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ObamaCare Waiver From Mandate Tax Undercuts Insurers

Like a retailer trying to move holiday merchandise after demand undershot projections, the Obama administration on Thursday announced a late-season ObamaCare sale.

But this sale will be only for the select clientele who complained the loudest — those who had their insurance plans canceled.

Department of Health and Human Services Secretary Kathleen Sebelius announced that this group will be granted a hardship exemption, freeing them from the individual mandate in 2014 and making them eligible to buy catastrophic coverage.

Although the government has made many administrative changes to the law and its regulatory framework to smooth its rollout and limit political fallout, this move to cut prices was altogether different.

Up until now, the problems had to do with technological hurdles or changes to policies that didn't comply with ObamaCare. But this fix is about trying to make the Affordable Care Act more affordable and less punitive. Yet the temporary nature and limited scope of the changes raise the obvious question of how well the law will work in 2015 and beyond.

A Catastrophic Fix

Another key difference with this fix: Before, insurers were asked to accommodate rule changes that might negatively impact their business; this time they don't have a choice.

The industry warned that the latest change could be destabilizing. The administration has already acted once to widen the financial backstop for insurers and may be asked to do so again.

Up until now, catastrophic coverage has been limited to 18- to 29-year-olds — the "young invincibles" — and those unable to buy the next-lowest-cost bronze coverage for 8% of income.

That 8%-of-income level is a key ObamaCare threshold: If the cheapest bronze plan available costs more, then the individual mandate tax penalty won't apply.

Letting people who had plans canceled buy catastrophic coverage could provide them a significant financial benefit, especially those who earn too much to qualify for exchange subsidies.

Across the 36 states with exchanges operated by the federal government, the cheapest catastrophic or minimum coverage costs an average of 26% less than the least-expensive bronze plan. The reason for the wide differential isn't primarily that catastrophic coverage is less comprehensive. In fact, ObamaCare catastrophic policies are fairly comparable. Unlike bronze plans, they actually cover three primary-care visits before the large ($6,350) deductible is exhausted.

The Young And Low Risk

The main reason for the lower premiums is that the catastrophic risk pool is separate from ObamaCare's main pool. Insurers were told to price catastrophic policies based on the demographics and health of the expected population.

Now this latest HHS fix could significantly alter the makeup of the catastrophic pool.

Older Americans who aren't eligible for subsidies could save a lot vs. bronze plans. Still, it's unclear how many additional people will opt for catastrophic coverage due to this hardship exemption for canceled plans.

The administration's announcement came just days before the Dec. 23 cutoff for people who want to have coverage on Jan. 1. In addition, information about catastrophic coverage costs is only given to people 30 and over once they get a hardship exemption.

Yet it is possible that the exemption could set off a chaotic return season. People with canc eled policies who already picked a comprehensive bronze, silver or gold plan could swap it for catastrophic coverage, NBC reported.

The Obama administration made the change after requests from a group of politically imperiled Democratic senators.

Yet, having granted the exemption, the administration is likely to come under pressure to offer the same individual mandate waiver to people who have been uninsured.