By Caroline Humer and Lewis Krauskopf
NEW YORK (Reuters) - Insurers and state regulators say that President Barack Obama's "fix" for policies canceled under his healthcare reform law will create new problems for the industry and could lead to an increase in premiums.
Facing pressure by lawmakers from his Democratic Party, Obama said on Thursday that insurers could extend by a year policies that were due to be canceled in 2014 because they do not comply with higher standards of benefits and other requirements under the 2010 law, commonly called Obamacare.
The change will allow policies that start between January 1 and October 1, 2014 to be renewed, meaning they will continue well into 2015.
But the fix may not provide relief to consumers on a national level, as it requires some individual state insurance departments to change regulations. Soon after the announcement, Washington state said it would not make such changes.
Insurance industry officials said that if, by allowing millions of Americans to hold onto such policies, fewer younger and healthier people buy plans in the new marketplaces, premiums will increase and there will be fewer choices. The new markets would then have a higher proportion of sicker beneficiaries who cost more to insure.
The business risk adds to the logistical nightmare of reissuing plans that had already been canceled. In addition, some states had barred insurers from selling any of their existing plans in 2014.
Aetna Inc, the third-largest U.S. insurer, said it was willing to make the effort.
"We support efforts to allow people to keep what they have," said Aetna spokeswoman Cynthia Michener. "However, we will need cooperation and expedited approval from state regulators to remove barriers that would make it difficult to make this change in such a short period of time."
Florida Blue, Florida's largest health insurer, has 300,000 policies that were scheduled to be canceled in 2014 and will offer all of those members the chance to renew. Florida's insurance regulator said it would back any efforts to extend coverage.
Jon Urbanek, senior vice president for commercial markets at Florida Blue, said the company will write to the 40,000 people already notified about plans being canceled in January.
"We've been discussing the possibility of this happening and trying to plan for it," Urbanek said.
But others may not be inclined, or able, to help Obama make good on his proposal to repair this part of the problem-plagued rollout of the Patient Protection and Affordable Care Act, which aims to provide millions of uninsured Americans with affordable coverage.
"That puts a huge premium on insurers having an army of people they really don't have to explain this new complicated thing that nobody ever imagined was going to happen," said Joseph Antos, a health policy expert at the American Enterprise Institute.
Obama's move also puts the insurers in the awkward position of making Thursday's proposal work or bearing the political pressure from unhappy customers if they can't.
"Cynically, the move by the White House effectively makes the plans look like the scapegoats if they terminate a current offering," said Chris Rigg, an analyst for Susquehanna Financial Group.
WHO TAKES THE RISK?
Insurers said through their industry trade group, America's Health Insurance Plans, the administration should help them offset the new risks posed by Obama's plan.
"Changing the rules after health plans have already met the requirements of the law could destabilize the market and result in higher premiums," AHIP President Karen Ignagni said in a statement.
The government said on Thursday that it would use a risk adjustment pool created in the law to help offset the costs that could come as the mix of participants changes.
State insurance commissioners, who regulate the market, said they were also concerned about the President's decision.
"It is unclear how, as a practical matter, the changes proposed today by the President can be put into effect," the National Association of Insurance Commissioners President and Louisiana Insurance Commissioner Jim Donelon said in a statement. "Changing the rules through administrative action at this late date creates uncertainty and may not address the underlying issues."
Regulators for California, Ohio, Texas all said that insurers in their state could extend plans if they chose. Maryland, Minnesota and New York regulators said they were reviewing the proposal.
California's insurance commissioner, Dave Jones, told reporters on Thursday that he would call on the state-run insurance exchange, Covered California, to release insurers from contractual obligations that insurers move people off plans that did not comply with the law by year end. Jones had been seeking ways to extend the policies before Obama announced his proposal on Thursday.
MIT health economist Jonathan Gruber, who helped design the healthcare law, said its authors had expected 6 million people in the individual market would lose their plans in 2014 and that insurers had made drastic changes based on the belief they would have access to those members.
"Insurers have every right to be upset today," Gruber said in an interview on CNN.
(Additional reporting by David Morgan in Washington; Editing by Michele Gershberg and Grant McCool)