The latest announcement from the White House on Thursday, December 19, seems to indicate that even President Obama is backing away from Obamacare.
At the very least, he is bobbing and weaving like an exhausted prize fighter trying to avoid a knockout punch. For the President, that punch would be a disastrous rollout of Obamacare that leaves Americans so angry that the Democrats lose their five-seat majority in the Senate in 2014. That could happen with the never-ending fallout from the new plans. Not surprisingly, the latest White House retreat just before the December 23rd enrollment deadline was triggered by pressure from moderate Senate Democrats like Mark Warner (D-VA) and Mary Landrieu (D-LA). Landrieu faces a tough 2014 election campaign.
Thursday's announcement said that six million Americans who have had their insurance plans cancelled are eligible to buy catastrophic policies and are exempt from penalties if they go without insurance in 2014. Not that the new catastrophic plans are cheap. In California the pre-Obamacare median cost for a 25-year old non-smoking male was $92 per month on eHealthInsurance.com. This compares to $205 per month for a bronze plan and $184 per month for a catastrophic plan. Tacitly admitting that for many Americans the cost of buying insurance on the federal exchange exceeds their current insurance cost, Health and Human Services Secretary Katherine Sebelius offered them the opportunity to apply for a "hardship exemption."
This is the fourth major pullback by the White House from the Affordable Care Act. In July the employer mandate to provide health care to all their employees was delayed one year until January 1, 2015. That followed the prior year's scrapping of long-term insurance plans which were deemed too expensive. Then in November President Obama, facing massive criticism for not upholding his promise that all Americans could keep their insurance plans, told insurers to reinstate the cancelled plans, provided their state insurance commissioners agreed. (Several did not.) On November 27, the White House withdrew the opportunity for small businesses to buy insurance on federal exchanges in 2014.
All these changes are causing mass confusion and consternation for the insurers. Already, two of the four largest insurers - United Health and Cigna - have elected not to participate in the exchange, a decision that appears fortuitous. The remaining participants in the federal exchange are preparing for massive adverse selection that raises their costs far beyond the projections they used in bidding on these plans, especially the bronze plans. As the healthy young opt to go without insurance and pay the modest penalty or take the catastrophic plans, the insurers are left with the least healthy people in their plans. The latter comprise the vast majority of people enrolled to date.
All these changes are exposing the flawed premise on which Obamacare is based: that the healthy young are willing to pay much more for insurance in order to support the unhealthy elderly. This policy marks the first time in U.S. history that we are asking the young to pay for the old; historically, it has always been the other way around. Altruism would not have motivated the young to assume this new cost, so the Democrats used the mandate to force the young into the pools--subsidizing care of the elderly at much higher costs to themselves. The mandate eked through the U.S. Supreme Court on a 5-4 decision, thanks to the tortured logic of Chief Justice John Roberts who deemed it wasn't mandate after all, but rather a tax. All this comes at a time when youth unemployment is still in double digits and many more young people are stuck in low-paying jobs that barely enable them to make ends meet.
To compound the problem, the law has a key provision that no one can be asked to pay more because they are in ill health. The converse of that clause is that insurers cannot offer incentives to people for remaining in good health through diet, exercise, stress reduction, and limiting consumption of cigarettes, alcohol and drugs. That forms a sharp contrast with self-insured employers who are racing to offer employees massive incentives for staying healthy. These employers understand the reality that Washington seems to deny: health care costs can only come down when people start taking responsibility to live healthier lives. Pragmatic employers who bear the cost of their employees' health care, know that lifestyle accounts for more than 50% of total health care costs. Therefore, they offer incentives to improve employees' lifestyles.
The impact of this provision will become highly visible in early 2014 when insurers announce increased prices for their 2015 plans. That will trigger another round of consumer reactions, and responses from the Obama administration shortly before the November 2014 mid-term elections. Will the administration extend opportunities for people to go without coverage or shift to catastrophic plans? Or will the administration try to offset the rising costs by further reducing reimbursement to hospitals and physicians for Medicare and Medicaid? If the latter, we are likely to see a stampede of providers that refuse to take new Medicare/Medicaid patients, even those within five years of becoming eligible.
Given this looming disaster, I support the Obama administration's "go slow" approach, and offering the option of catastrophic plans for all Americans. This is something I argued for unsuccessfully back in 2009-2010 before the law was enacted. To make Obamacare viable, however, two further changes will be required: 1) reducing the minimum requirements in the plans to enable people to select plans tailored to their needs, and 2) permitting insurers to offer incentives to their enrollees for staying healthy. The consequence of these two actions will be that unhealthy Americans will have to pay more, regardless of their age, and the healthy will not be required by law to subsidize the unhealthy. These changes are certain to raise the hackles of liberal Democrats, but they are the only to avoid the looming disaster in rapidly rising health care costs that could bankrupt Medicare/Medicaid.
In early 2014 the President will be faced with a stark choice, as the shortfall of healthy Americans signing up through healthcare.gov becomes reality, and the consequences of adverse selection cause insurers to reprice their 2015 plans. He can cling to the original liberal provisions of Obamacare and face massive political fallout. Or he can take a more gradual approach to universal health care that provides people with incentives to stay healthy. For the sake of our country, I hope he chooses the latter option.
Bill George is professor of management practice at Harvard Business School and author of True North and Authentic Leadership. He is the former chair and CEO of Medtronic. Read more at www.BillGeorge.org, or follow him on Twitter @Bill_George.