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When he was trying to get Congress to pass his health-care law, President Barack Obama repeatedly promised that people would be able to keep their insurance plans if they liked them. Now that promise is being proved false on a daily basis: Insurance companies are canceling plans across the country, often because they don’t comply with Obamacare’s regulations.
Both Republicans and Democrats in Congress have been rushing to pass legislation that would let people stay in their insurance policies — especially because the law threatens to fine them for not replacing those policies, which is hard to do when the federal website where they’re supposed to find a replacement isn’t working.
Today, Obama announced that he’s going to let insurance plans that don’t comply with Obamacare’s regulations skate by. In other words, he’s not going to enforce those regulations. The legal basis for this decision — as for many of the decisions the president has made about enforcing this law — is unclear.
Also unclear is whether the decision will help anyone. As the president said, state regulators still have to decide whether to allow the old plans to continue, and insurers have to decide whether to reissue them. He didn’t mention any relaxation of the fines that Obamacare mandates on the uninsured.
If state regulators allow the plans to be reissued and insurers agree to go along, one of the law’s chief problems will get worse. Experts on both sides of the debate have long understood that the program was vulnerable to “adverse selection.” It depends on healthy people, many of them young, deciding to buy insurance. Their premiums will exceed their expected medical costs, and thus subsidize those in the insurance pool with higher expected costs.
But the Affordable Care Act also reduces the incentive for healthy people to buy insurance. It lets people who get sick buy insurance on the same terms as healthy people; they just have to wait for an open-enrollment period. If the healthy opt out, the pool will consist disproportionately of the sick, and premiums will be high. That means those who don’t qualify for Obamacare’s subsidies will be even less likely to buy insurance, and the subsidies for those who do will be larger.
The fines are supposed to give people a new incentive to sign up, but they’re lower than the cost of buying insurance, and the Internal Revenue Service has few means of enforcing them. So they seem unlikely to solve the problem. The website’s difficulties make that problem worse, because only the most motivated Internet surfers have so far applied for insurance — which is to say, the sickest ones. The president’s announcement, to the extent it affects the insurance market, will make that problem worse yet. The more people who stay in their current plans, the fewer will sign up for the exchanges. And the people who will most want to keep their current plans, one would think, are the healthy ones.
In recent weeks, proponents of Obamacare have been arguing that we shouldn’t make too much of its early troubles, because President George W. Bush’s prescription-drug program saw early fumbles, too. (The people behind Obamacare may not be good at building websites, but they’re great at manufacturing excuses.) It’s perverse, of course, to suggest that the difficulties of a smaller, far less complex program are a good omen for Obamacare. But the bigger problem is that Obamacare is vulnerable to adverse selection in a way that Bush’s program was not.
Medicare Part D, as Bush’s program is called, supplemented the coverage people already got from the federal government. The government knew who they were and where they were. It was offering them a straightforward benefit. And it didn’t much care whether the people who signed up were healthy or sick. Whether to buy an insurance policy on Obamacare’s exchanges is, by contrast, a decision with pros and cons, and exactly who decides to sign up matters a great deal to the program’s functioning.
Obama’s announcement should also put an end to the argument that the health-care law would be working great if only Republicans weren’t sabotaging it. That argument was always strange: If your plan requires that its main opponents go out of their way to make it work, even when the plan itself is unpopular, maybe your plan needs a rethink.
But it isn’t Republicans who are flouting the law anyway. It’s Obama, who has just announced on national television that he is — once again — going to ignore its provisions.
(Ramesh Ponnuru is a Bloomberg View columnist, a visiting fellow at the American Enterprise Institute and a senior editor at National Review.)
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