Everything You Need to Know About Obama's New 'You Can Keep Your Plan' Policy

The broken website is more than just a broken website: It is already forcing the administration to change course to avert the panic.
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Reuters

If you like your individual healthcare plan, you still probably can't keep it. But now, thanks to its administrative fix, the Obama administration can try blaming that on insurers.

Let's back up. Obamacare does a lot of things, but the one big thing it does is try to make the individual insurance market work for more than just healthy people. Right now, insurers discriminate against people with preexisting conditions and sell bare-bones policies to others. So you can't get insurance if you are sick, and don't get much insurance if you become sick. Obamacare forces insurance companies to offer everyone the same policies at the same prices regardless of preexisting condition (though not age). To ensure that sick people don't get junk insurance, the law also sets minimum benefit levels.

Sound reasonable? Well, it backfired big time. Insurance companies canceled their least comprehensive plans, so lots of people needed to shop for a new, legal plan on Healthcare.gov. But Healthcare.gov doesn't work. So they're left in the lurch. As Jonathan Cohn points out, many people losing their insurance would probably be happy with their choices (and maybe subsidies) under Obamacare. But, again, they don't know about these. And, in this case, ignorance is more panic-inducing than blissful.

Obama has a plan to try to alleviate the panic—and shift the blame. Here's what it would do in three steps.

1. Let insurers offer plans that don't meet Obamacare standards for another year. Obama now says insurance companies can sell one-year plans that don't meet these minimum benefit levels for another year—through the end of 2014, and not 2013.

This is more politics than policy. It lets the administration say it's trying to let people keep their plans if they like them—and blame the insurers if they don't. But why wouldn't people be able to keep their old plans now? Wouldn't insurers want to keep healthy people the bare bones policies they're already selling them? Well, maybe not. See, insurance companies have already set prices for next year's Obamacare-compliant policies—which, remember, cannot discriminate against people with preexisting conditions. So insurers would lose money if they kept selling cheap polices to healthy people and new policies to sick people. They need healthy people to pay more to make it all work. Or, alternatively, they'll need to charge more for Obamacare-compliant policies in the future. That's why insurance companies might not offer their old plans, and why the state insurance commissioners of Washington and Arkansas have said they won't go along (though California, Florida, and Kentucky will).

2. Make insurance companies tell people who are thinking about keeping their old plans about Obamcare's alternatives. There's one condition if insurers do decide to use this extra year to keep selling plans that don't meet minimum standards. They have to tell their customers 1) what the new plans cover that their old plans don't, and 2) that these new plans might actually be cheaper for them. In other words, the administration is trying to get the insurance companies to tell people what they would find on Healthcare.gov if it worked.

3. Make the law's fail-safes even fail-safe-ier. Before Obamacare, insurance companies made money selling cheap policies to healthy people and no policies to sick people. But after Obamacare, they'll have to sell the same policies to all people. Now, sick people will obviously sign up for coverage that they need. So the question has always been whether healthy people will sign up for more expensive coverage (that might be subsidized) that they likely won't need. If they don't, insurers will lose money—and premiums will rise as a result.

That's why it could be a problem if healthy people stick with their cheap plans. And it's why the Obama administration is already talking about strengthening the system's most important shock-absorber: risk corridors. The basic idea is the government will help cover higher-than-expected costs. See, every Obamacare plan has a "target" cost based on how sick they think their risk pool will be. So if healthy people stick with their old plans, Obamacare plans will have sicker risk pools—and costs will come in higher than anticipated. But to reduce this risk during the law's first three years, the government will cover half the costs of anything over 3 percent higher; 80 percent of anything over 8 percent higher. That's a "risk corridor," at least as it was originally conceived. We don't know how many more losses the government wants to cover. All we know is it does want to cover more—just in case more people do keep their old plans.

***

Eventually, everyone in the individual market will lose their plan, even if they like it. (Sorry). That's how reform is supposed to work. It's supposed to make our dysfunctional individual insurance market work for everyone, even people who haven't had pristine health. Which is why policies that discriminate against people with preexisting conditions have to go.

But the question is when people in the individual market will lose their plans. The Obama administration is trying to keep that from happening until the online marketplace is working. Or at least deflect the blame onto insurers. That might sound like a no-cost political strategy, but there might be policy costs. For one, it could make it harder to get healthy people to sign up this first year, which, though it wouldn't doom Obamacare, would certainly not be good. For another, setting the insurance companies up for blame is a great way to alienate them. To say the least, that also wouldn't be good, since the administration needs their cooperation to run the exchanges.

But that's where Obamacare is right now: a world where "not good" is as good as it gets. Nothing really matters unless Obama can get the website to work so the individual market can work so the law can work. Policy band-aids can only delay, but not deny, that reality.

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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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