Why You Shouldn’t Be Able to Keep Your Health Plan

Commentary about business and finance.
Nov. 12 2013 11:47 PM

It’s Good That You Can’t Keep Your Insurance Plan

Obama was wrong to mislead people but right to scrap dysfunctional insurance products.

President Barack Obama
President Barack Obama in the Oval Office on Nov. 1, 2013.

Pool photo by Olivier Douliery/Getty Images

“If you like your plan, you can keep your plan.” That was the promise Barack Obama made to insured Americans when stumping for his signature health insurance overhaul back in 2009 and 2010. It’s a promise that’s coming back to sting him now that it isn’t coming true. It was an irresponsible promise, a cowardly cave-in to focus-group findings that it was what Americans wanted to hear. But it didn’t make sense as a promise and didn’t make sense as a description of any plausible insurance reform. While Obama ought to be sorry he said it, the idea of actually trying to make it a policy goal is insane.

To see why, dial back to the salad days of 2008, long before Kathleen Sebelius and her jackbooted thugs were stomping on the American health insurance market. Back then, most Americans had health insurance plans. Most of them were pretty happy with the plans they had. And most of them had no guarantee whatsoever that they would be able to keep their plans next year. Of course, if you take it literally, almost nobody did keep the exact same health plans from year to year: Premiums would go up, or deductibles or copayments would rise, or the precise list of in-network doctors would change. Or if you had an employer-provided plan, perhaps nothing employee-facing would change, but your company would need to cough up more money for health plans, thus depressing earnings indirectly.

That was life. A constantly shifting landscape of insurance plans in which people—justifiably!—lived in fear of losing good coverage. Eliminating that anxiety was one of the main reasons to hope for a proper system of universal health care. But that same anxiety led to the polling and focus-group reports that drove Obama to make his unwise promise.

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The Affordable Care Act certainly didn’t include any provisions that prevented insurance companies from deciding to no longer offer certain insurance products. House Republican legislative trolling aside, a law that actually prevented insurance companies from ever withdrawing an insurance product from the market would be extreme regulatory overreach. How would it even work? If insurers were prevented from dropping services from their plans, then they would have no leverage in negotiating with health care providers. Any hospital could demand outrageous reimbursement rates from insurers, safe in the knowledge that it would be illegal for insurers to drop the hospital from their plans. The high costs would swiftly drive the insurance companies out of business; with the insurance companies bankrupted, the goal of preventing people from losing coverage would be vitiated.  

Rather than (foolishly) try to ensure that nobody could ever lose their insurance, the actual Affordable Care Act accelerated the demise of a certain class of plan. Politically, that’s now an embarrassment for the White House. Substantively, it’s a huge achievement.

The ACA cracks down on insurance rescission. It was famously difficult on the old market for people with “pre-existing conditions” to get coverage. That’s because insurance companies don’t want to cover people who are actually sick. Even healthy people generally want health insurance coverage because they might get sick. But an insurance company has no desire to actually foot the bill for a seriously ill person’s medical treatment. Hence, in the individual market the standard practice was to earn a profit selling peace of mind to healthy people, only to pivot as quickly as possible toward cancellation of the plan as soon as major bills started coming in. The ACA, rightly, puts a stop to this scam.

Since insurance companies now won’t be allowed to collect premiums while you’re healthy only to yank coverage when you get sick, they have no choice but to pre-emptively cancel plans that wouldn’t be financially beneficial to actually pay out.

That’s the story of Obamacare “victims” such as Lee Hammack and JoEllen Brothers, loyal Democrats aged 60 and 59 who enjoyed miraculously low premiums until the ACA ruined the party. Hammack and Brothers are certainly entitled to feel miffed about losing their apparently sweet deal. But they ought to reflect on the overwhelming likelihood that their pre-ACA circumstances were a happy illusion. They were both, by their own admission, quite healthy and thus profitable to insure. Had one of them actually fallen ill, the plan would have become a loss center for the insurer and canceled as swiftly as a pretext could be found. It’s being canceled now because under the new rules it’s now or never for the insurer. Charging premiums only to yank the policy retroactively is no longer on the table.

Insurance cancellation sob stories have been full of picayune details about new coverage mandates for services the policyholder doesn’t want: gender reassignment surgery, for example, or maternity care for women in their 50s. But no insurer worries about being forced to offer you services that you won’t want to use. New regulations will only lead to policy cancellation if they make the policy unprofitable to offer. And in the majority of cases, that’ll mean the policy is being canceled because it never made financial sense for the insurer to actually pay up in the case of major illness.

Clearing the landscape of this kind of mirage insurance and making sure that everyone has proper coverage—which, yes, may be more expensive—is a feature of the Affordable Care Act, not a bug. The White House has every reason to hold its head in shame over the shambolic state of healthcare.gov, but the wave of cancellation letters is part of Obamacare doing what it was supposed to do. There’s little to regret about these plans vanishing from the earth.

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