By training I was a policy guy. By career, I’m a symbolic analytical plumber. By hobby, I’m a political junkie.
The recent announcement that individuals whose non-PPACA compliant individual plans are being cancelled on Jan. 1, 2014 is first and foremost a political decision with plumbing and policy impacts.
The individual mandate includes a “hardship exemption.” People who qualify can either ignore the individual mandate altogether or purchase a cheap, bare-bones catastrophic insurance plan that’s typically only available to people under 30.
2. According to HHS, the exemption covers people who “experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage under a qualified health plan.”
3. Today, the administration agreed with a group of senators, led by Mark Warner of Virginia, who argued that having your insurance plan canceled counted as “an unexpected natural or human-caused event.” For these people, in other words, Obamacare itself is the hardship. You can read HHS Secretary Kathleen Sebelius’ full letter here. HHS’s formal guidance is here.
The political reason is to save a net one or two Democratic Senate seats next fall by removing middle and upper class PPACA losers from being overwhelmingly pissed off.
So what are the plumbing and policy implications?
From a plumbing side, this is another validation/verification caveat that needs to be built into healthcare.gov and the state level exchanges. Individuals over the age of 30 were previously not eligible to buy catastrophic coverage. Now there is a small class of people who are over the age of 30 and are catastrophic coverage eligible. Membership in that class must be verified by crosswalking into a different set of databases that can output data in 834 format but no one has spent any time speccing out the actual problem set. This is a pain in the ass but doable, but it is not reliably doable for Jan. 1, 2014, so I’m betting it will be a user reported check box with validation later on.
On a policy side, I’m under the opinion that there is sufficient flexibility and risk readjustment to handle basically any one year exemption for sub-populations of the general American population. The short story is the risk pools get slightly sicker for the first year with the new exemption.
Individuals with current non-PPACA compliant insurance tend to be slightly healthier than the average person in the Exchange risk pool. Most people with good rates have those rates because they passed medical underwriting. Individuals who either were in guaranteed issued products or uprated will be going into the Exchange risk pools no matter what. Age bands between the Exchange buyers and individual market insurance are roughly similar.
Some proportion of these people will decide that the risk of running naked if they live in states that are not allowing insurance companies to offer non-compliant products, or continuing to be covered by non-compliant products is a worthwhile risk. Individuals with non-compliant but Silver or Gold like products will probably tend to buy into the market. The interesting question will be how many medically underwritten policy holders will decide to buy Exchange Catastrophic coverage and thus get into the general risk pool or run naked? Catastrophic coverage is attractive to young males, so if there is a large number of this group leaving the Exchange risk pool, there will be a small general weakening of the pool.
If this was a permanent exemption, I would be concerned. However a one year exemption with a small population and significant back-end risk balancing mechanisms makes this a temporary plumbing pain in the ass with minimal long term policy implications.