The Obama administration is suffering a political pillorying this week on the imminent rollout of new market rules governing the individual health insurance market and the government-created health benefit exchange marketplace that began selling the plans October 1.
In large part, the criticism stems from weak messaging to communicate the reforms and why they are needed. There should be more emphasis on conveying these reforms affect the individual market where about five percent of Americans purchase their health coverage, clearly distinguishing these health plans from those purchased by employers that cover the large majority of Americans. As individual health plan issuers revamp and discontinue old plans to comply with the new market standards, the administration now finds itself having to defend its claims that most Americans could keep their current coverage when the individual market reforms take effect January 1, 2014. Viewed in the context of employer group coverage, that is generally accurate. But not necessarily so when it comes to individual coverage, an entirely different insurance product.
Perhaps more importantly, the administration and members of Congress who supported the 2010 enactment of the Patient Protection and Affordable Care Act need to more clearly explain why the law’s substantial government intervention in the individual market was needed in the first place. Administration officials have described the market as out of control from a regulatory standpoint, terming it like the “wild west.” But more fundamentally, the ACA aims to rescue this market because it was falling into oblivion. Individual plan issuers and those who buy this coverage were finding it increasingly difficult to get together in the marketplace on terms and pricing.
That market failure occurred because the market fell into a downward spiral where health plans became overly risk averse and excluded too many potential customers, restricting the flow of membership fees and premiums to pay claims. Plan issuers also violated a fundamental principle of insurance by splitting their customer base into small pools and were consequently unable to share the cost of claims across a larger group of customers. Finally, premiums for some individuals and families began to equal the cost of a mortgage payment and grew unaffordable. No market can function if potential customers cannot afford to buy the product or service being offered.
Whether the ACA can restore the individual market to healthy functioning remains to be seen, particularly given continued upward pressure on premiums from rising medical costs. The law’s market interventions could prove ineffective if too few young adults opt to buy coverage. Also if too many older people not yet eligible for Medicare who earn too much to qualify for tax credit subsidies for plans sold in the state health benefit exchange marketplace find premiums unaffordable and don’t buy coverage or request affordability exemptions from the individual mandate.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email