White House Exempts Millions from Individual Mandate Because of ‘Hardship’ of Obamacare

by Avik Roy

The latest improvisation from the Obama administration regarding Obamacare is a real doozy. For the first time, the White House is conceding that Obamacare drives up the cost of health insurance, making it “unaffordable” for many people. This development, the administration believes, qualifies as a “hardship” under the law, such that millions of Americans whose old plans were canceled are now qualified for a “hardship exemption” from Obamacare’s individual mandate. My latest from Forbes:

This decision by the administration—characterized by HHS Secretary Kathleen Sebelius as an attempt to provide “the smoothest possible transition” into the Obamacare era—has instead thrown the individual insurance market into chaos.

Here’s why. Insurers like Aetna and Humana, when they priced their plans for the Obamacare exchanges, did so by averaging the expected health spending by the people who would sign up for those plans. This new “hardship exemption” will encourage healthier individuals, whose expected spending would be low, from dropping out of the pool. As a result, average spending per enrollee on the exchanges is likely to be substantially higher than the insurers had planned for, forcing them to lose money on their policies.

“This latest rule change could cause significant instability in the marketplace and lead to further confusion and disruption for consumers,” said Karen Ignagni, president of AHIP, the insurer trade group, last night. That’s especially true if enterprising Americans generate fake cancellation letters, in order to avoid Obamacare’s individual mandate.

The ruling appears to have been precipitated by vulnerable Democratic senators, including Mark Warner (Va.), Tim Kaine (Va.), Angus King (Maine), Mary Landrieu (La.), Jeanne Shaheen (N.H.), and Heidi Heitkamp (N.D.). For more details, read my lengthy blog post on the news.

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