Sunday will mark the fourth anniversary of the launch of the SS Obamacare packed with 300 million Americans in steerage, about half of whom had to be forcibly dragged aboard. Nearly six months ago — October 1, 2013, to be precise — the great ship steamed into the Sea of Reality and promptly began banging into icebergs.
Subsequent collisions have damaged the ship and injured numerous passengers. So far, the response from the captain and crew has been threefold: (1) stoke the boilers to build up speed, (2) repeatedly assure the increasingly anxious passengers that the ship has suffered only minor scrapes and remains on course toward its glorious destination, and (3) scurry about (as unobtrusively as possible) plugging leaks in the hull with gobs of money and layers of new regulations.
Continuing that pattern, the Obama administration last Friday evening quietly unveiled its latest set of proposed Obamacare regulations, blandly entitled “Patient Protection and Affordable Care Act; Exchange and Insurance Market Standards for 2015 and Beyond.” But hidden within this latest assortment of fixes is something new: evidence that the captain and crew are now trying to sink the lifeboats to keep passengers from fleeing.
Here’s the background. Congress took the first step in creating federal health-insurance regulations when it passed the Health Insurance Portability and Accountability Act (HIPAA) of 1996. HIPAA’s insurance rules were fairly modest and generally reasonable and balanced. Congress clarified that the new rules would not apply to certain arrangements that might otherwise be construed as “health insurance,” enumerating them in the law as “excepted benefits.” The list includes coverage under Medicare Supplemental (Medigap) insurance, workman’s-compensation insurance, dental-only plans, medical-liability coverage in auto and property insurance, workplace clinics, etc.
Thirteen years later, the Obamacare legislation added a host of new federal insurance regulations onto HIPAA’s basic structure but in the process did not alter HIPAA’s excepted-benefits provision and definitions. Consequently, anything that constitutes an excepted benefit under HIPAA remains exempt from all of Obamacare’s new insurance regulations.
One “excepted benefit” that some of us noted could serve as a lifeboat if the voyage of the SS Obamacare goes as badly as we have feared: indemnity insurance.
Indemnity insurance is a policy whereby the insurer pays the policyholder for a claim, and then it’s up to the policyholder to decide how the money is spent. For example, if a tree falls on your house, your homeowner’s insurance pays you an amount to settle the claim, but then it’s up to you to hire contractors to fix your property. If the repairs cost less, you pocket the difference; if they cost more, you pay the difference.
Health insurance originally worked the same way, but over the past 50 years that design all but disappeared, replaced by “service benefit” policies that pay doctors and hospitals directly according to negotiated rates.
Faced with the prospect of overregulated Obamacare policies that combine escalating premiums with diminishing provider access, some of the restive passengers are starting to think about getting into the lifeboat of indemnity health insurance and rowing away from a floundering SS Obamacare.
Of course if you did that, you would be fined for not having health insurance that meets Obamacare standards. But buying indemnity coverage would at least give you some protection against the possibility of needing costly medical care. Indeed, if your employer replaced its current health plan with indemnity coverage, you could still get it tax-free. While less than ideal, that is still a reasonable backup plan — particularly for businesses like Hobby Lobby and religious nonprofits that are conscientious objectors to Obamacare’s mandate to pay for abortion-inducing drugs and devices.
However, to judge from the proposed regulations that HHS dropped last Friday evening, the captain and crew intend to sink that particular lifeboat lest passengers flee the ship. They’ve added a clause stating that “hospital indemnity or other fixed indemnity insurance,” as the policies are termed in HIPAA, qualifies as an excepted benefit only if it is “provided only to individuals who have other health coverage that is minimum essential coverage within the meaning of section 5000A(f) of the Internal Revenue Code.
In effect, HHS is now proposing to regulate the same indemnity health-insurance policy differently depending on whether or not the policyholder has separate Obamacare-compliant coverage. So, if you buy an indemnity policy to plug the gaps left by the high deductibles in your expensive Obamacare coverage, then HHS will treat your indemnity policy as an “excepted benefits” plan exempt from all federal regulation. However, if you do not already have Obamacare-compliant coverage and try to purchase an indemnity policy, then HHS will treat that indemnity policy as not being an excepted-benefits plan and instead subject it (and the insurer selling it) to all federal rules, regulations, and mandates imposed on Obamacare-compliant plans. Of course, that would make the indemnity policy just as expensive (and morally objectionable) as any other Obamacare-compliant plan, so you wouldn’t buy it — and the insurer probably wouldn’t sell you it anyway. The clear message: “Don’t even think of trying to get into that lifeboat!”
Of course, this latest proposed Obamacare regulation, like many before it, isn’t even a remotely plausible interpretation of the statutes that Congress actually passed. This latest “fix” is worth fighting — both to keep the lifeboats intact during this dangerous voyage and to keep a sound insurance option in place for the long haul.
— Ed Haislmaier is a senior research fellow in the Heritage Foundation’s Center for Health Policy Studies.