Yesterday I (and others) described the president’s proposed “fix” for those misled by his “you can keep your insurance” line as about the least damaging to the overall Obamacare project as could be devised on the fly. TNR’s Jonathan Cohn does a good job of explaining why safeguards built into the interaction of insurance markets with the ACA create a sort of fire-break against too much backsliding into the old system or too many “rate shocks:”
Most likely the number of people who stay in current plans won’t change radically because of this new announcement—in part, again, because plenty of insurers aren’t going to rescind those cancellations. But nobody really knows. And it’s certainly possible the number could be large enough to confound insurance company predictions of who will sign up for the new, Obamacare-complaint plans. Since insurers can’t now adjust insurance premiums for 2014—those rates were set long ago, based on expectations of who would enroll—it’s possible insurers would incur losses.
Obamacare includes a series of shock absorbers designed to protect insurers from precisely this possibility—since, among other things, insurers who lose money in 2014 will charge higher premiums in 2015. One of them, known as “risk corridors,” essentially reimburses plans for half of significant losses…. In its official letter to state insurance commissioners, HHS says it will “explore ways to modify the risk corridor program final rules to provide additional assistance.” What might that mean? One possibility would be allowing insurers to get extra money if they incur extra losses because of this change.
In effect, risk corridors are an insurance policy for the insurers—and, ultimately, the people who pay their premiums. The administration is signalling it will strengthen that policy, if necessary.
So individual insurers have an incentive to let things ride and not exploit the opportunity to renew canceled policies, and if they get burned as healthy folk bail from the new system, ACA itself indemnifies them (and subsequent policyholders who might experience “rate shock” sho nuff) from much of the hit to their bottom lines. It’s another reason “fixing” Obamacare sooner rather than later—and avoiding “fixes” that permanently reopen pre-Obamacare markets and protect them from federal regulation—is a must.
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