Will states accept Obama’s insurance exchange fix?

Liz Goodwin
States react to Obama's insurance 'fix'
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Only three states have said so far that they will let insurers offer out-of-compliance plans.

Will states play along with President Barack Obama and his new plan to allow people who like their health insurance plans to stay on them an additional year?

The proposed fix, which Obama announced Thursday under intense pressure from his own party, was meant to address criticisms that he had lied to the American people when he said “if you like your plan, you can keep it” while campaigning for the health care overhaul. Between 7 million and 12 million people were set to receive cancellation notices because their plans don't meet the minimum standard of coverage required under the new law.

The uproar forced Obama to backpedal. He’ll now allow health insurance companies to continue to offer plans that do not meet his law’s standards for an additional year, to give people more time to transition to the new federal marketplace.

But Obama’s fix does not actually guarantee that millions of people will be able to keep their plans. Insurance is regulated at the state level, and state officials can reject Obama’s request. Secondly, insurers themselves are not required to reoffer the out-of-date plans to consumers.

As of Friday afternoon, regulators in at least three states had already announced they plan to reject the president’s request.

Arkansas Insurance Commissioner Jay Bradford said the change would be “too confusing” and would create “chaos.” Meanwhile, regulators in Vermont and Washington said they too were rejecting the renewals.

Erin Yang, a spokeswoman for the National Association of Insurance Commissioners, said the organization is concerned the president’s extension “could potentially be pretty damaging.” The organization worries that changing the rules so late in the game — when rates and plans for next year are already set — could create uncertainty and disruption in the market, Yang said.

Insurers and regulators were already three years into the process of phasing out plans that did not meet the law’s requirements and transitioning to the new federal and state marketplaces that rolled out on Oct 1.

Some states, however, jumped at the opportunity to re-enroll people in their old plans. Florida’s insurance commissioner said the state would allow the change, and Florida Blue, the state's largest insurance carrier, announced it would send new letters to the 300,000 people who received cancellation notices and offer to extend their old coverage.

Ohio and Kentucky’s commissioners also said they would allow the change, but mentioned it would be up to the insurers themselves whether to reach out to people with canceled plans and offer them renewal.

The vast majority of states are still deciding what to do, Yang said, as they try to work out with insurance companies whether the extension is even feasible.

“What we’ve heard from the rest of our members is, we’re talking to our carriers,” Yang said.

The insurance industry has not reacted favorably to Obama’s plan. America’s Health Insurance Plans’ President and CEO Karen Ignagni said in a statement Thursday that Obama’s fix could “destabilize the market and result in higher premiums for consumers.”

Ignagni said the change means more people could end up staying on their old plans, which will hike up costs for people participating in the new exchange. Many people on the individual market are younger and healthier, which means they are especially needed to participate in the new marketplace and offset the costs of older and sicker consumers.

But the federal subsidies available for many people through the federal exchange may lure consumers over on their own. People who stay with their old plan will not be eligible for subsidies.

And if many state regulators end up rejecting the change, it doesn’t appear that there would be a big affect on the exchange. Timothy Jost, a health care expert at Washington and Lee University, told Yahoo News he believes the impact on premiums and the insurance market will be negative, but small.

It would be a different story, however, if Congress compelled regulators and insurers to play ball. Thirty-nine House Democrats joined with more than 200 Republicans to pass a bill Friday that would go a step further than Obama’s plan, by actually requiring the insurers to extend their plans to people who received cancellation notices. Obama has threatened to veto the bill if it passes the Senate.

About 106,000 Americans signed up for individual coverage on the exchange in its first month of operation, far below the Obama administration’s targets. Federal budget officials expected 7 million people to enroll by the end of March.