The Obama Administration’s decision to give small businesses until October 2016 to conform their health insurance plans to new federal rules is a wise if not predictable gesture. But it doesn't come without costs. Insurance premiums will rise in 2015 to reflect the price of this latest revision.
At issue are provisions in Obamacare that force every health plan sold in America to conform to a litany of new Federal mandates and regulations. Even many quality health plans didn’t meet all the new criteria, which require insurers to cover a long menu of medical services that many consumers neither want coverage for, nor need.
Accommodating all of the new mandates is a pricey affair. It forces insurers to push up premiums, or make up for the costs in other ways – mostly by cheapening the networks of doctors they offer, or the drugs they will cover. In response, many insurers are canceling old plans that don’t meet the new rules, and rolling consumers onto new but costlier policies. In other cases, insurers are steering customers to the Obamacare exchanges, where people can get government subsidies to offset some of the new costs.
Health plans sold directly to consumers went through this transition last spring, prompting millions of consumers to lose their existing coverage. But small businesses (with fewer than 50 employees) exploited a loophole that they found in the Obamacare text. If these businesses renewed their policies early, before the end of 2013, then those plans wouldn't be subject to Obamacare’s mandates for another year. These small businesses could keep their existing health plans in place until Fall 2014.
Most businesses took advantage of this provision. But that put the cancellations on track to collide right into the midterm election. To avoid the specter of millions (and probably tens of millions) of small businesses canceling their health policies four weeks before the November election, the Obama Administration is going to give these businesses another two years to continue offering these “non compliant” health plans.
The move is predictable. It will spark more criticism that the Obama team is willfully flouting the plain language of its own law. But few will seriously challenge an effort to ease some of the worst aspects of health law’s byzantine provisions. How can Obamacare’s critics seriously decry an effort obviate a provision they detest?
But that doesn't mean that the new gambit would come free. Insurers were dependent on forcing these small group policies into the Obamacare exchanges (along with the individual market policies) as a way to buff the pool of people served by that burgeoning market. The small group policyholders tend to be younger, healthier, and wealthier beneficiaries. Precisely the kind of customers that insurers need inside Obamacare to make the exchange risk pools work.
Insurers are now in the throws of pricing out their premiums for 2015 – deciding how much they'll charge for their 2015 Obamacare plans. They now know they wont be able to count on the small group policyholders transitioning into Obamacare. They can also bet that the Obama Administration will similarly take the politically smart step of rescinding the individual mandate “tax” for this year. The only thing the Administration is waiting for is the March 31st window to close on open enrollment. They don't want to jump the gun. The White House probably reasons it out this way: The lingering threat of that tax could still compel some additional people to sign up for Obamacare in the closing days of the enrollment period.
Without the coercion of that tax, or the forced migration of the small group policyholders into Obamacare, the risk pool for next year is likely to be as bad, if not worse than it was this year. Insurers are going to have to price premiums accordingly. While the various reinsurance and risk sharing mechanisms embedded in the law will blunt about two-thirds of these effects, it wont offset all of the costs.
Nobody ever priced in these delays and waivers on some of the health law's key features. Insurers will factor these costs. Once premiums rise, the demise of the exchanges becomes self winding. Higher premiums chase away more health beneficiaries, causing premiums to rise still further. That's the essence of an insurance death spiral. The end game is a benefit that erodes into something that closely resembles Medicaid.
Obamacare will still be a good deal for many lower income beneficiaries who can buy it for virtually nothing, owing to premium and cost-sharing subsidies (people between 150% to 200% of the federal poverty level. This nets out to a family of four that earns between $35,000 and $45,000 annually). That income range is the law's economic "sweet spot." But many other consumers will find that they are better off buying "non compliant" coverage off the exchange, even if it means paying higher prices than they are paying today, and forking over the tax penalty.
Obamacare was a triumph of technocrats. Each incentive, each coercion, each mandate, and every new promise, is inextricably tied to a myriad of other features. As the architects peel away their own provisions, the ripples extend widely. In many cases, those ripples will be made up for by higher premium costs, and skimpier choices when it comes to doctors and prescriptions drugs.
When Obamacare premiums are announced late this spring, just as the election cycle heats up, the architects of the Obamacare law and its many revisions will get a piece of the political reckoning that they were trying hard to forestall.
You can follow Dr. Scott Gottlieb on Twitter @ScottGottliebMD
