Nearly five million people have had their health insurance policies cancelled because of Obamacare. Their coverage didnt meet the laws lofty specifications for covered benefits. So they were told theyd have to secure more generous and more expensive insurance.
Needless to say, they werent too pleased. And they let their elected officials know about it. Several U.S. senators, including six Democrats, asked Secretary of Health and Human Services Kathleen Sebelius in December to give those whose policies were cancelled a break.
Just before Christmas, the Obama Administration did informing those affected that they could ignore Obamacares individual mandate requiring them to have coverage in 2014 or pay a tax penalty of $95 or 1 percent of income.
The decision represents yet another example of the Obama Administrations tendency to ignore the portions of the law it finds inconvenient. Such piecemeal repeal in response to political pressure is unfair and could end up undermining the law entirely.
Late on December 19, Sebelius ruled that those whose policies were cancelled could apply for a hardship exemption from the individual mandate if they considered the plans available to them through Obamacares exchanges unaffordable.
They can also purchase catastrophic coverage through the exchanges. These bare-bones policies, which need not cover all the benefits mandated by Obamacare, were previously available only to those under the age of 30 and those who could not find insurance that cost less than 8 percent of their income. In the 36 states served by HealthCare.gov, catastrophic coverage costs about 26 percent less than the least generous policies available through the exchange.
Perversely, this new fix puts the uninsured at a disadvantage, compared to their previously insured counterparts. As the Washington Posts Ezra Klein explained, A 45-year-old whose plan just got canceled can now purchase catastrophic coverage. A 45-year-old who didnt have insurance at all cant.
The Administration is only facing these charges of misguided favoritism because its previous attempt to atone for the cancellations didnt work. In November, it decreed that insurers could continue selling policies that did not meet Obamacares requirements if the states in which they operated would allow them to. But some state regulators refused to do so.
Further, by lumping these favored five million who lost their policies in with those who previously qualified for hardship exemptions, the Administration has effectively rendered both hardship and mandate meaningless.
In June 2013, the feds enumerated 12 hardship classes that didnt have to comply with the mandate, including the homeless, victims of domestic violence, and those facing eviction or foreclosure.
Now theres a 13th class those who think that the insurance for sale through Obamacares exchanges costs too much.
That could well be everyone in the United States. A paper from the House Energy and Commerce Committee points to no less than 30 studies that find that premiums will increase under Obamacare.
Getting into that 13th class and thus avoiding the mandate could be so desirable that former Congressional Budget Office Director Douglas Holtz-Eakin has predicted a black market for fraudulent cancellation letters.
All these last-minute changes are threatening to throw the insurance market into chaos.
Insurers have calculated their premiums for 2014 based on the assumption that all Americans will be buying comprehensive coverage in line with the individual mandate. Many young, healthy people will be paying for insurance for the very first time or paying higher premiums than they may have in the past.
And thats by design. Obamacare forbids insurers from charging older, sicker Americans any more than three times what they charge younger, healthier ones. Insurers are counting on premiums from the young to help offset coverage for the comparatively costly older generation.
But those calculations have now been thrown off. If the nearly five million cancellees opt for cheap catastrophic coverage or avoid coverage altogether then insurers could end up with a lot less in premiums than they originally planned on. And thats a recipe for big losses.
Those whose insurance policies were cancelled may welcome President Obamas Christmas gift of exemption from the individual mandate. But his largesse for these favored few may deliver yet another blow to insurers bottom lines and may leave millions more Americans wondering why theyre the suckers stuck following the presidents unpopular health law.
A hardship exemption from Obamacare for all Americans is long overdue.