Obamacare vs. Flexible Insurance Plan Design

Obamacare is often described as an attempt to
make sure that most everyone has, or at least has access to, health
insurance. But it’s more than that: It’s an attempt to make sure
that everyone has a specific kind of health insurance. It’s not
enough for the law’s authors and administrators to tell you that
you need to be covered. They also want to tell you how.

Case in point, a regulation proposed last month by the
Department of Health and Human Services (HHS) which would prohibit
people in most states from purchasing standalone fixed indemnity
insurance. Fixed indemnity coverage is a form of limited, low-cost
insurance that pays out a flat rate in response to certain
prescribed events—say $75 for a doctor’s visit or $15 for a
prescription—regardless of the cost. Because the coverage payouts
aren’t variable, and because some major medical costs aren’t
covered at all, monthly premiums are often quite low, meaning that
it offers a way for people to have some coverage at relatively
affordable rates.

It may not be an option for much longer. The proposed
regulation would essentially outlaw standalone indemnity
policies,
making it illegal to sell them except as an addendum to the
more robust, more expensive plans that meet the law’s minimum
essential benefits requirements.  Under the proposed rules,
indemnity insurance sold by itself would be classified in such a
way that it has to meet all the requirements for “major medical
coverage.”

It’s as if regulators suddenly decided that anyone selling
scooters had to make sure those scooters were as powerful (and thus
expensive) as motorcycles. Otherwise, scooters could only be sold
as sidecars to people who already owned motorcycles.

The result is that scooters probably won’t be available at all.
Basically, the indemnity policies would have to meet a slew of
Affordable Care Act requirements that would increase their cost
and, in the process, make them too expensive and troublesome to
sell.

In some ways it’s really sort of bizarre. Prior to this
proposal, the expectation was that individuals would be able to pay
the mandate penalty and then purchase fixed indemnity insurance on
the side. If this proposal goes through, that won’t happen. Which
would likely mean fewer people with some kind of coverage.

In other ways, of course, it makes a certain sort of sense. If
you understand that the goal of the law is not merely to drive
people into some form of health coverage, but also to specify what
type of coverage they have, then this certainly fits the bill.

It’s another example of the many ways the law attempts to
control and limit the flexibility of insurance carriers to offer a
variety of plans and coverage types. The health law’s supporters
have regularly sold it as a market-based system that promotes
private insurer competition. But as we see with these sorts of
rules, it in fact ends up heavily restricting the kinds of
insurance market competition that is acceptable, and transforming
the individual insurance market into what is effectively a
quasi-public regulated utility.