Could Obamacare "Fixes" Pulverize the Insurance Market?

Will the cure be worse than the disease?

That's essentially the question facing lawmakers and the health insurance industry with proposed solutions to a problem that has been predicted for several years. Millions of Americans are losing their current health insurance because of provisions in the Affordable Care Act, commonly known as Obamacare, that require minimum benefit levels to be met.

Now, President Obama and several members of Congress have put forward changes that will allow at least some of those individuals to keep their insurance. These changes, however, have many in the insurance industry worried that the Obamacare "fixes" will cause significant harm to the U.S. health insurance market. 


The fixes are in -- sort of
President Obama announced on Thursday his administration's plan to allow Americans to renew individual or small group policies that don't meet the minimum benefits requirements of Obamacare. This would in theory enable people to keep their current insurance through September 2015.

However, the plan doesn't require insurers to reinstate the plans that have already been canceled. Any reinstatements of policies would also have to be approved by the state in which the plan was sold.

Meanwhile, Sen. Mary Landrieu (D-La.) has put forward a bill to force insurance companies to extend canceled plans for current policyholders indefinitely. Landrieu intends to press on with her bill despite the president's announced plan.

There's also legislation sponsored by Rep. Fred Upton (R-Mich.) that the House of Representatives approved on Friday with some bipartisan support. This bill, like Obama's plan, allows but doesn't require insurers to continue offering policies that would be canceled because of Obamacare's provisions. However, it also would allow insurers to sell new policies that don't comply with the health reform law's minimum benefits. 

Adverse effects
The president's proposal set off a firestorm of criticism. Karen Ignagni, CEO of America's Health Insurance Plans, the main trade group for the health insurance industry, said that "changing the rules after health plans have already met the requirements of the law could destabilize the market and result in higher premiums for consumers."

Cori Uccello with the American Academy of Actuaries stated that the changes could create "two parallel markets operating under different rules." Uccello noted that this scenario would threaten "the viability of insurance markets operating under the new rules." The organization's Health Practice Council also warned that Americans' premiums would rise even more than expected and the federal government could incur higher costs.

The National Association of Insurance Commissioners agreed. In a prepared statement, the organization said that "allowing insurers to have different rules for different policies would be detrimental to the overall market and result in higher premiums."

These criticisms were leveled at the White House plan but would probably apply equally to the legislation the House approved. Landrieu's bill would cause even more chaos, since it would mandate that all insurers continue offering policies outside of the Obamacare requirements with no end date.  

What's next?
If the White House plan goes forward, some insurers and some states will cooperate. Aetna announced that it supports efforts to allow individuals to keep their current insurance. However, the company noted that it will need help from state regulators to jump through the hoops to reinstate the plans.

Regulatory officials in at least two states -- Florida and Kentucky -- have already indicated that they will comply with the president's request. However, the insurance commissioners of Arkansas and Washington have bristled at going along in their states.

What does all of this mean for the big health insurers and their shareholders? It depends.

Aetna receives only 3% of its total revenue from individual and small group insurance. The company has taken a cautious stance on participation in the Obamacare exchanges. As a result, Aetna probably won't feel too big of a financial impact from the turmoil.

The nation's largest health insurer, UnitedHealth Group , probably won't feel too much pain, either. UnitedHealth also decided to take a wait-and-see approach on the Obamacare exchanges for the most part.

WellPoint and Humana would appear to be more likely to take a hit. Both insurers are more heavily involved in the Obamacare exchanges than many of their peers.

However, the reality is that these insurers are largely insulated from losses -- at least for now. The federal government established "risk corridors" that protect insurance companies from big losses in the first three years of the Obamacare exchange operations. Don't be surprised if the health insurance industry asks for an extension of those risk corridors with the extra confusion that could now be introduced. 

To sum all of this up, some Americans might be able to keep their health insurance if they like it -- and the insurance company likes it and their state regulatory officials like it. Others won't. And the premiums could be higher than they were before. And the entire individual insurance market could be destabilized in the process.

Sometimes the cure just might be worse than the disease.

Piercing through the Obamacare confusion
Obamacare seems complex. Let's face it -- with the latest proposed changes, it is complex. But you can still learn what's important for you personally. In only minutes, you can learn the critical facts you need to know in a special free report called "Everything You Need to Know About Obamacare." But don't hesitate, because it's not often that we release a free guide containing this much information and money-making advice. Please click here to access your free copy.

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Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group and WellPoint and owns shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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