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Actually, You Can't Just 'Restore' Cancelled Health Plans

Tom Williams/CQ Roll Call Group/Getty Images

House Republicans aren’t the only ones threatening to mess with Obamacare. Over in the Senate, Mary Landrieu, the Democrat from Louisiana, has proposed a bill with a similarly stated purpose: Letting people keep their current health plans. It's getting support from similarly nervous Democrats, even some from blue states like California and Oregon. But this is testimony to the desperation some Democrats feel right now, not to the proposal's actual virtues. (Reports from Politico suggest President Obama will also propose some kind of administrative action to encourage plans to restore cancel plans, though it will be far more narrowly drawn—stay tuned for details.)

In one sense, the Landrieu bill is far less objectionable than the one Republican Fred Upton has proposed in the House. Upton’s bill would allow insurers to keep selling the old, pre-reform insurance policies to new customers, using the same discriminatory practices they’ve used historically. In other words, they could keep denying coverage to people with pre-existing conditions—and they could keep selling policies with gaps that leave people exposed to devastating medical bills. Landrieu’s bill wouldn’t do that. It seeks to preserve such policies only for people who already have them.

But Landrieu’s bill is more far-reaching, and possibly more threatening, in one key respect. It would compel insurers to keep offering the old plans. Upton’s scheme is purely voluntary: If insurers decided not to keep offering their old policies, they could go ahead with the cancellations. Many would probably do just that. If Landrieu’s bill became law, insurers wouldn’t have a choice. 

Predicting the consequences of the Landrieu bill is as difficult as predicting the consequences of the Upton bill. There's just a ton of uncertainty. As Jonathan Chait notes today, this is a very good reason not to embrace any quick fixes without figuring out the likely impact.

But it's easy to imagine what might happen if bills extending current policies become law. The picture isn't very pretty.

Insurers set their prices for 2014 based on their expectations of who would sign up for the new plans. And those expectations included a bunch of people who would be leaving their old plans. If insurers give everybody a chance to stay on existing plans, some will take up the offer—and, on average, it will be healthier people insurers had hoped would sign up for the new plans. Without that infusion of healthier people into new plans and—more important—without their premium dollars, insurers will have a different actuarial balance. They won’t have as much money to cover the costs of the sick. They could react in one of three ways: They could seek big premium increase in 2015, beg for a chance to revise prices for 2014, or simply exit the market altogether—with announcements coming in the summer of and fall of 2014, just in time for the mid-term elections.

That all sounds very apocalyptic and, to be clear, chances are good the real impact would be less catastrophic than it seems. As noted here and elsewhere, Obamacare has a set of built-in shock absorbers, designed to protect insurers from just these kinds of problems. Insurers would also have incentive to restrain premium increases for 2015, no matter what happens in 2014, for the very same reason they bid relatively low for this coming year: With so many new people buying insurance, they are eager to secure a large share of the market.

But efforts to extend existing policies, whether via Landrieu’s method or Upton’s, would face another set of challenges—practical obstacles that, according to a set of insurance officials and actuaries I’ve consulted in the last few days, are more difficult than most people realize. Here are the top five:

1) Carriers might not be inclined to renew plans they've already cancelled already. Remember, the law already gave insurers the option of offering early renewal, good through the end of 2014. In most cases, plans that thought they could make a profit by extending current plans would have done so already. So if a carrier cancelled the plan, it’s because they didn’t think it was worth the effort.

2) Setting up an insurance plan takes work. And that’s true even if the plan exists already. When an insurer creates an insurance plan, it has to sign all kinds of contracts—with providers, with suppliers, and so on. That takes time. In case you have noticed, it’s already the middle of November. To get coverage in time for January, people must sign up by mid December. That's a month from now—with a Thanksgiving holiday in the middle.

3) Dealing with state regulators would be its own, separate ordeal. The Affordable Care Act is a federal law, but states remain responsible for overseeing plans, just as they always have. That means vetting plans to make their benefits and prices are up to snuff—regulators want to make sure, for example, they have enough premiums to cover their costs, but aren’t gouging customers. As Dave Weigel notes at Slate, this process can take a long time. (I'm hearing it's typically 90 days, though that's obviously a rough figure.) Insurers and regulators could collaborate to expedite things, but smaller states, in particular, typically have small regulatory staffs. Completing work in time for policies supposed to take effect on January 1 would be difficult.

4) One way to avoid the problems above would be simply to extend plans for a month or two past January, on some kind of provisional basis, at existing prices.  But at least some insurers would lose money on that, because medical costs rise year after year—and premiums are supposed to rise too. Oh, state regulators might fuss about that too.

5) The big established plans, like the Blue Cross affiliates in every state, could sustain such short-term losses. They also have large, existing customer bases with tons of data about them. If a grandfather scheme were voluntary—this applies more to bills like Upton’s than Landrieu’s—they could easily pick and choose which customers to extend. Smaller, start-up plans don’t have these abilities. As a result, messing with grandfather status could tilt the competitive balance in favor of the large insurers that already dominate the market, thus undercutting reform’s goal of improving competition.

Are any of these problems fatal? Probably not. Nothing is impossible. But it’s a reminder of just how complicated “fixes” for people losing coverage is bound to be.