The big story of the last 24 hours is an NBC News “investigation” into Obamacare, based on “sources deeply involved in the Affordable Care Act.” The breathless tone doesn't quite match the revelatory content. The story's big scoop turns out to be a federal regulation that was publicly announced three years ago and discussed extensively at the time.
But the underlying issue is real. It’s the same essential transformation getting less sensationalist attention elsewhere and that I wrote about yesterday. Insurers are refusing to renew existing insurance policies for hundreds of thousands and maybe millions of Americans, usually because those new policies do not satisfy Obamacare regulations that take effect in 2014. The people losing insurance have a chance to get modified or new policies that typically offer better, more secure coverage. But the prices they are seeing tend to be higher than what they are paying now. These people are asking a lot of hard questions, which Republicans are amplifying today. Why can’t these people simply keep the policies they had before? Didn’t President Obama vow that Americans who like their insurance would get to keep it?
Yes, he did. And he was wrong to make that promise, at least in such clear-cut terms. It applies perfectly well to the overwhelming majority of Americans who get insurance from an employer, Medicare, or Medicaid, since these plans and programs aren't really changing in ways that most consumers would notice. But people who buy coverage on their own, through brokers or directly from insurers, are in for some big changes. They constitute a tiny portion of the population but, because this is a large country, they are still a sizable group in raw numbers. (Somewhere between 10 and 20 million, depending whose estimates you believe.) Many of them are the ones hearing from insurers now.
It would have been perfectly fine for Obama to say most Americans get to keep their coverage or to qualify his statement in some other way. And administration officials offered such nuance when asked. But Obama offered more absolute and ironclad promises when he spoke publicly—and, distressingly, some of his advisors are making similarly sweeping statements now. Such declarations lie "somewhere between an oversimplification and a falsehood," as Jonathan Chait puts it. In short, the president's critics have a point.
But ultimately the more important question is about what’s actually happening to these people losing their current policies—and why. This transformation is not just a consequence of Obamacare. It's very much the intent. And for very good reason.
By nearly everybody's reckoning, the "non-group" market is the most dysfunctional part of the American health insurance system. The dysfunction takes two primary forms. First, insurers have been selective about whom they would cover and how—charging higher premiums, covering fewer services, or simply denying benefits outright to people with pre-existing medical conditions. About half of all Americans have at least one such condition, according to official estimates, so roughly speaking about half the population couldn't reliably find comprehensive, affordable coverage if they had to buy it on their own.
The second big problem with the non-group market has been the lack of protection it provides even those people who think they have good insurance. At worst, plans in the non-group market border on fraud. They are “mini-med” plans that cover no more than a few hundred dollars of bills, which will last you about ten minutes if you visit the emergency room. But even the better, more respectable plans can exclude whole categories of services, like maternity care, rehabilitation, mental health, or prescription drugs. Typically they also have high deductibles and co-payments.
These policies may seem alluring, because they don’t cost much upfront. But these premiums are notoriously unstable. From time to time, insurers will “close” blocks—in other words, they stop letting new people into the plan—and then jack up rates once a few of the insured get sick. The paperwork on the plans is also opaque. While some people have trustworthy insurance brokers to help them, many rely on less informed counselors or attempt to sort out the confusing insurance options on their own. When they end up in the hospital, they discover they still owe tens of thousands of dollars in medical bills—sometimes, enough to force them into bankruptcy.
These problems help explain why, in a survey from the Center on Health Research and Transformation, 45 percent of people with non-group coverage rated it “fair or poor” and 61 percent said they had a “negative experience.” Both figures were the highest among the types of insurance studied. Consumer Reports summarized the situation well in an article last year:
Individual insurance is a nightmare for consumers: more costly than the equivalent job-based coverage, and for those in less-than-perfect health, unaffordable at best and unavailable at worst. Moreover, the lack of effective consumer protections in most states allows insurers to sell plans with ‘affordable’ premiums whose skimpy coverage can leave people who get very sick with the added burden of ruinous medical debt.
Anybody who has written about health care in the last decade has stumbled across stories like this. One from my files was about a South Floridian mother of two named Jacqueline Reuss. She had what she thought was a comprehensive policy, but it didn't cover the tests her doctors ordered when they found a growth and feared it was ovarian cancer. The reason? Her insurer decided, belatedly, that a previous episode of “dysfunctional uterine bleeding”—basically, an irregular menstrual period—was a pre-existing condition that disqualified her from coverage for future gynecological problems. She was fine medically. The growth was benign. But she had a $15,000 bill (on top of her other medical expenses) and no way to get new insurance.
A major goal of Obamacare is to end these insurer practices and get those less protective policies off the market. The law prohibits insurers from withholding benefits, charging higher prices, or denying coverage altogether to consumers because they have pre-existing medical conditions. It sets a minimum standard for “essential benefits” that all policies must cover—including, yes, maternity care and mental health. It bans annual and lifetime limits on what policies will pay. And it limits the out-of-pocket costs consumers can pay in one year.
These standards are actually weaker than many liberals would prefer. The out-of-pocket limits are more or less equivalent to what people with health savings accounts face today. But lots of policies now available on the non-group market are even less protective than that. Unless they qualify for a grandfather clause, which protects plans that existed before 2010 and haven't changed since, insurers can't keep offering them. These carriers face a choice: Strengthen the protection, so that the plans meet Obamacare standards, or cancel the policies and offer new ones instead. Most insurers are opting for the latter. That means people holding those policies must find new coverage.
The scale of the disruption here is smaller than it might seem: As Sarah Kliff points out, one study in Health Affairs estimated that less than one in five people buying non-group market keep a policy for more than two years anyway. More often than not, the people switching to new policies under Obamacare should be getting greater protection from medical bills, the kind that could save them tens of thousands of dollars if they get sick. Plus they're getting peace of mind, as Igor Volsky writes at ThinkProgress: "They will also no longer be part of a system in which the young and healthy are offered cheap insurance premiums because their sick neighbors are priced out or denied coverage. That, after all, is the whole point of reform."
Indeed it is. But if insurers are going to cover more, they’re also going to charge more. That's why premiums for the new plans are higher. Obamacare addresses that problem by offering subsidies, worth hundreds of dollars in some cases and thousands of dollars in others. The result is that many people will actually pay less every month for the new policies than they are paying now. They may also get assistance with out-of-pocket expenses. But some people really will pay more for replacement policies and some of them will not find it easy. Meanwhile, many people eligible for the subsidies frequently don’t know they are available, let alone how much they are worth, because of the website problems. The media isn’t helping here, since stories about cancellations and higher rates frequently say very little about the subsidies—or fail to mention them altogether.
Obamacare isn't the only or even the best way to address the problems of the non-group market. You could move everybody onto a single, public insurance plan. You could regulate insurance prices as if the industry was a utility. Or you could simply increase the value of the subsidies. (I'd gladly support any of those.) But all of those require some combination of more government and more money, which is not politically possible right now. Conservatives have their own alternatives, some of which would let more people keep their current policies and some of which would almost certainly lead to more people losing their current policies. But under either of those options, many fewer people would get insurance—and those who had insurance would have less protection.
Regulation always involves tradeoffs. Food is more expensive because government demands the processing companies take steps to avoid contamination. Houses cost more because government insists builders use sturdy materials. Plenty of people would be happy to take their chances with less stringent regulations, but the government bans the sale of such products, even if they might be cheaper for some, because they are hazardous to the public's health.
A similar choice is at the heart of this latest controversy. You can set higher standards for insurance, even though it means forcing some people to get better coverage. Or you can leave the standards as they are, even though those standards expose people to financial and medical calamity. Obama and his allies chose the former. Those who disagree should explain why they prefer the latter.