President Barack Obama finally decided last week to honor his promise of letting people who like their “junk” insurance policies, keep them. “Period.” In a rambling, hour-long press conference he said insurers would now be allowed to restore the plans that he himself had forced them to cancel because they did not comply with the minimum benefits of the Affordable Care Act.
Whether this will save Democrats from a shellacking next November remains to be seen. But this might well be the beginning of the end of Obamacare as we never knew it.
The president’s announcement was calculated to head off mass defections by panicked Democrats to the Republican “Keep Your Health Plan Act” proposed by Rep. Fred Upton. Upton’s bill passed the House anyway with 39 Democrats voting for it on Friday. Had the administration not acted, more than 100 House Democrats would have switched sides—never to return to the Obamacare fold.
Like Upton, the administration will allow insurers to reverse their cancellations for existing customers. Unlike Upton, however, the administration won’t allow insurers to extend these “junk” policies to new customers. Also, the administration’s plan will grandfather these policies for only one year whereas the Upton plan would allow Congress to reauthorize them every year.
The Upton plan would basically gut Obamacare because the program’s viability depends on its ability to herd the 15 million or so Americans getting “junk” coverage from the individual market onto the Obamacare exchanges where they’d be forced to pay more for benefits they don’t need. This would spread premiums across a bigger population and keep coverage affordable. (At least in theory.)
But Upton's bill would not only allow these people to keep their existing coverage—possibly into perpetuity, it would over time expand this population, depriving Obamacare of the sacrificial lambs it needs.
The smart money is that the Upton plan ain’t going anywhere. But it doesn’t have to. Its very existence might have forced the president to gut his signature initiative.
The administration’s own data so far shows that, thanks to the ongoing debacle that is the Obamacare exchange, only 100,000 or so Americans have “enrolled” in the program so far, less than a tenth of what was originally projected. (Millions more have lost coverage due to cancelled policies than gained coverage through the exchanges. In Michigan alone over 200,000 people have faced cancellations while less than 1,500 have obtained it through the exchange.)
But the low volume is not the only problem. Most of the people motivated to scale the Obamacare obstacle course, it is feared, are sicker and older.
This will cause Obamacare’s premiums to soar, unleashing the much-dreaded death spiral of adverse selection as more healthy folks drop out, leaving the sicker and more expensive patients in the program.
The only prayer the administration had of avoiding this eventuality was by fixing the exchange and getting more healthy people to sign up. But now even if the administration fixes the exchange—a big “if”—what incentive will these folks have to sign up if they can keep their existing plans? Both Obama and Upton only want insurance companies to have the option of restoring junk policies. But Louisiana's Democratic Senator Mary Landrieu is working on a bill that would require insurers to restore these policies.
Some liberals claim that a one-year allowance for “junk” coverage won’t mean the end of the world. In fact, this will relieve the pressure on the exchange and give the administration more time to fix it before people are required to buy up-to-snuff plans next year.
But Ethics and Public Policy Center Fellow Yuval Levin points out that this fundamentally misunderstands the logistics of the insurance industry. Because insurance companies are required to submit their requests for premium increases to state insurance commissions a year in advance, their 2015 premium increases will be based on the risk pool that materializes by the spring of 2014. And because this pool is going to be expensive to insure, these requests will be high.
The commissions can reject the requested increases. But if they do so, these companies might bow out altogether, prompting the Obamacare humpty-dumpty to fall apart. If they approve the increases, they will unleash the death spiral—not to mention another sticker shock just before elections.
It is becoming harder to envision a scenario under which Obamacare can survive. The main issue is whether its death will be prolonged and painful as the administration tries this or that unworkable therapy—or quick and merciful as more members of his party start clamoring to pull the plug.
A version of this column originally appeared in the Washington Examiner