The latest noisy controversy in the rollout of Obamacare is over millions of citizens being moved out of plans they purchased on the individual market. Even doggedly liberal commentators are attacking the administration for misleading these customers into thinking they could keep their exact same plans under Obamacare. But while the politics may be bad, the demise of these plans has been long expected as part of a wave of rationalization and creative destruction in the existing private-sector market.
In some cases, insurers are dropping policies because it is no longer profitable to offer them once they have to meet higher standards under the Affordable Care Act, such as accepting those with pre-existing conditions and actually covering outlays when people get sick. In other cases, as in Pennsylvania, it is the sickest people being dropped, as insurers get rid of their individual-market "guaranteed-issue" plans for people with pre-existing conditions now that all plans have to accept those who have them.
In all cases, there's been no move by the federal government specifically to help the 15 million people in the individual insurance market move into new plans that serve their needs and keep their costs low as new options become available through the state-based exchanges. Between 40 and 67 percent of the old individual-market plans are expected to be affected by the new rules, NBC reports. Meanwhile, insurers have been offering to auto-enroll customers in new plans that are much more expensive than the old ones, sparking outrage. So far more than 2 million people in the individual insurance market have received notices that they need to get or accept new plans over the course of 2014, according to CBS.
President Obama, while campaigning for the health-care overhaul in 2009, frequently said things like, "If you like your doctor or health care plan, you can keep it." Sometimes, since then, he's modified that statement to be, at times, a little more specific, and mention that he was talking about people who had insurance through their employers. The current version of the claim on the White House website is a model of confusion, speaking of "Americans who already have health insurance" and "the uninsured or those who don’t get their coverage through work"—which are in fact two very different categories of people.
A 2012 study by the Kaiser Family Foundation found that 6.6 percent of the 188.7 million non-elderly adults in America were in the individual insurance market and 21.4 percent were uninsured. Only 5.2 percent of those with incomes over $40,000 were in the individual insurance market (an important benchmark, since those with incomes in the mid-40s or higher aren't eligible for Obamacare subsidies); 78.3 percent with incomes that high were covered through the employer-based health insurance system. The major reason people were in the individual insurance market was that they were self-employed.
The dirty secret of the individual market was that insurers often kept premiums low by an amalgam of tricks. Insurers excluded as much as 33 percent of people who applied for plans, depending on the state, according to the Kaiser Family Foundation, and profited by offering plans that seemed like steals on a monthly basis but left policy-holders with ruinous costs if and when they needed insurance most.
In one of the legendary horror stories aired during the lead-up to the Affordable Care Act, my friend Sarah Wildman wound up getting stuck with more than $20,000 in costs after having a baby despite having maternity insurance, because it turned out her individual-market plan in Washington, D.C., capped maternity coverage at $3,000, and she'd needed to have a Caesarean section. Her low-cost plan was revealed to be a high-cost one as soon as she tried to use it for something major.
This sort of bait-and-switch was typical for the individual market, according to Kaiser's research. "Despite lower premiums, individuals with non-group coverage generally pay a higher share of their health expenses out of pocket than those with employer sponsored coverage," the group reported in June 2010. Coverage so often involved high co-pays, high deductibles, and coverage caps that people were easily bankrupted. As recently as this summer, uncovered medical bills were found to be the No. 1 cause of people filing for bankruptcy in the U.S., thanks in part to inadequate insurance plans. The Affordable Care Act won't fully solve this problem, but by mandating that insurance plans meet certain baseline standards, it eliminates the junkiest of what those in the health industry call junk insurance plans.
From a consumer perspective, however, this looks very different. For those with junk plans who were healthy and never had to use them for anything beyond routine care, the plans seemed like a great deal. And while it's being presented as breaking news that ACA gets rid of these plans, the provisions of the law that do this have been well-known in health-care circles since 2010. During a background briefing this summer, the White House specifically mentioned the individually insured and the uninsured as the two categories of people who would be using the new exchanges.
But in public remarks, the White House has largely treated the existing individual insurance market as if it does not exist.
"Everyone who already has health insurance, whether through your employer, Medicare, or Medicaid, will keep the benefits and protections this law has already put in place," Obama said Saturday in his weekly address, again leaving out those who have insurance through the individual market.
These public elisions have now set up a political problem for the White House, as cancellation and rate-change notices outpace enrollment through the state- and federally-run exchange sites. And without a new form of public hand-holding for those facing a market in flux, the steady drumbeat of their complaints is sure to last all year.
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