November 23, 2014
President Barack Obama’s temporary fix to the health care law is bad medicine, according to insurance trade groups and health care industry experts at the Kellogg Graduate School of Management.
“In the long term, this is just going to make for all kinds of turmoil in the exchanges,” said David Dranove, professor of health industry management at Kellogg.
He made the comments after Obama announced a plan to allow people in individual coverage plans whose policy was cancelled because of the Affordable Care Act to re-enroll in those plans for a year, giving insurers the green light to continue selling them for that period.
“The whole idea of this was to get everybody into the exchanges right away, so you’d have big risk pools, a big cross section of risks,” Dranove said. “The plans would be stable. The insurers could make enough money so they could continue to want to participate.
“Now you’ve created this market where the so-called bad plans can compete side by side,” skimming the cream of the crop, Dranove said. “The exchanges will have sicker patients, which is what we know they are trying to avoid.”
Some healthy people, now given the option of sticking with a cheaper plan even though it doesn’t meet the higher basic standards the law requires, will opt to do so, while sick patients may choose to enroll on the exchange because of the better benefit options, he said.
If that occurs to a large degree, the American Academy of Actuaries warns:
◆ Premiums approved for 2014 may not adequately cover the cost of providing benefits.
◆ Costs to the federal government could increase amid higher-than-expected average medical claims.
◆ 2015 premiums could increase because they would reflect the plan experience in 2014.
Insurers currently on the exchange have priced their plans based on an expectation of a certain number of healthy young people enrolling, said Leemore Dafny, professor of management and strategy at Kellogg. “If they do not enroll in the first year, [insurers] will want to change their rates to adjust for the actual medical expenses of people who are in the plans, and that would lead to rate increases.”
America’s Health Insurance Plans, a trade group, warned that the market could be destabilized.
And Health Care Service Corp., which operates Blue Cross and Blue Shield Plans in Illinois and other states, said in a statement: “We are reviewing today’s announcement and determining next steps as we keep our members informed of their options both on and off the exchange. Soon, we will be reaching out to consumers who will have new options as a result of this announcement.”
Consumers who choose to stay in the plans that remain available may not have access to the essential health benefits required under the law, meaning many would remain underinsured, something the law was designed to address, Dafny said.
Obama said insurers will be required to inform customers what protections the plans don’t include and that the exchange marketplaces offer new options with better coverage and tax credits that could reduce consumers’ costs.
There’s no guarantee that insurers will resume offering the plans because they aren’t required to and it’s a volatile market, said Craig Garthwaite, assistant professor of management and strategy at Kellogg.
“Many of these insurers will probably just cancel these plans anyway because they can’t really get a stable risk pool if they’re not allowed to sell it to new people,” he said. Insurers’ actions will be linked to the profitability of their individual plans, he added.
States have the power to keep the plans out of their markets.
“Illinois Insurance Director Andrew Boron has been in contact with federal authorities today, and we are closely monitoring the situation,” spokesman Michael Claffey said. “We are carefully evaluating the Department’s options under state law and through the lens of what’s best for Illinois healthcare consumers.”