By now you have no doubt heard that President Obama, in a disastrous and meandering news conference, has announced that he will attempt, via executive fiat, to implement something very similar to the Upton Plan, which will purportedly allow (but not require) insurance companies to continue to offer plans that were made illegal by Obamacare. Without wading into the politics of this move, as a matter of policy, it is going to be a disaster. That the President would even attempt it indicates that he does not have even a rudimentary understanding of how insurance works – which is a minor problem seeing as how he apparently sees fit to unilaterally dictate insurance policy for the whole country as of today.
Insurance premiums today are set and fixed by an incredibly byzantine process that is the product of decades of often nonsensical federal and state regulation. Speaking in gross generalizations, insurance companies have complex actuarial algorithms that attempt to capture what a risk pool will look like, the parameters of which are, again, generally set by law. Once generated (again, generally speaking) insurance companies must submit requested premium to state insurance commissioners who permit those premiums if they fit a profit model that is set by the regulatory framework.
If the previous paragraph caused your eyes to glaze over, just know this: rolling out policy particulars and setting premiums is a lengthy process that cannot be easily short circuited. It is not as simple as adjusting the price of a widget to compensate for a 10% increase in its gross cost. The current premiums (which are giving people sticker shock) are built upon assumptions, already baked into the actuarial tables, about what the risk pool would look like given that the old plans would be illegal and no one would be on them.
Now, I have some real concerns about whether what Obama is attempting to do via executive order is even legal, but set that aside for a moment. Even if this passed through proper channels in Congress, it would be a terrible idea and would destabilize the entire market. Even if such a plan went into effect today, it would essentially require companies to run the actuarial gauntlet in 45 days just to get policies underwritten on Dec. 31, which they have been saying that they cannot do ever since something like the Upton plan was announced.
Stating this even more simply, dumping a large population of policies into the pool at this late of a date that the actuaries haven’t accounted for may well destabilize the entire insurance marketplace. As noted by AHIP:
Changing the rules after health plans have already met the requirements of the law could destabilize the market and result in higher premiums for consumers. Premiums have already been set for next year based on an assumption of when consumers will be transitioning to the new marketplace. If due to these changes fewer younger and healthier people choose to purchase coverage in the exchange, premiums will increase in the marketplace and there will be fewer choices for consumers. Additional steps must be taken to stabilize the marketplace and mitigate the adverse impact on consumers.
This is why, after Obama announced that it would be up to state Insurance Commissioners to decide whether to allow the old plans to be dumped back into the system at the last minute, it took about five minutes for the state of Washington to reject the idea wholesale:
Just hours after President Obama announced changes to his health care law to give insurance companies the option to keep offering consumers plans that would otherwise be canceled, Washington state Insurance Commissioner Mike Kreidler says those changes will not be allowed in our state.
Kreidler says Thursday he has “serious concerns” about how Obama’s proposal would be implemented and its potential impact on the overall stability of the state’s health insurance market.
“I do not believe his proposal is a good deal for the state of Washington,” Kreidler said in a statement announcing his decision. “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. We will not be allowing insurance companies to extend their policies. I believe this is in the best interest of the health insurance market in Washington.”
Folks, while it would be great for a lot of people if such a fix were doable, the reality is that the bell cannot be unrung for 2014. And if Congress tries to force insurance companies to offer these plans at the last minute, it may well result in a much worse outcome than just letting this whole horrible charade play out.
As a side note, it is especially galling to ask insurance companies to offer policies that are illegal under black letter Federal law (in addition to being completely outside actuarial computations and the regulatory framework) just because Obama asks them nicely to do so, given that he basically ran two presidential campaigns on how evil they were.
I realize a lot of people are hurting because of this but what’s being proposed right now isn’t a fix. It’s a poison pill for the economy at large, and we should resist the urge to swallow it just because it might make our current headache go away.