Sticker Shock Bandwagon
unagidon October 31, 2013 - 11:42am
Whether he did or didn't, there are several million angry people out there who are getting "pay more or be cancelled" notices from their insurance companies for 2014.
So what's going on? On the RIght, of course, Obama was caught in a bald-faced lie, having given his personal guarantee that all Americans could keep their current insurance if they wished. On the Left, technically Obama wasn't lying, because there is nothing in the PPACA (Obamacare) statute that says that insurance companies have to cancel policies or that anyone at all has to be forced onto the exchanges. But Obama can't control the insurance companies and their own business decisions. So it's their fault.
Everyone is spinning as fast as they can. What's really happening?
What people are mostly talking about is the individual market as opposed to the group market. The group market (which I will have a bit to say about at the end) is for people who get their insurance through their jobs. The individual market is where a person buys insurance directly for himself from the insurance company.
While Obamacare did not mandate that insurance companies cancel individual policies, it did radically and permanently change the individual insurance market. This in turn created new market conditions to which the insurance companies had to react, changing their behavior.
The way the individual market used to work was as follows: there were, say, 50 million people who were in the market for individual insurance, but only about 12 million could actually buy it. The reason that the others could not buy it was that they had pre-existing conditions or certain needs (pregnancy coverage, for example) that made the individual plans too expensive or simply unavailable.
Of the people who could buy individual coverage, they were either people in excellent health or they were people willing to put up with very basic (if not substandard) benefits, or both. For these people, individual insurance was relatively cheap (provided they didn't later develop health problems). For the insurance companies they were rather profitable, because people were either too healthy to use any benefits or they weren't using benefits, obviously, that they didn't have. In general the people who had individual insurance had about half the benefits than the average policy one gets through their job.
What Obamacare did to change the market was to mandate that individual coverage benefits mirror group coverage benefits. Twice the benefits means twice the price for people who have to buy a new policy that conforms to the new standards.
But who has to buy a new policy?
The ACA legislation allowed people to be grandfathered into their old, noncompliant policies and go on, basically, as though Obamacare never happened. When Obama said that people could keep their coverage if they wanted to, this was the statute he was referring to.
The question is, how many people grandfathered? The answer is, not many; maybe 20 percent of those who could have did. The window for grandfathering was in 2010, at a time when people probably didn't quite understand what could happen if they didn't grandfather.
The people who did not grandfather at first did not see much of a change, because the Obamacare mandates weren't (mostly) effective until 2014. The time of reckoning came when it was time for people to renew into their 2014 policies. Now the policies had be to Obamacare-compliant and they cost more; much more if someone currently had a real slimmed-down noncompliant individual policy.
Now, the supporters of Obamacare are not lying when they say that many of the old policies were simply inadequate, that the new plans have much better benfits, and that many people will find that they get a subsidy if they buy on the exchanges.
But what if one doesn't care? What if one didn't want richer benefits or was satisfied with their substandard benefits, or can't get a subsidy on the exchange; and they didn't grandfather at the time because they didn't understand it or they took Obama at his word that they weren't going to have to change their plans? These people are going to be disgruntled and they have reason to be. But there's no going back. It's like when the law required pollution controls in cars. For a while some old models were grandfathered and didn't have to have catalytic converters. But eventually all cars did--and at great expense.
What about the turmoil in the group market?
There were also cases where group plans had substandard or noncompliant benefits and they also had to conform. But the main thing that is going on is the normal annual round of benefit and price changes which in this season are being blamed on Obama. (Detractors of Obamacare don't note that at least half of individual policies would have significant benefit and price changes in a normal year. It's not the case that none of this would be happening but for Obamacare.)
What did Obama know and when did he know it? All of us in the business (including the government) knew that nongrandfathered individual plans were going to change radically. Benefits would change and prices would go up 50 to 300 percent. The Right knew it too, since this was the source of their claims that "under Obamacare premiums would skyrocket." They were talking about these premiums. People could grandfather out of these changes, but no one anywhere had any idea how many actually would. One hundred percent of the policy-holders could have grandfathered and if they had, people would be calling Obama a liar for some completely different reason.