Obama reversal may not pacify consumers, insurers or Democrats

President Barack Obama's decision last week to allow existing individual and small-group market health plans that don't meet the requirements of the federal healthcare reform law to be renewed for 2014 may not satisfy consumers upset about having their plans canceled. It has angered insurers and state regulators, who warn that it creates logistical difficulties and could drive up premiums and destabilize the insurance risk pool.

And it apparently did not calm the fears of some congressional Democrats worried that the backlash over the canceled policies and the botched rollout of the federal insurance exchange could jeopardize their election prospects next fall.

Thirty-nine Democrats joined 222 Republicans to pass a House bill Friday that would allow insurers to renew individual policies and sell similar policies to new customers next year even if those policies do not meet the benefit and other requirements of the Patient Protection and Affordable Care Act. That legislation goes further than the president's administrative action, which does not allow insurers to sell noncompliant policies to new customers.

Some said the healthcare problems could jeopardize Obama's legacy and even the future of activist government. But many experts say the president could still come out fine as long as his team gets the federal HealthCare.gov website working by the end of November.

Bowing to growing political pressure, Obama apologized last Thursday for the troubled launch of the federal exchange and for misleading people with his pledge that Americans could keep their plan if they like it. But his new policy left it up to insurers and state regulators to decide whether to renew noncompliant plans. Insurance regulators in several states quickly said they would not allow such plans to be renewed. All this could leave the individual insurance market in chaos.

The president's retreat came one day after HHS announced lackluster enrollment figures for the federal exchange. In the first month, about 106,000 Americans signed up for a health plan through the state- and federally run insurance exchanges, with just 26,794 of those coming through the federal HealthCare.gov website. That's about one-fifth of the 500,000 sign-ups the Obama administration had projected for October.

Both the National Association of Insurance Commissioners and America's Health Insurance Plans issued terse warnings about the implications of allowing existing plans to continue next year. Insurance commissioners in three states— Arkansas, Vermont and Washington—indicated that they would not allow insurers to reinstate canceled plans, while others said they were still deciding what to do.

Obama's new policy “threatens to undermine the new market, and may lead to higher premiums and market disruptions in 2014 and beyond,” said James Donelon, Louisiana's insurance commissioner and president of the NAIC, in a written statement.

That was echoed by AHIP President Karen Ignagni. “Premiums have already been set for next year based on an assumption of when consumers will be transitioning to the new marketplace,” she said in a written statement. “If now fewer younger and healthier people choose to purchase coverage in the exchange, premiums will increase and there will be fewer choices for consumers.”

With just six weeks left before the canceled plans end Dec. 31, there are major logistical problems for insurers in renewing policies they had canceled. An estimated 11 million Americans are covered by individual-market plans, and a significant percentage of them have received notifications that their plan won't be renewed. Insurers generally have to obtain rate approval from state regulators for renewed plans.

Joel Michaels, a partner at McDermott Will & Emery in Washington, said it's a difficult task for insurers to send new notices to policyholders, determine premium rates for existing plans and deal with the state regulatory process—all before Jan. 1. An even bigger problem, he said, is that the president's announcement changes the actuarial assumptions behind the benefits and pricing for the new exchange plans. Insurers set those premiums assuming they would get a balanced pool of healthier and sicker enrollees. But now it's thought that healthier people will stay with their existing plans.

Obama admitted that his administration “fumbled the rollout” of the healthcare law and said he's committed to making changes that are necessary to get it working. He also acknowledged the potential political fallout for Democrats who have championed the law and are catching heat from disgruntled constituents. But later Thursday, he strongly defended his effort to provide health coverage for nearly all Americans.

“I want millions of Americans to make sure that they are not going broke when they get sick and they can go to a doctor when their kid gets sick, and we are not apologizing for that,” he said in a speech in Cleveland. “We are going to get this done.”

On Friday, Jeffrey Zients, the official leading the HealthCare.gov overhaul effort, said the administration is on target to meet the goal of making the Web portal function smoothly for most users by Nov. 30, though his team has a lot of work ahead. He said there are 50 additional items on his team's “punch list” for the coming week.

The bill passed by the House on Friday, sponsored by Rep. Fred Upton (R-Mich.), says that if an insurer was providing coverage in the individual market Jan. 1, 2013, it “may continue” to sell such coverage outside the insurance exchanges in 2014. People who choose to buy or renew these policies would be deemed in compliance with the reform mandate to have insurance and would not face a tax penalty. The bill drew a veto threat from the White House.

The White House Office of Management and Budget said the administration supports allowing people to keep the health plans they have, but that Upton's bill “rolls back progress” by allowing insurers to continue to sell new plans that don't offer coverage for people with pre-existing conditions, charge women more than men and continue annual benefit caps.

Meanwhile, the prospects for the Upton bill in the Senate are unclear. A number of Senate Democrats, including Sen. Dianne Feinstein of California, are supporting a bill by Sen. Mary Landrieu (D-La.) to allow people to keep their individual-market policies. Landrieu said in a written statement that she was “encouraged” by the president's actions last week but that she will continue to push for her bill, which would allow people to keep their plans as long as they stay current on their premium payments.

Christopher Condeluci, an attorney with the firm Venable and a former Senate Finance Committee Republican aide, predicted Landrieu would talk up her bill with her constituents to bolster her re-election changes but that she wouldn't press Senate Democratic leaders to bring her bill up for a vote, which could place them in direct conflict with the president.

Alden Bianchi, practice group leader for employee benefits and executive compensation at Mintz Levin in Boston, downplayed the current histrionics. He said members of Congress aren't thinking so much about healthcare issues as they are about getting re-elected next fall. As he sees it, when the history of the ACA is written decades from now, much of what's happening today, including the bumbled exchange launch and the insurance cancellation notices, won't even be a footnote.

“This is an election issue for 2014,” he said. “That's all it is.”

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