Obamacare: The Goldilocks Insurance Overhaul

Posted: Nov 19, 2013 12:45 PM

Millions of people across the United States have received cancellation notices from their health insurance companies. It's not some trick being pulled by the insurance companies - it's a direct result of Obamacare. New regulations implemented by the Obama Administration have effectively outlawed the insurance that these millions of Americans used to have.

The result of Obamacare's regulations is to homogenize the product we call health insurance. Mandates, national standards, taxes, and regulations are pushing insurance companies to change the plans they offer to Americans in order to ensure compliance. The technocrats behind Obamacare have put it on themselves to decide what kind of insurance is acceptable. Like Goldilocks in the bears' den, the Obamacare technocrats have gone from insurance product to insurance product, determining which insurance plan is too hot, which is too cold, and pushing products that they think are "just right."

This insurance is too hot!: Many Americans have lavish insurance plans that insulate them from the cost of almost all of the health costs they incur. There's a good case to be made that those lavish plans are inefficient and, on net, driving up the cost of health care nationwide. But we don't typically outlaw inefficiency, so President Obama wants to "nudge" both insurers and the organizations who buy lavish insurance plans to drop them. That's how we got the "Cadillac tax."

The "Cadillac tax" is a tax on these lavish health insurance plans. For the most part, insurance plans exist in the large group market and are offered to workers by employers - and the premiums are therefore subsidized by the employer-sponsored insurance tax break. The "Cadillac tax" subjects high-cost plans to a 40% tax on prices that exceed annual caps. This serves two functions: raising revenue for the federal government to spend on the costlier provisions of ACA and dissuading large-group employers from actually providing these high-cost plans to workers. While the "Cadillac tax" is actually an important source of tax revenue used to finance Obamacare, President Obama also knows that its use will cause some employers to downgrade their insurance plans to something that fits better with ACA's vision of how the insurance system should be.

This insurance is too cold!: A good number of insurance plans in the United States have high deductibles, low lifetime caps, and don't cover a very wide range of services. These are mainly used by young and healthy people who don't think they'll be subjected to a medical catastrophe anytime soon and don't see a need to buy comprehensive coverage.

President Obama characterized these insurance plans as "substandard" and, under ACA regulations, many of them have been outlawed. This is the reason that millions of Americans have received cancellation notices. It's not only because the policies are "substandard"; in some cases, Americans with relatively lavish insurance have had their plans cancelled because those plans also don't live up to all the new mandates. Unlike the Cadillac tax, this is a much more overt way of pushing Americans into insurance plans that have White House approval; "substandard" plans are simply outlawed.

This insurance is juuuust right! There are ten mandates that Obama's Department of Health and Human Services deems as "essential health benefits" that must be covered under every insurance plan offered to every person. These include provisions that are considered pretty standard - emergency services, hospitalization, prescription drugs - as well as mandates that target certain demographics regardless of if the insurance customer will need it, like maternity care and pediatric services. All insurance plans that are on offer must conform to these standards - both those on the exchanges and ones offered in large group and employer markets. This is why millions of Americans are being affected by insurance disruption - and millions more will be.

President Obama's announcement about his "administrative fix" to the problem of insurance plans being cancelled is nothing more than a gimmick. It's unlikely that many insurance companies even want to put up with the administrative headache of bringing back those cancelled policies and, besides, that "administrative fix" is going to run out in one year - better to comply earlier anyway. Obamacare's incentives align to push Americans away from the insurance plans they have and into something of a national standard. Too much insurance coverage is taxed. Too little is outlawed. Unless President Obama thinks your insurance is just right, you might soon be on the receiving end of a cancellation letter.

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