(Updates with comments from Commonwealth Fund in ninth paragraph.)
By Alex Wayne
Nov. 18 (Bloomberg) -- California and New York said the U.S. president’s one-year reprieve for insurance policies that don’t meet the stricter requirements of Obamacare undermines the “risk pool” of patients needed to make the law viable.
California, the most populous U.S. state, will decide this week whether to comply with President Barack Obama’s request, Peter Lee, the executive director of the state’s health exchange, told reporters today. New York also is “still considering the president’s option,” said Danielle Holahan, deputy director of that state’s insurance marketplace.
Washington state and Massachusetts have already opted out, citing concerns that healthy people who would otherwise buy standardized plans in the new insurance marketplaces created by the Patient Protection and Affordable Care Act of 2010 will instead renew old coverage. That may leave a disproportionately sick pool of customers for plans operating in the marketplaces.
“Having the risk pool is critical to the ongoing viability and the out-of-the-gate viability of exchanges,” Lee said. “California is looking very closely to how we respond to the call of the president.”
Amid political outrage over cancellations of hundreds of thousands of individual policies that didn’t meet new standards, Obama said Nov. 14 that insurers can extend policies in force in 2013 for as long as a year, if the states they operate in approve. The health law mandated an end to discrimination against people with pre-existing health conditions and required that all policies next year meet minimum coverage rules in return for an obligation that Americans obtain insurance or pay a fine.
Lee said state exchange leaders are concerned that insurers would extend plans before the end of the year, keeping healthy people in “bad coverage” and out of “the common risk pool” in the exchange. Dave Jones, California’s insurance commissioner, said last week that he would ask Lee to let insurers continue with existing policies. Lee said he’ll make a decision by the end of the week.
Hundreds of thousands of Americans have received letters from their insurers informing them that their health plans would lapse on Dec. 31 because the coverage doesn’t comply with new federal requirements. In some cases, people were told that new policies would cost more than they were paying.
Under the policy announced by Obama, plans with renewal dates as late as Oct. 1, 2014, can be extended for as long as a year. That means some people may be able to stay on existing plans well into 2015. The move would free them from paying the health law’s penalty for those who don’t obtain coverage, equal to as much as 1 percent of taxable income.
Obama’s policy “carries risk,” Sara Collins, a vice president at the nonprofit Commonwealth Fund in New York, wrote today in a blog post. “People signing up for marketplace plans could be disproportionately older and sicker. Some carriers could consequently suffer unexpected losses in the marketplace plans and either leave the marketplaces in 2015 or raise their premiums.”
The commissioner of insurance in Massachusetts, where a 2006 health-care overhaul became a model for the 2010 federal health law, said today it’s too late to change course.
It “could cause confusion and significant market disruption,” Joseph G. Murphy said in a letter to one of the Obama administration officials overseeing the health law.
Washington state’s insurance commissioner, Mike Kreidler, said Nov. 14 that he wouldn’t follow Obama’s change of policy.
“In the interest of keeping the consumer protections we have enacted and ensuring that we keep health insurance costs down for all consumers, we are staying the course,” he said in a statement.
Collins said the risk generated by Obama’s decision that may undermine exchanges is mitigated in part by a program in the law that compensates insurers who lose money on their exchange business. Under the program, called a “risk corridor,” the government will cover as much as 80 percent of a health plan’s losses by taking money from plans that get healthier customers than expected.
The program was envisioned as budget-neutral for the government, with the number of successful insurers balancing or outweighing those that lose money. If many insurers in the exchanges lose money, “the federal government may absorb some of the cost,” Collins wrote.
The government said last week in a letter to insurance commissioners that it would “explore ways to modify the risk corridor program final rules to provide additional assistance” to insurers.