Last year, when Americans faced a wave of cancellation notices for health insurance plans they’d been happy to have, President Obama tried to explain this was a feature, not a bug, of Obamacare. The plans being canceled, he said, were “substandard” plans that didn’t offer people as much protection as they thought they had.
“But ever since the law was passed,” he said in Boston last October, “if insurers decided to downgrade or cancel these substandard plans, what we said under the law is you’ve got to replace them with quality, comprehensive coverage — because that, too, was a central premise of the Affordable Care Act from the very beginning.”
This was rather insulting: The government knows better than you, you poor, foolish consumer. And in the end, it apparently wasn’t as big of a problem as the president had claimed. His administration backed down and decided to let people continue using these “substandard” plans into 2017.
The “substandard” part was plainly false: Some people were receiving cancellation notices because their plans didn’t cover birth control or maternity care, and it didn’t matter if they were in their late 50s and didn’t want or need such coverage.
As it turns out, the notion that only “substandard” plans were being canceled appears to be false as well. Robert Graboyes of the Mercatus Center at George Mason University explains why in this short video:
If you can’t or don’t want to watch, here’s the gist: Obamacare allows only plans that fit into one of its four bands of coverage: bronze, silver, gold or platinum. Plans are placed into one of these bands based on the share of health costs they cover, known as their actuarial value (AV).
But the bands don’t cover the entire spectrum. Take a look at this photo, a still from the Mercatus video above:
If your plan’s AV fits in between two bands, it is just as unlawful under Obamacare as one whose AV is below the bronze plan. So your plan could be better than the bronze plan but still be disallowed under the law.
Here’s the practical fallout, as explained by Graboyes:
“Let’s say you buy a gold plan with maybe an AV of 81 percent. Now, when it’s time to renew your plan in a year or two, you find — uh oh — my plan has moved from 81 percent to 83 percent. Guess what? It’s now ‘sub-par’; it’s canceled. At this point, you have to go find another plan, you might have to find a new hospital; you might even have to find a new doctor. And you best get used to this year after year after year. That’s the way the ACA is written.”
So, 60 percent of AV is OK, but 83 percent isn’t. Got it?
But don’t worry; this is soooooo much better than letting the market handle things.