The Contradictions of ObamaCare

By John Hoff and John E. Calfee

Why does Health and Human Services want to exempt millions of consumers from an ObamaCare regulation it just implemented to protect consumers?

The debate swirling around the Patient Protection and Affordable Care Act (PPACA), aka “healthcare reform” or “ObamaCare,” is mostly about whether and how to fundamentally change it. This has been highlighted by the recent decision of a Florida federal district judge that PPACA is unconstitutional. The judge, however, did not bar the administration from continuing to implement the law. PPACA is a moving target. It is an ongoing process, not simply a new system to set into place in January 2014 when the highly subsidized and regulated state-run insurance exchanges arrive. PPACA’s passage set in motion a vast regulation-writing enterprise. A large cache of regulations to implement PPACA was posted last June 22 on the Health and Human Services (HHS) healthcare reform website. Some of these regulations have already been put into effect, and others are on the verge of operation.

PPACA requires insurance policies to meet federal standards. One of these requirements is that, starting in 2014, insurance plans must provide coverage without imposing any annual or lifetime limits on the amount paid to individual beneficiaries. During the transition years between now and 2014, however, insurance firms can impose annual limits, subject to HHS rules. The HHS regulations issued last June dictated how high these limits must be. In 2011, insurance companies can continue to impose an annual limit, but it must be at least $750,000 per enrollee. In 2012, the limit will have to be at least $1.25 million, and in 2013, $2 million. In 2014 there can be no limit on payouts for any individual’s care.

The waivers demonstrate Health and Human Services’ recognition that, in 733 instances (to date), requiring insurers to meet its payout regulation for 2011 will make coverage too expensive or impair access to coverage.

HHS recently announced that in December it had granted more than 500 waivers for 2011 from its specification of the permitted annual limit because forcing these plans to meet the requirement would result in "large" increases in premiums or "significant" decreases in access to insurance coverage. This, HHS reports, brings the total number of waivers it has granted to 733, providing exceptions for 2.1 million enrolled Americans. The fact that HHS has felt it necessary to grant these waivers tells volumes about ObamaCare, perhaps more than HHS may realize. Why does HHS want to exempt millions of consumers from a regulation it just implemented to protect consumers?

Telling an insurance firm to raise its limits on what it pays out will increase its costs. Is that likely to be a problem? Obviously, insurance companies could change offerings to cut costs elsewhere, could increase premiums, or both. Might this mean that, despite Obama’s oft-repeated promises, some consumers might not be free to keep an insurance plan they like? Apparently so. When it issued its rule last June, HHS said it would grant waivers in the transition years to permit existing annual limits to continue if this was necessary to prevent a significant loss of coverage or increase in premiums. It has now done so.

If waivers are necessary to keep 733 insurance plans in place now, think of what will be necessary in 2013, when the amount policies must cover in a year will be nearly three times that cost.

The waivers demonstrate HHS’s recognition that, in 733 instances (to date), requiring insurers to meet its payout regulation for year 2011 will make coverage too expensive or impair access to coverage. This is what happens with centrally mandated determinations of how everyone's insurance coverage must be structured. Consumer preferences get overturned, and to curtail this impact, HHS is waiving its own determinations.

But this is just for 2011. If waivers are necessary to keep 733 insurance plans in place now, think of what will be necessary in 2013, when the amount policies must cover in a year will be nearly three times that cost, or in 2014, when full-blown PPACA kicks in and insurers are prohibited from offering a policy without unlimited coverage. The waiver option will be gone: nothing in PPACA gives HHS the authority to waive the statutory ban on annual limits. At the same time, other parts of PPACA will require Americans to have more comprehensive insurance than what they have now (unless the Supreme Court has by then voided the law’s individual mandate). Ineluctably, the result will be to require Americans to purchase insurance packages far more comprehensive and far more costly than what HHS has already determined in 733 cases is too expensive to buy.

John Hoff was a deputy assistant secretary of the Department of Health and Human Services from 2001 to 2005 and health attaché to the U.S. missions to UNESCO and the Organization for Economic Cooperation and Development from 2005 to 2009. He is the author of Medicare Private Contracting: Paternalism or Autonomy? and a coauthor of Responsible Tax Credits for Health Insurance and Responsible National Health Insurance. John E. Calfee is a resident scholar at the American Enterprise Institute.