Why Obamacare’s Grace Period Won’t Matter Much

Keith Fontenot, Kavita Patel, and Erica Socker

The Obama administration recently announced more changes to the president’s signature health care reform law, including allowing people with health insurance plans that don’t comply with Affordable Care Act standards to keep them through October 2016 if their states allow it. The extension isn’t much of a surprise; in many ways, it was inevitable, given delays in other parts of the law and the controversy arising from the disconnect between the administration’s “If you like your health plan, you can keep it,” promise and the reality that the law’s provisions meant some people would have to switch plans.

Apart from the confusion, what does this extension really mean?

First, it’s important to realize what the extension does and does not do. It gives state insurance commissioners, who regulate the industry locally, flexibility; they can decide whether these non-compliant plans can continue to be offered. More than half, 27 states, have allowed insurers to continue offering these plans to consumers for the short term. While that might sound like a lot, the extension only applies to current policyholders — new customers cannot enroll in plans that don’t meet the ACA standards, which are designed to ensure consumers receive a minimum level of coverage.

It’s not that plan cancellations aren’t a big deal; they can be significant, particularly for those who lose their plan and have to purchase a new, more expensive one. Also, confusion over who can enroll and whether or not their states and their insurance company are offering an extension makes it all the more complex. But the extension does not spell doom for the ACA marketplaces.

At issue is how many people are affected overall, and what it does to the “risk pool” — that is, insurers’ ability to spread risk across higher- and lower-cost individuals in Obamacare’s marketplaces.

Rand Corporation researchers found that the current “optional extension” will likely lead to a small decrease in ACA-compliant plan enrollment and only a slight increase (about 1%) in ACA premiums.

That suggests the Administration struck the right balance between allowing individuals to maintain noncompliant plans for a limited time and limiting coverage disruptions, and mitigating the potential for premium increases. (We should note that while 1% may seem slight, insurance companies had already priced their products for the new marketplaces, making the change unexpected and costly.)

Furthermore, a significant number of these plans would not meet the requirements and consumer protections at the heart of the Affordable Care Act, which begs the question of whether or not these were adequate plans for consumers to begin with.

Why wouldn’t allowing people to keep their current insurance have a greater impact on premiums and the success of the marketplaces as a whole? First, only existing customers can keep their policies, so the extension applies to a limited, and shrinking, number of people. Second, not all states have chosen to allow continuation of plans that don’t meet the new standards (and even where they do extend, insurers do not have to comply). Third, there has always been substantial turnover in the individual market because these plans typically serve as transitional coverage as people move between jobs or other forms of coverage, which means that most individual policyholders do not keep the same policy for more than a couple of years and will gradually transition into new plans that meet the ACA requirements even with the extension.

In the larger scheme of things, this particular policy change is a reasonable course-correction to help smooth full implementation. These types of adjustments are not unusual in the implementation of any law, but because the ACA is larger and more controversial, there are more of them.

While these changes receive a lot of political and media attention, it would be wiser to concentrate on making sure that all individuals have access to affordable health coverage that meets the essential benefit needs of all Americans.