Strike Two

The President’s decision to allow 4 million individuals notified their policies were cancelled will likely be strike two in the administration’s at-bat for the Affordable Care Act. Though in the early innings, the leadoff batter aka Healthcare.gov might portend tough pitching for those next up in the batters circle.

The premature debut of Healthcare.gov. was a complete whiff. As late as last week, Jeff Zients hinted it would not be ready for prime-time November 30. Strike One.

The White House’ decision last Thursday may turn out to be strike two. On the surface, it’s politically and strategically savvy. By “allowing” insurance companies to reinstate their cancelled policies, with approval of the state’s insurance regulators, the burden shifts to the insurers and states. It gives the HHS team time to fix Healthcare.gov, and it quells anxious consumers who lost their insurance. It’s a close pitch: my suspicion is the Ump will call it Strike Two. Here’s why:

First, not every plan will reinstate the policies they dropped.  Simply put: the individual insurance market is tough enough. It carries the highest risk, highest administrative cost and lowest margins for its issuers. Many insurance carriers used the ACA’s new regulations--coverage of 10 essential health benefits, 80% medical loss ratio minimum, affordability threshold, et al-- to justify their exit from the individual market. The opportunities in managed Medicaid, group coverage and selling a la carte population health management services to hospitals and employers are far more lucrative than the individual market. So not everyone who lost his or her plan will have a chance to renew.

Second, not every state will allow the insurers to reinstate the policies even if they want to. Already, officials in Washington state, Rhode Island and Arkansas have said ‘no way.’ Others are likely to follow led by states where their health exchanges successfully launched. The decision to throw states into the mix adds complexity to the already murky waters around the individual insurance market, and uncertainty to individuals and insurance issuers waiting on word in each state.

Third, the costs of the newly reinstated policies are likely to create sticker shock.  Insurance companies will pass on their additional costs in higher premiums—guaranteed! They have 29 days to notify policyholders, re-price the 2014 plans based on the prospect of increased adverse selection, and manage an army of customer service counselors to answer phones from anxious individuals and frustrated doctors. And with no certainty they’ll be permitted to issue these same plans in 2015, they’ll try to recoup these costs in one year! Sticker shock is a certainty.

And fourth, reform of the individual insurance market carries huge political risk for the balance of the Affordable Care Act’s reforms. The issue is larger than how to manage the 5% who purchase individual policies.  It’s about a momentum swing that might discourage on-deck batters otherwise confident they can hit the pitcher’s best stuff.

To be sure, health Reform is a nine-inning game. The implementation of the ACA spans a decade so the game’s in the early innings.  Batters on deck will bring new reforms—Medicaid expansion, delivery system changes that add transparency shift incentives from volume to value and others.  

But the leadoff batter is individual insurance market reform featuring Healthcare.gov, and the count is No Balls and Two Strikes. If the pitcher gets the strikeout, the next batters will face more heat. But to be sure, the leadoff is behind in the count, and this is the World Series in health care.