The Greater Grandfathering of old policies in the ACA

The many cases of people receiving cancellation letters from their health insurance companies which include the claim that the policy will be cancelled as of Jnuary 1 because of the ACA and which offer insurance at much higher premiums have caused a political crisis for Obama nd other Democrats.

I have a number of confused thoughts on the issue. The bottom line is that I am enthusiastic about the Landrieu/Merkeley proposal (dclick the link the post is excellent) for reformed reform.

I will start with policy — what is to be done.

One option is to stay the course, weather the storm, grow a spine and check guts.

This is probably the best option for the health care system and the party, but I will assume it isn’t. This may be the time for character not an effort to come up with clever ideas, but I will stick to my comparative advantage which sure isn’t guts.

The ACA mandates insurance for almost everyone and defines a minimum level of helth insurance which counts (this is clearly necessary or else the mandate would be meaningless). Policies which are not up to ACA standard are in fact being cancelled. The ACA also says that any plan which existed when it was signed into law counts as health insurance. Existing plans were grandfathered. Obama referred to this provision when he (accurately using th e present tense) said in 2009 that “If you like your health insurance plan, you can keep it”. But the definition of what is an old grandfathered plan and what is a new plan (signed by the same policy holder and insurance company) is very complicated (HSS FAQ anfter FAQ addresses the question). One possible reform proposal would be to replace the phrase amounting to “when the PPACA act is signed into law” with “November 9 2011” say. This would make the almost universal interpreation of what Obama said in 2009 true too.

A problem with this re-reform is that it is hard to draw a line — once you start moving a deadline it is hard to stop. I don’t think this is a serious problem given the numerous US veto points. Another is that those who will keep their old policies are medically screened and don’t have pre-existing conditions. Here I think advocates of staying the course almost contradict themselves saying that further grandfathering will seriously increase the cost of insurance offered for year after next on the exchanges and that very few people are financially hurt by ACA cancellations given the low premiums charged on the exchanges and subsidies. The argument is that a modest amount of money times a small number of people is a huge amount of money.

I disagree with Kevin Drum and Josh Marshall at the same time (this may be the first time in human history if anyone cares)

Mashall ( and Drum in the ])

if] you don’t get everyone into the system with at least a base level solid policy there just isn’t enough money to cover the sick and the ‘bad risks’ of people with pre-existing conditions.


One factual and political point that is getting very little attention is just how many people are affected — people losing policies who will need to pay substantially more without subsidies. This is a critical point and I’ve seen virtually no reliable data. It’s all been a political fog. It is clearly a very, very small part of the population

OK Josh and Kevin explain to me how eliminating moderate losses for a “very, very small part of the poulation” implies that there “just isn’t enough money”.

It’s a small issue so the political cpsts f staying the course will be low (once the dust settles) but it’s a huge amount of money the loss of which will deestroy the exchanges- Hmmm how can a policy which financially benefits “very, very” few people cost so much ? The allternative is them paying a few hundred a month for insurance on an exchange. Note that many people will foolishly stick whith their bad insurance if they can even if they could get a much better deal on the exchanges. This will reduce the cost of providing insurance on the exchanges not increase it.

The policy argument against Landrieux/Merkely seems to rely on impossible arithmetic.

OK now politics. I think Democrats of roughly my age (Marshall is considerably younger but clearly was precocious) tend to small c conservatism as we tend to assume that Democrats will find a way to blow it — that congressional Democrats will be in disarray and that blue dogs are just waiting to stab the party in the back and side with Republicans. Well things have changed. Most Blue dogs and conservadems aren’t working in Washington anymore. Democrats have been in array. In contrast Republicans have been fighting each other.

The ptimal strategy for a less totally undisciplined than the other guys party is not to keep it simple. It is easy to spread confusion in the camp of the political adversaries. Note that Uber Commissare Grover Norquist has already denounced ACA reform reform as has raging redstater Erick Erickson

It is very very easy for Democrats to write “you can keep your insurance” bills with poison pills. The problem with the re-reform is that, if one isn’t careful, one can bankrupt the health insurance industry (without setting up single payer to replace it). As I note below, pleasant sounding proposals which are terrible policy for this reason are extremely politically useful.

A bill in which the “you” in “if you like your plan” refers to the policy holder and not the two consenting adults (the policy holder and the insurance company employee) could be extremely costly for insurance companies. In particular, to be meaningful, keeping your plan means that the amount that premiums can be increased is regulated (say equal to the growth of per capita health care spending or something). This would be arbitrarily taking huge amounts of money from insurance companies who reply on cancelling plans (after the year expires) for people with expensive conditions.

GGrabbing a lot of money from insurnce companies and giving it to policy holders would be super popular. Also it will not ever happen — the insurance companies will find a way to block it probably with the votes of their Republican buddies.

A terrible but nice sounding reform proposal is a good way to make Republicans own the problem. Now it will reduce campaign donations from some insurance companies to some Democrats, but since the plan isn’t to get a bill signed, party unity is not needed (and wouldn’t be enough to pass a bill anyway of course).

I say go for it.

udate I am not sure I think the Landrieu bill is good policy (which I admit I haven’t read). A key part of my proposal is that money not spent on subsidies because people stick with the grandfathered plans must not return to the Treasury but must be assigned to a trust fund for future subsidies. Otherwise people who foolishly stick with old plans when they could get a better deal will cause a lower national debt but not improve the finances of the exchanges. It will not be possible to get that money back from the Treasury with a later bill.

Now all of this is just policy. I am sure that Republicans will not suport bill which imposes heavy costs on insurance companies. I’d add that another change I would make in the Landriu bill is that the “you can keep your policy” should last for more than a year with restrictions on how much premiums can be increased. The idea is to include a populist poison pill so voters love the bill and Republicans hate it.