Obamacare "fix" changes nothing

11/14/2013 01:43:00 PM
"If you like your insurance, you'll benefit from new mental health coverage requirements."
President Obama is currently giving remarks on a decision regarding the ACA. At issue is the controversy over his campaign pledge that "if you like your insurance plan, you can keep it" which seemingly contradicts the many cancellation notices some individual-market customers are getting. Here's how NBC is reporting the announcement:
"President Barack Obama announced a fix to the vexing problem of canceled health insurance policies Thursday, saying insurers don’t have to cancel plans next year just because of the Affordable Care Act.
"Insurers can continue the plans for 2014 on two conditions — they have to tell people just what their plans don’t cover, and they have to tell people that they do have the option of going onto the health insurance exchanges to buy new plans with federal government subsidies and perhaps even to go onto Medicaid."
Other news outlets are saying basically the same thing. Unfortunately, reporters don't seem to be asking the right question. As I wrote about before, the ACA does not prohibit the sale of any kind of insurance--regulation of what can and cannot be sold outside the exchanges is the exclusive purview of the states. Instead, the ACA merely requires that each individual have at least "bronze-level" insurance coverage. Not all pre-ACA individual market plans satisfy the bronze-level requirement, so insurers have estimated that demand for these plans will be very low as people will volunteer to switch to better plans on the exchanges in order to avoid the penalty for not having enough insurance. I'm assuming that Obama's recent change would exempt people with existing individual market plans from the individual mandate that applies to everyone else, though he has not explicitly said this and reporters aren't explicitly asking about it.

That said, this change actually changes nothing. As I noted previously, the availability of cheap, highly subsidized, comprehensive insurance on the new ACA exchanges means that insurers will cancel the old individual market plans anyway due to lack of demand. The exchanges are a good deal for almost everyone involved: customers get community rating, comprehensive coverage, guaranteed issue, less out-of-pocket, reasonable premiums, and massive subsidies, while insurers get reinsurance, larger customer base, low marketing costs, streamlined regulatory process, significantly lower enrollment costs, and a host of other things.

Compared to the new ACA exchanges, the old individual market plans just aren't profitable anymore. Trying to force a powerful business lobby to shell out money to save unprofitable ventures won't work, no matter what kind of bill Landrieu, Johnson, Udall, or Upton concoct. Insurers will always have ways to force people off these plans, such as hiking premiums, restricting provider networks, moving the customer service office to Botswana, etc. One way or another, these plans are going away. Moreover, the cancellation of these plans is a feature not a bug. There is ample research in health economics showing that a strict individual mandate is welfare-improving in the presence of community rating and adverse selection.

The ancien regime for health insurance is over, and it's time to move on.