The New Healthcare Law Collapses Under Its Own Weight

Since the rollout of the Affordable Care Act (ACA) on October 1st, there has been mass confusion among insurers, government officials and especially consumers who have seen their individual plans cancelled despite assurances by the Obama administration that they would be grandfathered in. The technical and policy problems that emerged in the wake of the ACA’s implementation all illustrate that this massive overhaul of the health insurance market was undertaken with no proper testing of the system and its effects on patients, doctors and the marketplace and its impact on the rising costs of medical treatments regardless of their success rate.

Responding to growing frustration over the Affordable Care Act, President Obama recently proposed a “transitional policy,” (a delay of the new law), which would give insurance companies the option to offer dropped policies for another year as federal and state governments work to fix their exchanges. Many in the individual insurance market have hoped that they will be able to regain their cancelled policies and wonder what President Obama’s decision will mean for Connecticut.

The Obama administration has said that its transitional plan will be implemented at the discretion of state insurance commissioners. In Connecticut, Governor Malloy has indicated that Insurance Commissioner Thomas Leonardi will decide whether or not to allow the insurance companies to extend their old policies. However, even if the Insurance Department approves the administration’s plan, neither the state nor the federal government can force insurers to extend their old policies, so it remains to be seen whether they will choose to do so if given the opportunity.

Destabilizing an Industry

There is a great deal of uncertainty as to whether this will happen. Commentators have pointed out that the transitional policy creates a number of practical and legal difficulties for both the states and for insurers which may make them unwilling to extend dropped policies. Some insurance commissioners have objected that having separate laws for different pools of policy holders will further destabilize the insurance market and lead to higher premiums. Insurance companies are also worried that the unforeseen costs of implementing this transitional plan will affect their revenues. Although the federal government is authorized to compensate insurers for the losses they may incur, the Affordable Care Act limits the extent to which these losses can be mitigated.

Extending noncompliant policies would also require a logistical about-face by insurers who have spent months and even years adapting their policies and computer systems to the requirements of the Affordable Care Act, and who have eliminated many of their old policies entirely. If reinstated, these policies will have to be approved by the Connecticut Insurance Department by January 1, 2014 - time is of the essence.

Laws in Conflict

It has also been argued that insurance companies may leave themselves open to lawsuits by extending noncompliant insurance policies. After all, the administration’s transitional plan makes no changes to the Affordable Care Act itself, but simply amounts to the federal government withholding its enforcement of the law. It does not however, protect insurance companies from private legal challenges. If a private citizen were to sue an insurer over an extended policy on the grounds that it does not comply with the Affordable Care Act, a judge may be inclined to agree that the policy is illegal, since the ACA is still federal law regardless of whether the government chooses to enforce it or not. Here in Connecticut some leaders in the legislature are calling for a special session to reword state law, so any insurance policy changes going forward comply with federal law. Governor Malloy would need to agree to this action, thus far he has not committed to any decision. 

According to the Department of Health and Human Services, 92% of Connecticut residents were covered by insurance prior to the implementation of the Affordable Care Act. As the new healthcare laws continue to play out, we may find that it would have been simpler and less costly for the state to have helped pay for individual policies for the remaining 8%, than to restructure the entire insurance market. The latest attempt by the federal government to fix the Affordable Care Act has added more uncertainty and expense to what was already a highly disruptive law.