ObamaCare ‘Fix’ Shifts Responsibility to Insurers

Consumers might be cheering the president’s plan to allow cancelled plans to continue on next year, but insurers could be left with a big headache under the new rule.

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President Barack Obama announced an administrative solution Thursday that allows insurance companies to continue to offer existing policies that don’t meet Affordable Care Act standards into 2014 if the insurer chooses.

More than five million people have reportedly received cancellation letters for having subpar insurance policies despite repeated promises from the president over the last few years that individuals who liked their current plan would be able to keep it under the legislation.

Under the president’s fix, insurance companies are now charged with undertaking the administrative work of contacting previous policyholders to explain their new options. The president’s solution  does not require legislation, and state insurance commissioners and insurance companies will have to decide whether or not to permit policy renewals. The move does not allow insurers to sell non-compliant plans.

“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,” Americans Health Insurance Plans President and CEO Karen Ignagni said in a statement. “Premiums have already been set for next year based on an assumption of when consumers will be transitioning to the new marketplace.  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.  Additional steps must be taken to stabilize the marketplace and mitigate the adverse impact on consumers.”

The National Association of Insurance Commissioners (NAIC) also expressed its concern over the president's move Thursday, saying that having different rules for different policies could prove “detrimental” to the overall market and result in higher premiums.

“We have expressed these concerns with the Administration and are concerned by the President’s announcement today that the federal government would use its 'enforcement discretion' to delay enforcement of the ACA’s market reforms in 2014 for plans that are currently in effect.  This decision continues different rules for different policies and threatens to undermine the new market, and may lead to higher premiums and market disruptions in 2014 and beyond,” NAIC President and Louisiana Insurance Comissioner Jim Donelon said in a statement.

Aetna (NYSE:AET)and Cigna (NYSE:CI) were not immediately available for comment.

Insurance companies that renew non-compliant plans will be required have to explain to policyholders what is and isn’t covered by their plan, and the new offerings available on both state and federally-run exchanges.

“There is a lot of disagreement within the insurance community about what this means to people and no one is thrilled with the outcome,” says Susan Dentzer, senior advisor to the Robert Wood Johnson Foundation. “Some insurers think we need to give people more time to transition. The hope is that people will say, ‘I don’t love the fact that these plans are more expensive, but the plans are much better’ on the exchanges.”

She adds that the paperwork required to reach out to former policyholders could be a burden, but is necessary as the exchanges have struggled since their debut on Oct. 1.

“It’s not like these insurance companies don’t know who these people are.  And what is the alternative? If these exchanges were working perfectly and people could go online today and find out what they could buy and what the costs were and what their subsidies would be. But insurance companies are worried.”

Morningstar insurance analyst Vishnu Lekraj says the administrative burden will likely impact smaller insurers, as individual plans are often offered by smaller insurance providers.

“The impact on larger insurance companies won’t be as big on major insurers like United HealthCare (NYSE:UNH), Aetna and Cigna,” he says. “But this still leaves a lot of ambiguity in the system, long-term, for these insurance companies. It’s confusing, there are the administrative tasks, and there will be increased costs.”

The president’s announcement comes on the heels of Wednesday’s highly-anticipated enrollment announcement which revealed 106,135 Americans had selected health plans during the first month of open enrollment, according to the Department of Health and Human Services. This includes those who may and may not have yet paid for their monthly premiums. Every individual must have insurance by the end of open enrollment period on March 31, 2014, or face a penalty of $95 per year or 1% of their annual income, for not complying with the law.

Under the ACA, insurance plans have to include 10 essential health benefits, including maternity care, prescription health benefits and ambulatory services.

Lekraj says that while the president’s move is helpful for consumers, it’s important to note they don’t technically get to “keep” their plans forever. Consumers will  eventually have to enroll in ACA-compliant policies—something that is essential to making the law work for both the government and insurance industry.

“They will never get their plans back permanently,” he says. “That would change the entire law, and outside of the individual mandate and the employer mandate, that is the next biggest cog in making sure the law works properly.”

The move, administrative tasks aside, means exchanges will be “small potatoes” for at least 2014, when it comes to insurers’ profits, Dentzer says.  The move also buys the White House time to fix Healthcare.gov, which services 36 states and the remaining 14 states and the District of Columbia time to clear up any glitches or errors on their marketplaces.

“They won’t be getting as much business in the next year as they thought they would be,” she says. “They will be worried because one of the things that will help the risk pool is having young people enroll.”

Young people may opt to hang onto their older plans, with fewer protections, for the next year, she adds.

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