Obamacare vs. Flexible Insurance Plan Design
Obamacare is often described as an attempt to make sure that most everyone has, or at least has access to, health insurance. But it's more than that: It's an attempt to make sure that everyone has a specific kind of health insurance. It's not enough for the law's authors and administrators to tell you that you need to be covered. They also want to tell you how.
Case in point, a regulation proposed last month by the Department of Health and Human Services (HHS) which would prohibit people in most states from purchasing standalone fixed indemnity insurance. Fixed indemnity coverage is a form of limited, low-cost insurance that pays out a flat rate in response to certain prescribed events—say $75 for a doctor's visit or $15 for a prescription—regardless of the cost. Because the coverage payouts aren't variable, and because some major medical costs aren't covered at all, monthly premiums are often quite low, meaning that it offers a way for people to have some coverage at relatively affordable rates.
It may not be an option for much longer. The proposed regulation would essentially outlaw standalone indemnity policies, making it illegal to sell them except as an addendum to the more robust, more expensive plans that meet the law's minimum essential benefits requirements. Under the proposed rules, indemnity insurance sold by itself would be classified in such a way that it has to meet all the requirements for "major medical coverage."
It's as if regulators suddenly decided that anyone selling scooters had to make sure those scooters were as powerful (and thus expensive) as motorcycles. Otherwise, scooters could only be sold as sidecars to people who already owned motorcycles.
The result is that scooters probably won't be available at all. Basically, the indemnity policies would have to meet a slew of Affordable Care Act requirements that would increase their cost and, in the process, make them too expensive and troublesome to sell.
In some ways it's really sort of bizarre. Prior to this proposal, the expectation was that individuals would be able to pay the mandate penalty and then purchase fixed indemnity insurance on the side. If this proposal goes through, that won't happen. Which would likely mean fewer people with some kind of coverage.
In other ways, of course, it makes a certain sort of sense. If you understand that the goal of the law is not merely to drive people into some form of health coverage, but also to specify what type of coverage they have, then this certainly fits the bill.
It's another example of the many ways the law attempts to control and limit the flexibility of insurance carriers to offer a variety of plans and coverage types. The health law's supporters have regularly sold it as a market-based system that promotes private insurer competition. But as we see with these sorts of rules, it in fact ends up heavily restricting the kinds of insurance market competition that is acceptable, and transforming the individual insurance market into what is effectively a quasi-public regulated utility.
