How Obama Overlooked 10 Million Americans Who Could Lose Health Insurance

We may now know what the most devastating statement of Barack Obama’s presidency is going to be: “If you like it, you can keep it.”

Obama has said that repeatedly about people who have health insurance as of January 1, 2014, when the major provisions of the Affordable Care Act go into effect. Yet insurers have been canceling hundreds of thousands of policies because their terms don’t comply with new requirements of the health-reform law. That makes Obama look like he was either fibbing or didn’t know the ramifications of his own law. And it comes on top of humiliating snafus at Healthcare.gov, the website that’s supposed to make it easy to sign up for Obamacare but has been plagued by recurring outages even a month after going live on October 1. (On Wednesday Secretary of Health and Human Services Kathleen Sebelius apologized for the "miserably frustrating" tech snafus during a Capitol Hill hearing.)

The firestorm over cancellations represents much more than a PR problem for supporters of the ACA, because millions of Americans could find themselves without insurance as the federal program that was supposed to represent a better alternative malfunctions, leaving no practical alternatives. In retrospect, it seems obvious the experts implementing the ACA should have seen this coming. Yet the cancellation controversy reveals how Washington policymakers basically disregarded the very people — those who purchase individual insurance plans because they can’t get affordable coverage through an employer — who were bound to suffer the most disruption caused by the sweeping health-care reform law.

Obama has acknowledges "glitches" with the ACA rollout and said he takes "full responsibility" for fixing them. He continues to insist, however, that the new law will vastly improve access to care for millions who couldn't afford it before. And in a recent speech in Boston, he pointed out that one goal of the program was to secure better care for people paying sizable premiums for barely-there coverage. "One of the things health care reform was designed to do was to help not only the uninsured, but the underinsured," he said.

What he should have said

Still, Obama would be on much firmer ground if he had modified his now-notorious guarantee by saying, “If you have insurance through your employer and you like it, you can keep it.” Most big companies offer plans thorough enough to meet the requirements of the ACA, and there is, in fact, no reason for that type of coverage to change under the law. For years, employers have been charging their workers more for insurance, raising deductibles and making other changes to adapt to the skyrocketing cost of care. But most such changes have nothing to do with Obamacare.

It’s a different story in the market for individual policies, which are typically purchased by the self-employed, people who work for small companies that don’t offer insurance and others who don’t work. This is a small portion of the health-insurance market, which might explain why Obama and his advisers didn’t give it much thought at the outset. Only about 15 million Americans are insured through an individual policy, according to the Kaiser Family Foundation, while 10 times as many — 150 million people — get health insurance through an employer. (Most other Americans either get coverage through a government program or go without.) White House spokesman Jay Carney has tried to downplay the cancellation flap by pointing out repeatedly that the individual market represents just 5% of Americans.

Those folks don’t have very good coverage, either. A 2012 study published in Health Affairs found that 51% of people with individual policies — nearly 8 million Americans — receive a level of coverage, dubbed “tin,” that’s lower than the cheapest plan offered under the Affordable Care Act, typically known as “bronze.” Overall, individual policies typically cover just 60% of medical expenses, leaving the patient to pay more than $4,100 in average medical costs each year. Group plans offered through employers typically cover 83% of expenses, resulting in much lower out-of-pocket costs of just $1,765 per year, on average.

New rules contained in the ACA require insurers to offer minimum coverage levels that are greater than what many individual plans offer. With a few exceptions, that means the ACA will basically prohibit the bare-bones coverage offered in tin plans and even some slightly more generous policies, beginning January 1. Even though insurance experts estimate that as many as 10 million people could lose coverage as a result, dealing with the blowback seems to have been an afterthought within the Obama administration.

Since individual plans are generally inferior to more-generous group plans, the architects of the Affordable Care Act may have assumed most people with such plans would be grateful for a chance to buy more-comprehensive coverage on one of the new exchanges. Some people with shoddy individual plans will even qualify for better coverage that costs less than they were paying, thanks to federal subsidies meant to help those with low incomes buy decent coverage.

An unanticipated uproar

But Obama and his advisers obviously failed to anticipate the uproar that would occur as people expecting no change to their insurance began to open notices from their carriers explaining their policies were being canceled. The abrupt nature of the cancellations surely hasn’t helped either, especially since Obama was insistent about coverage remaining intact for those who want it. On top of that, people losing individual coverage who want to find replacement coverage through an exchange must now navigate a broken-down website and a bumbling bureaucracy that makes the DMV look good.

Higher-income people losing individual coverage will also be forced to pay considerably more for insurance under the ACA, since they won’t qualify for a subsidy. They’ll probably get much better coverage than they had before, but the higher costs will probably lead some to opt for no coverage at all, even if it means paying a $95 fine (or 1% of their household income, whichever is higher) in 2014. (The fine, by the way, would be extracted from your tax refund and it would be possible to completely avoid it if you didn't get money back from the government for 2014 and beyond.)

If enough people choose to forgo coverage, it seems inevitable that, before long, we’ll hear about somebody with a medical emergency who ended up without insurance because it got canceled under the ACA, and who must now drain their savings or tap relatives to pay for catastrophic care that would be covered if not for the ACA. Obama might want to think ahead and start preparing an explanation for how that could have happened under a law meant to expand, not restrict, health-care coverage.

It might also be a good idea to stop making any promises at all about a law that keeps catching its own progenitors by surprise.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.