The Perverse Exemption

Political palliatives won’t cure ObamaCare’s ills.




January 3, 2014
While we were away, the Department of Health and Human Services offered what might be termed a concession to reality. In a Dec. 19 letter, Secretary Kathleen Sebelius informed Virginia’s Mark Warner and five other members of the Democratic Senate Caucus that what she called a “small number of consumers” would be granted an “exemption from the individual responsibility requirement” of ObamaCare during 2014.

“Individual responsibility requirement” is HHS jargon for what is commonly called the “individual mandate” and is legally not a requirement or mandate at all but an additional tax on the income of Americans who lack medical insurance plans that comply with ObamaCare’s multitude of actual mandates. The exemption also permits those it covers to purchase policies that have somewhat lesser mandatory requirements, and are therefore somewhat cheaper, than the standard ObamaCare metallic (“bronze” through “platinum”) plans. Normally, those so-called catastrophic policies are available only to those under 30.

The exemption, made available under a “hardship” provision of the euphemistically titled Patient Protection and Affordable Care Act, applies to 2013 policyholders whose plans were canceled and who “are having difficulty finding an acceptable replacement in the Marketplace,” Sebelius explained. Her Dec. 19 decree is the first major administrative weakening of the so-called individual mandate, but many observers doubt it will be the last. Bloomberg’s Megan McArdle:

Sometime after March 31–probably not very far after–I would expect the administration to announce that after careful thought, it has decided not to enforce the individual mandate for 2014. As we’ve already seen, the individual mandate is very politically vulnerable. And I suspect we’re not done with the emergency fixes.

The Washington Post’s Ezra Klein–who for the past few months has oscillated wildly between cheerleading for ObamaCare and honest criticism of its implementation–responded to the announcement with some of the latter. “The administration agreed with a group of senators. . . who argued that having your insurance plan canceled counted as ‘an unexpected natural or human-caused event,’ ” Klein noted, adding pointedly: “For these people, in other words, Obamacare itself is the hardship.” He added:

This puts the administration on some very difficult-to-defend ground. Normally, the individual mandate applies to anyone who can purchase qualifying insurance for less than 8 percent of their income. Either that threshold is right or it’s wrong. But it’s hard to argue that it’s right for the currently uninsured but wrong for people whose plans were canceled. . . .

Republicans will immediately begin calling for the uninsured to get this same exemption. What will the Obama administration say in response? Why are people who plans [sic] were canceled more deserving of help than people who couldn’t afford a plan in the first place?

That’s an excellent point, but it falls short of capturing the perversity of the Sebelius decree. To understand why, begin with the observation that the distinction between being and not being able to “afford a plan” is a fuzzy one. Some lack insurance because they are so poor that they could not possibly pay the premiums, but it makes more sense to consider the decision to carry insurance or not as the product of each person’s subjective evaluation of costs, benefits and risks. A person who forgoes insurance does so because, in his circumstances, he does not think it worth the money.

That analysis excludes those who, in the pre-ObamaCare regime, would have purchased insurance but couldn’t because pre-existing conditions made them uninsurable. But for those who are insurable but choose to go without insurance, the injury of ObamaCare consists entirely in the new tax the law imposes upon them beginning this year.

Those who had policies canceled, however, were injured in a different way by ObamaCare. For them, insurance, at least as it existed before ObamaCare, was worth the cost. They fell victim to Obama’s fraudulent claim that “if you like your plan, you can keep it.” If they are now unable to find a plan worth buying, their primary injury consists in being deprived of insurance. The new exemption spares them only of the lesser injury–one might call it an insult–of being taxed for being a victim of ObamaCare.

For neither group of the now-uninsured does the Sebelius decree alleviate the injury ObamaCare inflicts. Nor does it do anything for a third category of ObamaCare victims: those whose plans were canceled and who have purchased new policies that are costlier, inferior or both.

Remember Edie Sundby? She is the stage 4 gallbladder-cancer survivor who wrote a Wall Street Journal op-ed two months ago in which she revealed that “my affordable, lifesaving medical insurance policy has been canceled effective Dec. 31.” While we were vacationing in chilly Southern California, we went to see her in San Diego to get an update on her insurance situation.

Edie Sundby before ObamaCare took effect. Courtesy Edie Sundby

Atop her injury Mrs. Sundby has endured insult–imposed not by the law but by the nasty politics of a desperate administration and its supporters. It took the form of a propaganda campaign–led by the Center for American Progress and, as we notedthe day her op-ed ran, cheered on by the White House–aimed at discrediting her. (Last month the president tapped John Podesta, the center’s founder, to be White House counsel. Earlier, in an interview with Politico’s Glenn Thrush, Podesta described House Republicans as “a cult worthy of Jonestown.”)

Igor Volsky, who’d launched the attack with a post on the center’s site the day the op-ed ran, published afollow-up a few days later titled “The Cancer Patient From The Wall Street Journal Will Likely Save Thousands Under Obamacare.” This time, he claimed, he had numbers to prove it. But those numbers were only a guess, and Volsky guessed wrong.

“Relying on [her existing insurer] PacifiCare’s base rate filings with the California Department of Insurance, ThinkProgress estimated how much Sundby and her husband (who is on the same plan) could be paying,” Volsky wrote. He inflated the “base rate filing” by a “conservative” 40% “to account for underwriting–the process by which insurers increase premiums to account for beneficiaries’ health.” He came up with a figure of $2,186 for the monthly premium, or $26,241 a year. (The arithmetic was off by $9, presumably because he was rounding the published numbers but not the ones used in his calculation.) He added $11,000–a $3,000 deductible and $8,000 maximum in-network copayment–to come up with a total expense of $37,241.

Volsky then “searched the California exchange for the most expensive and expansive health care plan in San Diego and found a Platinum-level ‘Ultimate PPO’ from Blue Cross.” The monthly premium is $1,919, or $23,028 a year, for a plan with an $8,000 out-of-pocket maximum. That’s a total of $31,028. If all this had been correct, the Sundbys would stand to save more than $6,000.

In November we set out to check Volsky’s figures. Mrs. Sundby gave her insurance broker permission to speak with us about her case, and the broker was able to confirm that Volsky’s figures for the platinum plan were accurate to within a few dollars.

But as to the canceled plan, Volsky turned out to be using the Yglesias Method of making stuff up. Mrs. Sundby supplied us with statements from PacifiCare, which show that the monthly 2013 premium was just $1,107–an increase of 27%, not 40%, from 2012. The deductible was $5,000 and the individual in-network copayment $4,000. It adds up to $22,284–nearly $9,000 less than Volsky’s figure for the Blue Cross platinum plan.

Two additional caveats are necessary: First, the Sundbys’ old plan was not for the couple alone but also covered two daughters, both of whom turn 26 this year and thus will no longer be eligible for the family plan. Second, individual out-of-pocket maximums are generally half the family total, so that the comparable figure for the platinum plan would have been $4,000 less than Volsky’s estimate, or $27,028. Thus the Blue Cross plan would have cost 21% more despite covering two people instead of four.

The Sundbys ended up purchasing a “silver” plan from Blue Shield with a monthly premium of $1,438 and an individual out-of-pocket maximum of $6,350. That’s an annual total of $23,606, not counting any out-of-pocket expenses Mr. Sundby (who is in excellent health) might incur–or a modest 6% increase over the equivalent 2013 PacifiCare costs.

To be sure, even if PacifiCare hadn’t canceled the Sundbys’ policy, it likely would have hiked their premiums. Given that the increase between 2012 and 2013 was 27%, the new plan sounds like an improvement. But remember that their adult daughters are no longer on the plan. If they take out insurance, the premiums are likely to be considerably higher than they would be absent ObamaCare price controls, which soak the young in order to benefit the middle-aged.

More important, the analysis of costs alone misses the central point. While Blue Shield is not charging a great deal more than PacifiCare would have under their old plan, it is for a vastly inferior product. As Mrs. Sundby wrote in her op-ed, she has received care from three hospitals. Her primary oncologist is at Stanford University’s Cancer Institute. She got less specialized treatment such as chemotherapy locally, at Moores Cancer Center, part of the University of California, San Diego. She has also been treated at the M.D. Anderson Cancer Center in Houston.

No plan available in San Diego includes both UCSD and Stanford in its network, so the Sundbys were forced to choose between them. The Blue Shield plan covers care at Stanford, so that she will now have to get local care elsewhere.

Volsky did acknowledge in his penultimate paragraph that Mrs. Sundby “may need to find a different health care provider. . . . If Sundby continues to see the non-participating doctors, she will incur additional out-of-pocket health care costs.” That is, he treated as an afterthought the actual injury ObamaCare inflicts on her. She was victimized twice by the president’s consumer fraud. She lost the plan she liked and doctors she liked.

We didn’t write about this in November because our conversation with the Sundbys’ broker left us confused. The broker believed that ObamaCare plans would cover out-of-network treatments, with higher copayments but the same limit on total out-of-pocket expenses. That called into question the premise of Mrs. Sundby’s op-ed: Had the broker been right, Mrs. Sundby would have been able to get the same care at only somewhat higher cost.

But the broker was misinformed. Mrs. Sundby confirmed with an administrator at UCSD that none of the plans that included Stanford in their networks would cover the full cost of treatment at Moores. Mrs. Sundby told us that her new plan covers out-of-network care only up to the (far lower) negotiated fees for equivalent treatment within the network; the difference must be paid out of pocket and does not count toward the annual limit on out-of-pocket expenses.

That makes the cost of care at UCSD prohibitive and forces Mrs. Sundby to go to a lower-quality facility. (The Moores website boasts that it “is one of just 41 National Cancer Institute-designated Comprehensive Cancer Centers in the United States, and the only one in the San Diego region.”) Mrs. Sundby told this columnist she is uncertain whether she will be able to return to M.D. Anderson should she need care there.

As Investor’s Business Daily noted in an editorial last month, the potential consequences of the narrow networks are profound and widespread:

A prominent New York insurance broker pointed out that most of the policies offered on the ObamaCare exchanges are not national networks, so “if you need routine medical services, they will not be covered when you leave your local area,” as they were before.

Travel health insurance, unfortunately, only covers emergencies. So, the broker told [The American Thinker‘s Stella] Paul, “a large portion of the population will have their insurance as a consideration for their mobility, which they never had before.”

Imagine having to take all this into account in making decisions about where in America you want to live.

That the Sundbys’ broker, a seasoned insurance professional, was unaware of all this more than a month after the ObamaCare exchanges opened for business (and more than 3½ years after the law was enacted) suggests yet another serious systemic problem with ObamaCare: The government appears to have done a woefully inadequate job of educating even professionals in the field, much less ordinary consumers, about the law’s complicated and often destructive provisions. And this is in California, the state ObamaCare apologists have touted as the great success story.

“The health exchanges are so confusing, and the policy provider network details are not available,” Mrs. Sundby wrote us in an email the day after we met. “None of us who lost our insurance plans really know what we have bought on the exchange until after Jan. 1, 2014, when we start finding new doctors or making appointments with our established doctors.”

Mrs. Sundby knows better than most. An intelligent woman with a longstanding and complicated medical condition, she is about as savvy, motivated and well-informed as a health-insurance customer can get. Most Americans who get sick in the future will be far less well-prepared than she for ObamaCare’s cruel surprises. Political palliatives like the mandate exemption, even if it ends up being universal, aren’t going to help. Happy New Year.