The Corner

Why Obamacare May Keep Canceling People’s Insurance Plans Year after Year

My colleague Robert Graboyes has put together a video explaining why Obamacare has led to the cancellation of some people’s health plans — and will leave to many more such cancellations in the future.

Here is a way to explain the problem simply as Graboyes explains:

Imagine a school where 88 to 92 is an A, 78 to 82 is a B, 68 to 72 is a C, 58 to 62 is a D, and everything else is an F. So, 59, 71, 82, and 90 are passing grades. The student who gets a 23 fails, as one might expect. But so do pupils who get 66, 73, 85, or 98. This school is run by a domineering art teacher who provides exactly four crayons, and students dare not color outside the lines.

This same logic applies with the ACA. If you like your plan, you can keep your plan-provided that the AV is 59 (bronze), 71 (silver), 82 (gold), or 90 (platinum). But if your plan covers 66 percent of your expenses, or 73, 85, or even 98, you can’t keep it. You are cancelled. It is bad, subpar insurance, and you go to detention hall (read: Healthcare.gov) indefinitely.

That’s from a December 2013 article by Graboyes and Patrick Paule.

Because of the way the ACA is written, Graboyes concludes, people should get used to getting their plans canceled or get used to switch plans repeatedly because, as circumstances change, a plan that is ACA-proof one year may not be the next. 

Interestingly, today a skeptical financial adviser looked at the video, dug into the ACA regulations, and concluded that Graboyes is correct. The advisor, Mike “Mish” Shedlock, blogged about it here. He concludes:

If for any reason, health care providers do not want to modify pre-existing plans that are just outside the acceptable ranges, their only option under the law is cancellation.

The legislation guarantees “If you like your plan you may not be able to keep it.” 

What reason might insurers have to cancel plans?

Thanks to ACA, the providers all have captive audiences. They all understand that no other provider can offer a plan in anything but the 16 of the 100 possible ranges.

If a plan outside one of the allowed ranges makes a smaller percentage profit than something inside one of the ranges, there is a huge incentive for providers to simply dump the plan.

And Obamacare was supposed to increase competition!

Recommended

The Latest