President Obama has been accused of lying for years. I have made a point of investigating any of these allegations that could be evaluated. My investigations ranged from analyzing economic statistics to checking Snopes, and have generally supported the President's statements. I concluded long ago that Barack Obama tells a pretty accurate version of the truth in his public statements and positions. I also concluded that his political enemies were making up some pretty egregious accusations that simply couldn't be supported.
The lies and distortions in recent months have focused on the Affordable Care Act -- Obamacare. My distress was very real as I watched the President's recorded claims that Americans with individual health-insurance policies they liked could keep them after 2014. "If you like it you can keep it." Today, millions of policyholders have received cancellation notices, even though they like their policies. For weeks, I have become more disillusioned with the President's apparent dishonesty as a flood of anecdotal stories became a very real pattern of cancelled coverage. Even White House mouthpiece Jay Carney appeared to be flustered and back-pedaling when confronted with the story.
Then Kathleen Sebelius, Secretary of Health and Human Services, testified on October 30 before the house committee charged with the obligatory witch-hunt around the failed Web interface. She took the time to explain that the law contains a provision (Section 1251) to grandfather policies in effect prior to 2010 so that coverage could be continued beyond 2013 if the policyholder so chose. She also explained that this provision excluded policies that were substantially modified prior to 2014.
Let me digress. The health-insurance industry exerted enormous influence upon the form and function of Obamacare. Max Baucus admitted that experts were hired for the menial work of drafting the law. Whether it was John Dingell's staff or the Heritage Foundation, there was no single author; no person or interest single-handedly writes any complex law today. But Congress is clearly responsible for reconciling conflicts and integrating disparate provisions, and they did a poor job on the ACA. Historically, industry involvement in the creation of legislation results in exponential increases in complexity, and carefully hidden bombs -- provisions that can later be turned to the advantage of the interests writing the law.
Obamacare did grandfather coverage for policyholders who want to keep their insurance even though their policy offered coverage non-qualified under the ACA -- too meager to provide real protection. The law also prohibited insurance companies from canceling these policies unilaterally. But it also carried within its provisions the bomb that allowed insurance companies to make unilateral changes to these policies between 2009 and 2014, thus disqualifying the policies as of January 1, 2014. It even required such changes for some of these policies. This empowered companies to effectively cancel these meager policies by using a loophole they created themselves.
But why on earth would insurance companies want to do this? The ACA requires that at least 80% of premiums be paid out in claims, thus ensuring that the industry fulfill its function in providing product before fulfilling its obligations to its shareholders. All policies have two expense components -- claims expense and other expense. Other expense includes sales, general, and administrative. All of these non-claims expenses must share the same 20% space as profits and executive compensation, so must be minimized as a percentage of premiums.
Here's the thing. For any range of policies, administrative expenses such as billing, advertising, sales, information technology, and even rent are pretty much the same for all. A policy with large premiums will distribute these costs over a larger base while a policy with small premiums will distribute these costs over a smaller base. And because premiums are driven by expected claims payments, this reduces the value to insurance companies of meager policies in a newly-regulated environment. By getting rid of meager policies, companies can make more space in that non-claims 20% for profits and executive compensation.
If insurance companies would benefit from canceling cheap policies, they could benefit even more by upselling their customers an ACA-qualified, more expensive, more profitable policy. Cancellation letters sent to holders of meager policies invariably offered an alternative -- an upgraded qualified plan with a premium increase of, say, 60% to 200% or more -- that would become effective automatically if the policyholder did not take action to cancel. Nothing requires that the company promote an offering that is closest to the policy previously in force, so the sky is the limit.
So insurance companies planted a bomb in the law, and for years have been making policy changes that would allow them to cancel unprofitable policies and upgrade unsuspecting consumers to plans that would yield an acceptable return for the company.
Does this mean that President Obama is vindicated? Not so fast. First of all, he should have known better than to make these blanket statements from the beginning; the law is just too complex. He should have been aware of the loopholes in the law and how the insurance companies planned to use them. And he should have avoided statements that would encompass meager policies purchased after 2010 that would be outlawed in 2014.
The President should also have better realized the effects of certain provisions in older policies that would not be grandfathered. These included requirements of all policies to cover dependents up to age 26, no-cost preventive care, and diabetes screening after 2013. Such policies would require changes to comply with these provisions, even though they might be non-qualified but grandfathered with respect to other provisions.
People are losing health-insurance coverage they were assured they could keep. Who is to blame? I'll let you know when I've read the entire 2,509-page legislation. In the meantime, let me suggest that the law itself is way too complex for its impacts to be entirely predictable. For example, Section 1251 clearly grants existing policies a grandfathered status, without exceptions, but the loopholes are hidden elsewhere in the legislation and amendments thereto. Let me also suggest that an analysis of those who gain from this complexity points to the legal profession and the insurance industry. Both of these are big-money interests, and they know what they're doing when they draft legislation.
Oh, yes. I'll join the chorus of voices blaming President Obama for making promises that were not supported in the legislation. I'll express my anger for giving the radical right a stick with which to beat the Obamacare horse. And I'll loudly object to those political hacks that set our President up as a fall guy. But I'll scream even louder against the systematic manipulation of legislation to the benefit of big money, at the expense of you, me, and all of the consumers of health insurance in America.
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