Republicans needed to make Obamacare work

The Obama administration last week ruled that small businesses (and individuals) can keep their old health insurance policies that don’t comply with Obamacare’s new rules until October 2016.

That’s supposed to help Democrats in the 2014 elections, because there won’t be another wave of Obamacare-induced policy cancellations just before election day.

But if President Obama wants his health law to actually work in Republican states like Indiana, he’d better hope their insurance commissioners don’t play along with his latest delay.

Because it will actually harm the exchanges operating in their states–and harm the overall success of Obamacare,

A spokeswoman for Indiana Insurance Commissioner Stephen Robertson told me today that no decision has yet been made on whether Indiana will allow insurers to keep these old policies going until 2016. Robertson was among 21 insurance commissioners in November that declined to allow the reinstatement of pre-Obamacare policies that had been marked for cancellation.

Many expect even more commissioners to say no this time. For example, Adam Hamm, the Republican insurance commissioner in North Dakota, encouraged insurers to reinstate cancelled policies in November. But last week, he was far more cautious.

“Creating two tiers of plans – the compliant and noncompliant—could result in higher premiums overall and market disruptions in 2015 and beyond,” said Hamm, who is serving as president this year of the National Association of Insurance Commissioners.

Here’s why the Obama administration’s delay could cause rates to spike, at least in states like Indiana:

Enrollment in the Obamacare exchange in Indiana has already been tepid so far. Through the end of January, 48,000 Hoosiers had enrolled in an Obamacare plan on the exchanges. Nationally figures suggest one out of five of them failed to pay their first month’s premium, meaning the true number might be closer to 38,000.

There are two months of enrollment data we don’t have, so that number will grow. But keep in mind, there were 178,000 Hoosiers with individual health insurance policies before Obamacare.

The low level of enrollment could be problematic when it comes time for insurers to price their 2015 policies. As Bob Laszewski noted last week on The Health Care Blog, it usually takes 70 percent of an expected group to sign up in order to balance out the risk of the unhealthy people with the premiums of the healthy.

There are mechanisms in Obamacare to offset insurers' losses. In fact, President Obama's budget recently estimated the federal government would pay as much as $5.5 billion to insurers' to cushion their losses this year on the Obamacare exchanges.

But insurers' losses were bound to mitigated heading into 2015 because, at least in Indiana, there are a ton of small employers that will join the exchange at the end of this year.

That’s when the Obamacare SHOP exchange for small employers will get started. It’s also when the pre-Obamacare policies of many Indiana companies were set to expire, because employers renewed them for 12 months in the fall of 2013.

I reported in January that many of those employers—particularly those with fewer than 50 workers, were planning to terminate those group plans at the end of this year and instead send their employees to buy health coverage individually in the Obamacare exchanges. That's because some of them were promised premium increases at the end of this year of 50 percent or more, if they remained on the pre-Obamacare plans.

Whether they did or didn’t carry out these plans, either way, it would have been helpful for the risk pool in the Obamacare exchanges.

That’s partly a numbers thing. There are more than 900,000 Hoosiers covered by health plans sponsored by employers with fewer than 50 workers. Getting them into the risk pool would help balance out any skewing that occurred on the individual side of the Obamacare risk pools, due to the disastrous October launch of HealthCare.gov, the web site portal for shopping on the exchange.

The small business employees that are not in the exchange now are likely to be younger and healthier. That’s the reason their employers found it advantageous to remain outside the Obamacare risk pool for most of this year.

You see, Obamacare does not allow health insurers to charge their oldest customers any more than three times as much in premiums as they charge their youngest customers. Previously in Indiana, the oldest customers paid six or seven times more than the youngest.

The new rules, called community rating, mean that companies with younger-than-average workers will face a big increase in insurance rates under Obamacare's new rules. For businesses with older-than-average workers, the new rules will probably lead to lower health insurance premiums.

Those rules apply only to individual insurance customers and employers with fewer than 50 workers.

But if small employers can wait another two years before joining the Obamacare risk pool, then the healthiest employers will most likely choose to do so.

Same goes for the healthiest individuals.

Some critics of the law, I think, want to see this happen, because they think it will create a death spiral—or something close to it—that renders the exchanges a place you only end up if you have no other options.

“Once premiums rise, the demise of the exchanges becomes self winding,” wrote Dr. Scott Gottlieb, a scholar at the conservative American Enterprise Institute, in a piece on Forbes.com. “Higher premiums chase away more health[y] beneficiaries, causing premiums to rise still further. That’s the essence of an insurance death spiral. The end game is a benefit that erodes into something that closely resembles Medicaid.”

I'm not sure he's right. Conservatives have predicted numerous Obamacare death spirals, without one materializing yet. But if he's even directionally right, then President Obama could be trading a slightly better outcome in the 2014 elections for an exchange risk pool that actually works.

So it may take folks like Indiana Insurance Commissioner Stephen Robertson—who has been nothing but critical of Obamacare from the day it was passed—to say no to this proposal. That’s the best hope of actually saving Obamacare from the president’s attempt to sabotage it.