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Pounding on the Panic Button



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If the move the administration announced last Thursday night suggested the White House was in panic mode about Obamacare’s prospects in January, the move they announced exactly a week later — last night — confirms it and then some. 

In a CMS notice released around 9 p.m. without fanfare (not the way an organized government announces important policy changes if it wants them to be noticed) the administration said it would allow people whose 2013 insurance plans had been canceled to be exempted from the individual mandate penalty in 2014, and would also allow such people — regardless of their ages — to purchase catastrophic-coverage plans that are otherwise available only to people 30 and under in the individual market under Obamacare. 

It is a stunning move, plainly driven by dread at the impending chaos and dislocation in the individual market in January. It is also pretty clearly moved by utter panic among some Democratic senators, and their desire to be given credit for some of the administration’s Obamacare “fixes”—as evidenced by the bizarre kabuki theater of having six Democratic senators (who voted to impose this system on their constituents, of course) send a letter to HHS Secretary Sebelius on Wednesday asking her to take this step. If you think a regulatory change announced Thursday was made in response to a letter sent Wednesday, I’ve got a bridge over the East River to sell you. 

Based on this step and the one announced a week ago, you would have to conclude that the White House knows something it isn’t telling us — and of course that’s not surprising given how secretive they have been about the facts, assumptions, and projections motivating their decisions regarding Obamacare implementation. What they know might be something about panic among Democratic lawmakers, it might be something about enrollment patterns, it might be something about insurer concerns, or some combination. But whatever it is, it is quite significant, because the step they have now taken is a very big one that could seriously undermine the architecture of the law the administration is still pretending to implement. 

Its full implications are, as usual, a matter for some guesswork, given the secretive and lawless mode of administration the White House has adopted here, but I would point to a few likely consequences. 

First, the individual mandate is probably done for.

I would now assume that no one will pay the individual mandate fine for 2014. The administration may give up on the mandate in the course of the ongoing enrollment period if the political pressure is great enough, or they may keep up the pretense of it through the end of the enrollment period in March (when it will have finished its work, so to speak, since its purpose is to influence choices made during that period) but then exempt everyone from it as they did with the employer mandate for this year. Having now exempted from the fine people whose policies were canceled and who haven’t spent the money to get more expensive and less appealing new coverage, the politics of still applying the fine to everyone else who is uninsured this year will probably just not be sustainable, and the politics of exempting people from it (especially if they can hold out on doing so until after March 31) will be far too appealing for this White House to resist. They may claim the mandate will be back in 2015, but if they do exempt everyone from it in 2014 it will be hard to bring it back. 

The administration claimed in court in 2012 that the mandate was absolutely essential to Obamacare’s implementation, and maybe it was. But they have come to realize over the past few months that Obamacare as they envisioned it is not really going to happen, and their goal now is to enable the survival of whatever elements of it can survive, so that they can regroup when the dust settles and try to rebuild some form of the liberal approach to health financing. The mandate is becoming an impediment to that goal, and it strikes me as reasonably likely now that it will not survive. 

Second, this move, like the last one, is likely to increase the chaos and uncertainty heading into January rather than decrease it and get more people covered. To avoid a coverage gap in January, people who are uninsured or will become so on January 1 have to sign up for new coverage by December 23, which is three days from now. This new rule, which has not been explained to people by the president or any administration official but will be filtered through news reports about a CMS guidance document, is not going to offer people an easy path to much of anything in that short time. And even if they accept some coverage gap, this new decision makes it easier for such people to choose to remain uninsured (since they now won’t have to pay a fine for doing so) but not much easier to get insured. 

That’s because Obamacare’s “catastrophic coverage” options are not like the sort of catastrophic-coverage plans that existed in the individual market before the law. They’re still subject to almost all of the essential benefits requirements, so their “catastrophic” character basically amounts to modestly higher deductibles than the bronze plans on the exchanges. Some downright peculiar arguments from liberal health wonks and journalists in the last couple of weeks – expressing puzzlement at why conservatives are not enthusiastic about the high deductibles that some Obamacare exchange plans require along with their high premiums – suggest to me that maybe the difference between high deductibles in a system that very tightly prescribes the definition of insurance and catastrophic coverage options in a system that allows insurers and consumers to try different approaches to coverage is not well understood. It’s a little like the arguments you still hear sometimes about how the fact that Obamacare involves exchanges makes it just a version of conservative health-care proposals that involve exchanges. It is a view that ignores the basic difference between means and the ends toward which they are put or the context in which they arise. In the context of a highly prescriptive approach to health-care financing (a point I took up here recently), these catastrophic plans aren’t very different from other options. In most states, they don’t cost much less than the bronze plans, and to the extent they do cost a little less that seems to be mostly because they are only open to younger people and insurers do not have to consider them part of the same risk pool as the larger exchange population. This new move changes that some, and insurers will need to see how such plans should now be priced. 

The new situation this decision creates, therefore, is unlikely to solve the basic problem created for millions of people by Obamacare — the problem the administration’s own announcement describes as “your current health insurance policy is being canceled and you consider other available policies unaffordable.” The fact that they are now declaring the direct consequences of Obamacare itself to be a hardship that should merit an exemption from the requirements of Obamacare may take us a bit further on our journey through the looking glass with this law, but it doesn’t actually address that hardship. 

It is therefore not likely to be the last major adjustment the administration has to make to the rules and requirements of this new system to enable it to survive the coming year. The insurers clearly understand that, as their deep dismay at this latest move last night showed. And the administration understands it too, as the nature and character of this move makes pretty clear. 

The administration’s secrecy combined with the sheer complexity of this situation means no one can claim to know with much confidence how all of this will work out. But with significant technical problems persisting, and with the immense problems of the law’s basic architecture only now beginning to show their first real-world effects, Obamacare’s rollout is going significantly worse than any of the worst-case scenarios contemplated by analysts before October. 



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