamacare in order to placate angry individual-insurance holders makes no sense even on narrow political terms. People losing individual insurance they like are angry right now, but they’re a tiny minority of the market, and their anger will fade over time as the exchanges come online. Higher premiums would affect far more people, and their impact would be felt much closer to the midterm elections. Imagine it's next year, insurers are pulling out of the exchanges, rates are rising, all because of a law Congress hastily passed the year before — is that a better situation?
But many others are not, as they rush to put out the immediate fire. Now, it should be noted that this is all conjecture—there is way too much in flux in the creation of this entirely new marketplace to know what we can expect from future rate increases. It is safe to assume that Obama’s proposed fix would keep some healthier people out of the exchanges, and that the proposal from Sen. Mary Landrieu, the Louisiana Democrat, would have an even stronger impact in that regard because it actually requires insurers to keep offering the canceled plans, whereas Obama’s proposal only allows them to (some insurers will not want to keep offering the plans, which they were only too happy to cancel under the cover of Obamacare duress.) This effect would be exacerbated by something that is already underway: Insurers are offering "early renewals" for non-exchange plans to healthy customers they want to keep, in advance of the exchange plans' Jan. 1, 2014 debut.*
There is, though, some reason for hope that the resulting rate increases could be limited at least in some places, notes Linda Blumberg, a health policy analyst at the Urban Institute. There are, for one thing, provisions in the law to help insurers in the initial years of implementation who ended up with costlier-than-anticipated pools of customers. There is also the fact that the customers who will be getting some of the biggest subsidies on the exchanges are young people with low, early-in-career incomes —even if they are allowed to stay on a pre-ACA plan, they may well find that the exchange plans are a better deal (assuming, that is, they can get into the darn Web site.) And then there is the simple competitive aspect of the exchanges—in places where they have attracted a healthy critical mass of insurers, there will be competitive pressure on insurers not to try to recoup all losses from their 2014 pool in their 2015 rates. “For 2015, a lot depends on what the markets look like for different areas,” Blumberg said. “If you’ve got a reasonably competitive market and you try to recoup 100 percent [of 2014 losses], they may put themselves in the position to charge too much” vis a vis their rivals.
But that last mitigating factor only applies in places with healthy competition for plans being offered on the exchanges. As has been reported, there is much less competition so far in large swaths of rural and small-town America. That is, in the parts of the country from which many of the nervous Democrats hail. All the more reason for them to think twice before rushing to fix a political problem now that causes another political problem at a worse moment. Believe it or not, in this case, bald self-interest may just jibe with doing the right thing on policy. Will Democrats be far-sighted enough to grasp that?
*5 p.m. Thursday: Wording of this line tweaked for clarity.