Time to Start Considering Obamacare's Worst Case Scenarios

The saying goes that things have to
get worse before they get better. But with Obamacare, things just
keep getting worse—and then they get worse still. In private, even
many critics of the law are at least a bit surprised by how poorly
the rollout has gone. The question that many are asking is: How bad
can this really get? 

The answer is…worse. A lot worse.

Over the weekend, several reports suggested that, despite
continued assurances that Healthcare.gov, the problem-plagued
online insurance enrollment portal run by the federal government,
would be running smoothly for most users by the end of the month,
it increasingly looks likely that the deadline will be missed.

Insurance industry consultant Robert Laszewski, who, thanks to
his contacts with his insurers, has been a critical and frequently
prophetic source of information about the law’s rollout,
opened a blog post this weekend with the following assessment:
“It is now becoming clear that the Obama administration will not
have Health.care.gov fixed by December 1 so hundreds of thousands,
or perhaps millions, of people will be able to smoothly enroll by
January 1.” Laszewski says that months, not weeks, of work
remain.

The dates he lists are important, and not only because of the
administration’s self-imposed deadline of November 30. Anyone who
wants to purchase insurance that kicks in at the beginning of next
year must complete enrollment by December 15. If the system isn’t
working smoothly at least a couple weeks prior to that rapidly
approaching date, then large numbers of people simply won’t have a
chance to sign up.

That is a potentially huge problem for a law whose central
premise and promise was that it would create new opportunities for
millions of people to sign up for coverage that goes into effect at
the beginning of 2014.

It’s a problem that would be big enough on its own, but is now
compounded by the fact that, thanks to rules and regulations built
into the law, millions of Americans have already had their existing
individual-market insurance cancelled, and estimates say that
millions more cancellations are on the way. The end result could be
that many people—thousands, perhaps even millions—end up with their
current private insurance plans terminated due to the law, but no
way to sign up for new coverage.

This is not a problem confined to the 36 states covered by the
federally run health exchanges. In the state of Oregon, which has
struggled to get its online enrollment system working and has yet
to enroll a single person in private coverage, some 150,000 people
are losing their existing health plans. A spokesperson for the
state’s Insurance Division recently told the Associated Press that,
if the state’s exchange isn’t functional soon enough,
those people could see a break in coverage. 

Translation: If you like your health plan, you can’t keep it.
And until the exchanges are up, good luck obtaining a new one.

The administration is looking for workarounds. But the ideas now
being floated mostly reveal how bad the potential options are—and
how desperate federal officials are for any sort of quick fix.

According to a Washington Post
report that ran over the weekend, one of those options would
involve relying on the insurers to handle enrollment directly.
Right now, health plans can manage most of the application process
on their own. But they can’t complete all the steps, because they
can’t connect with the federal government system that determines
whether an individual is eligible for government subsidies. Even if
they could connect with it directly, it’s not clear that the
subsidy calculation system is working reliably enough to be
useful.

So the insurers have suggested a temporary
measure: Let the insurers estimate the subsidies on their own. Any
estimates that are too low would be reimbursable, and any estimates
that are too high, the insurers would get to keep. In other words,
the federal government, backed by taxpayers, would be on the hook
for their bad estimates.

Can this possibly be legal? Can the administration seriously be
considering this idea, which is potentially costly and politically
disastrous? Imagine how Democrats will feel about turning over the
central operations of the health law to insurers. Imagine how
Republicans will react to a plan that could cost more, and will
serve as an implicit admission that the exchanges simply won’t work
without a major overhaul.

That it is even being discussed suggests how dire the outlook is
for the law’s near-term functionality. As the Post piece
notes, the administration’s broad cooperation with insurers “is a
tacit acknowledgment that the federal insurance exchange… might not
be working smoothly by the target date of Nov. 30, according to
several health experts familiar with the administration’s
thinking.”

The potential problems are not confined to the near term either.
Very soon, the short-term technical troubles could begin to have
meaningful longer-term policy consequences. Insurers must decide
what plans to offer and what rates to charge in the first half of
next year. If enrollment is low, if the exchanges are still broken,
and if the president and his administration are still losing
credibility and popularity as a result of the rollout debacle, how
will insurers react? By pulling plans from the market? By raising
rates?

Right now it’s clear that many health insurers, having built
business plans around Obamacare’s rules and regulations, are trying
to work with the administration in hopes of turning the health law
effort around. But how long will their cooperation last if the
technical problems and administrative bumbling continue? We already
know about
one insurer that is so far refusing to submit its enrollment
information into the administration’s system for fear of further
corrupting their data. And insurers can expect more headaches even
if the technical issues recede. As Jon Kingsdale, who ran the
Massachusetts health exchange and consulted on the federal system,

noted in the Post over the weekend, billing and
tracking issues for the insurers are likely to be significant.
That’s not going to make insurers too happy. 

How does this all work out for the millions of Americans who
have lost their plans as a result of Obamacare? The White House has
suggested that it’s working on an “administrative fix” to aid
individuals whose plans were cancelled, but the options for an
executive branch fix are
limited at best. Cancelled plans generally can’t be reinstated.
Tweaking the law’s grandfathering rules won’t work, because of the
start dates of many of the plans and because insurers, who have
spent months if not years preparing their systems for the
changeover, can’t rapidly reorganize their computer systems to
accommodate a sudden change in policy. Expanding subsidies to
individuals above 400 percent of the poverty line in order to
mitigate the cost of buying a new plan wouldn’t
be legal, and also wouldn’t help much if the online enrollment
systems are still malfunctioning.

This could still be turned around, perhaps even soon. But it’s
time to start considering the worst-case scenarios: that the
exchanges continue to malfunction, that plan cancellations go into
effect, that insurers see the political winds shifting and stop
playing nice with the administration, and that significant numbers
of people are left stranded without coverage as a result. Rather
than reforming the individual market, which was flawed but did work
for some people, Obamacare will have destroyed it and left only
dysfunction and chaos in its wake.