Obamacare's Insurance Cancellations: A Feature, Not a Bug
Millions of Americans were surprised to learn this month that their insurance companies won’t renew their expiring private health plans next year, despite President Obama’s frequent assurances that people who liked their coverage could keep it. What’s mostly been lost in the well-documented outrage over the cancellations is that they’re a feature, not a bug, of the Affordable Care Act. Some policies are being canceled because the law is doing precisely what it was meant to do: create an insurance market where Americans share the cost of getting sick more broadly.
In Obamacare’s central bargain, insurance companies agreed to stop turning people away or charging them more for being sick, in exchange for everyone buying a minimum level of coverage. “Yes, some people will have to pay more, but they were paying an artificially low amount,” says Sabrina Corlette, a researcher at the Georgetown Health Policy Research Institute. “They were benefiting from a system that discriminated against people with preexisting conditions.”
To dismantle that system, the law sets new rules for health plans sold after 2013, limiting how much insurers can vary premiums by age, gender, or health status. The new plans must pay for at least 60 percent of members’ medical costs on average. They also have to provide 10 areas of coverage, called essential health benefits, such as hospitalization, mental health treatment, and maternity care. In the past, people buying health plans on their own, rather than through an employer, could lower their premiums by purchasing more limited policies. Now that all policies must provide comprehensive coverage, people who’d bought limited plans on the cheap are seeing their premiums go up.
While the White House was seemingly caught off-guard by people angry over rising rates, anyone who’d taken a close look at Obamacare saw this coming months ago. In a March study (PDF) commissioned by California’s health insurance exchange, consulting firm Milliman forecast premiums in the state would go up 30 percent for people who buy their own coverage and earn too much to get subsidies. The Society of Actuaries forecast a similar hike for medical claims in the non-group market the same month.
Not even the administration can claim to be surprised. Health and Human Services Secretary Kathleen Sebelius conceded in March that changing the underwriting rules might raise prices for some: “These folks will be moving into a really fully insured product for the first time, so there may be a higher cost associated with getting into that market,” she said
That’s the price of bringing some 13 million currently uninsured people into the individual market and expanding plans’ benefits to meet the law’s minimum standards. But in his efforts to sell the law to a wary public, the president played up the benefits while playing down the inevitable costs—ensuring an eventual backlash from people who now feel they were lied to.
It could have played out differently. Relatively few people will end up paying more. The vast majority who get coverage through their employers or government insurance through Medicare, Medicaid, or the Veterans Administration already have health plans that meet the ACA’s standards. Between 10 million and 15 million Americans—less than 5 percent of the nation—buy health insurance in the individual market. Roughly half of them will have to purchase more expensive policies under the law, estimates Jonathan Gruber, the MIT health economist who advised both Obama and former Massachusetts Governor Mitt Romney on health-care overhauls. Obama could have said all of this upfront in 2009: that a small percentage of Americans would wind up paying more for better insurance that didn’t have big gaps in coverage or allow companies to turn away sick people.
It wouldn’t have been hard to explain. “Ideally they’re changing into a plan that’s going to provide greater value over time,” says Elaine Corrough, a fellow at the Society of Actuaries who consults with insurance companies and medical providers, “and, frankly, that’s going to allow more people to be covered.”
Although it’s a small percentage, the group represents millions of people who took the president at his word that their coverage would not have to change. Martin Klein, a 54-year-old psychologist in Fairfield, Conn., got a notice from Anthem in September that his health plan is being discontinued because it doesn’t meet the ACA’s standards. Klein, who describes himself as liberal and says he supports universal health insurance, nonetheless blames Obama for a reform that will drive his premiums up. He says the new plans he can buy all have higher deductibles for rates as much or more than the $554 a month he pays now.
“If he told the truth, I would not have voted for him,” Klein says of Obama. “This is hurting my family.”