By fnord12 | December 23, 2013, 10:44 AM | Liberal Outrage | Link

One dimensional chess

Last night's surprise announcement that people who got dropped by their insurance will now be exempt from the individual mandate is probably irrelevant in the long run. But it does feel like a retreat at first blush. However, there is something like poetic justice here.

It's worth recalling the "three legged stool" of Obamacare: 1) Reforms to insurance, including preventing the dropping of people for pre-existing conditions, covering kids up to age 26, and the requiring of certain minimum standards. But that by itself would bankrupt the insurance companies, so we have 2) the individual mandate, which requires that young healthy people buy in to the insurance market, providing insurance companies with the cash flow to stay afloat. And then for people affected by the mandate who can't afford insurance, there's 3) subsidies, including individual subsidies and the expansion of Medicaid. There's also the creation of the exchanges so that individuals can shop for policies easily and get competitive pricing.

But what we've been seeing is that insurance companies have been sending letters to customers whose policies don't meet the new minimum standards required by #1. Instead of updating those policies to meet the standards, they are simply kicking their customers off those policies. And telling them that they have to buy into new policies that are at higher cost, and also higher than comparable policies on the exchange. And also not informing them that they could go to the exchange to look for better pricing.

This was surely surprising to the Obama administration, who put their weight behind this Rube Goldberg style* health care policy in part because it would get them the support of the insurance companies, as opposed to simply expanding Medicare to cover everybody. The lack of even a Public Option (i.e., an optional Medicare buy-in alongside the private insurance policies available in the exchange) was in part to assure insurance company support. So the insurance companies were meant to be allies in this fight, and they did come out big winners thanks to the individual mandate. So having them turn around and start dumping people probably feels like a betrayal, and in that context, now excluding those people from the individual mandate feels like a (minor) retaliation or even a threat to insurance companies to say that if you keep up the shenanigans we can simply drop the mandate. But it definitely feels like a reactive threat; hardly the eleven-dimensional chess that Obama is said to be playing.

Again, despite the media attention, the number of people getting dropped are relatively small and this move is probably insignificant in the long run. But it's interesting to watch things play out and see how the levers can be shifted.

*I'm sorry to switch metaphors from "three legged stool" to "Rube Goldberg device". If you like, the first stool leg is also the hamster wheel whose spinning powers the engine, the second leg is the hamster, and the third leg is the cheese (or whatever it is that hamsters eat).