The obsession with healthy young people and Obamacare is getting really whacky. Yesterday the NYT had a piece reporting on the large number of people who would be able to get plans at little or no cost because of the subsidies provided under the Affordable Care Act. At one point it refers to comments from Mark V. Pauly, a professor of health care management at the University of Pennsylvania’s Wharton School:
“The availability of zero-premium plans may make the deal especially enticing to the healthy young people the marketplace needs to succeed,… ‘This is such a good deal that you’d have to believe you were immortal not to really pick it up.'”
Actually the marketplace does not need heavily subsidized healthy young people to succeed. If healthy young people pay little or nothing for their insurance then it makes the adverse selection worse, not better. They are likely to have costs that exceed what they pay into the system. To succeed, the market needs healthy young people who do not have heavy subsidies and therefore pay more into the system than they receive back in benefits.
In fact, the key adjective is “healthy,” not “young.” To avoid adverse selection the system needs healthy people to sign up regardless of their age. It also needs people who earn enough so that they are actually paying a substantial portion of their insurance premium themselves. If the government is picking up the tab for the insurance, it doesn’t help the system’s finances.
Note:
The ACA provides additional payments to insurers if they get an especially unhealthy mix of clients so the issue really is the cost of the whole system, not whether some number of insurers are victims of adverse selection. Of course this will be a political question as to whether higher than expected costs lead to a scaling back of the system.
The obsession with healthy young people and Obamacare is getting really whacky. Yesterday the NYT had a piece reporting on the large number of people who would be able to get plans at little or no cost because of the subsidies provided under the Affordable Care Act. At one point it refers to comments from Mark V. Pauly, a professor of health care management at the University of Pennsylvania’s Wharton School:
“The availability of zero-premium plans may make the deal especially enticing to the healthy young people the marketplace needs to succeed,… ‘This is such a good deal that you’d have to believe you were immortal not to really pick it up.'”
Actually the marketplace does not need heavily subsidized healthy young people to succeed. If healthy young people pay little or nothing for their insurance then it makes the adverse selection worse, not better. They are likely to have costs that exceed what they pay into the system. To succeed, the market needs healthy young people who do not have heavy subsidies and therefore pay more into the system than they receive back in benefits.
In fact, the key adjective is “healthy,” not “young.” To avoid adverse selection the system needs healthy people to sign up regardless of their age. It also needs people who earn enough so that they are actually paying a substantial portion of their insurance premium themselves. If the government is picking up the tab for the insurance, it doesn’t help the system’s finances.
Note:
The ACA provides additional payments to insurers if they get an especially unhealthy mix of clients so the issue really is the cost of the whole system, not whether some number of insurers are victims of adverse selection. Of course this will be a political question as to whether higher than expected costs lead to a scaling back of the system.
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Robert Samuelson has pretty much devoted his column to trying to distract readers from the policies that have redistributed income upward to the richest one percent, urging them instead to focus on high living seniors. The latest occasion is a new study from the St. Louis Federal Reserve Bank which found that median income for those aged 62 to 69 gained 12.3 percent to $50,825 from 2007 to 2012. It found that median for those over age 70 increased 15.6 percent to $31,512.
There are two points worth noting on this one. First is that while median family income did rise for older families, while it fell for younger people, the absolute income levels for those over age 62 were still considerably lower than for those between ages 40-61. The difference is 11.7 percent for those between the ages of 62-69. The gap in median incomes was 44.6 percent for those over age 70 compared with those ages 40-61. (One of the reasons for the rise in income is the mix of people over age 62 has skewed sharply downward over this period as baby boomers now fill the younger portion of the age group. The young elderly always have higher income since many are still working and they have not yet spent down their assets.)
The other factor worth noting is that much of the improvement in income is simply due to the fact that people are living longer so that more of these families are two person families now than was the case in 2007. If we look at the Census Bureau’s estimates for median person income, we find that this rose by 7.8 for women between the ages of 65-74 between 2007 and 2012, but just 3.2 percent for men. For men over age 75 median person income rose by 2.3 percent, while it fell by 1.7 percent for women over age 75.
This picture may still look better than the median income for younger people, but this is a story about having the losers fight among themselves. Since its 1999 peak, the median income for men from age 62-74 has risen by 7.4 percent. For women in this age group it rose by 13.9 percent. For men over age 75 it by just 0.007 percent, while for older women it fell by 1.1 percent.
This is a period in which average per capita income rose by 21.1 percent. Clearly the typical senior was not getting their share of the gains of growth even if they might have been doing somewhat better than the young. The big gainers were of course the Wall Street folks, the CEOs, and highly protected professionals like doctors and dentists. Yet Samuelson insists that we need to beat up on the elderly.
There is one other point about Samuelson’s agenda that deserves highlighting. He wants us to cut Social Security and Medicare because today’s seniors have not taken as big a hit as those who are younger. However, any cuts to Social Security and Medicare will almost certainly be phased in through time. This means that they will likely have a bigger impact on people who are today in their forties or fifties than the people now in their sixties and seventies. Since this age group has taken a big hit even by Samuelson’s measures, he is proposing cuts that will have their largest impact on exactly the group of people who have taken a big hit in the downturn with little time to recover. This doesn’t sound like good policy.
Robert Samuelson has pretty much devoted his column to trying to distract readers from the policies that have redistributed income upward to the richest one percent, urging them instead to focus on high living seniors. The latest occasion is a new study from the St. Louis Federal Reserve Bank which found that median income for those aged 62 to 69 gained 12.3 percent to $50,825 from 2007 to 2012. It found that median for those over age 70 increased 15.6 percent to $31,512.
There are two points worth noting on this one. First is that while median family income did rise for older families, while it fell for younger people, the absolute income levels for those over age 62 were still considerably lower than for those between ages 40-61. The difference is 11.7 percent for those between the ages of 62-69. The gap in median incomes was 44.6 percent for those over age 70 compared with those ages 40-61. (One of the reasons for the rise in income is the mix of people over age 62 has skewed sharply downward over this period as baby boomers now fill the younger portion of the age group. The young elderly always have higher income since many are still working and they have not yet spent down their assets.)
The other factor worth noting is that much of the improvement in income is simply due to the fact that people are living longer so that more of these families are two person families now than was the case in 2007. If we look at the Census Bureau’s estimates for median person income, we find that this rose by 7.8 for women between the ages of 65-74 between 2007 and 2012, but just 3.2 percent for men. For men over age 75 median person income rose by 2.3 percent, while it fell by 1.7 percent for women over age 75.
This picture may still look better than the median income for younger people, but this is a story about having the losers fight among themselves. Since its 1999 peak, the median income for men from age 62-74 has risen by 7.4 percent. For women in this age group it rose by 13.9 percent. For men over age 75 it by just 0.007 percent, while for older women it fell by 1.1 percent.
This is a period in which average per capita income rose by 21.1 percent. Clearly the typical senior was not getting their share of the gains of growth even if they might have been doing somewhat better than the young. The big gainers were of course the Wall Street folks, the CEOs, and highly protected professionals like doctors and dentists. Yet Samuelson insists that we need to beat up on the elderly.
There is one other point about Samuelson’s agenda that deserves highlighting. He wants us to cut Social Security and Medicare because today’s seniors have not taken as big a hit as those who are younger. However, any cuts to Social Security and Medicare will almost certainly be phased in through time. This means that they will likely have a bigger impact on people who are today in their forties or fifties than the people now in their sixties and seventies. Since this age group has taken a big hit even by Samuelson’s measures, he is proposing cuts that will have their largest impact on exactly the group of people who have taken a big hit in the downturn with little time to recover. This doesn’t sound like good policy.
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The Washington Post lead front page article has a headline telling readers that “sticker shock” is leading to “anger” over Obamacare. Whatever the reality of this anger, the information presented for the piece’s poster child is wrong.
The article begins by telling readers about a 58-year-old lawyer in Washington, DC who will see her premiums increase from $297 a month to $463 a month with a policy purchased through the exchange. The piece tells that with the policy purchased through the exchange her maximum out of pocket expenses would double. It then informs readers:
“That means she could end up paying at least $5,000 more a year than she does now.”
This conclusion does not follow. If this lawyer actually did hit the new maximum under the policy available through the exchanges, then she would almost certainly have been dropped from her other plan, since the insurer would otherwise be losing money on her. (If we assume the information given here is accurate, then if she just hit the maximum deductible for the exchange plan, it implies that her current insurer would have been paying out $3020 more over the course of the year than the insurer in the exchange. This is on a policy for which it collects $3,564 in premiums.)
Under current law, insurers can drop people with high bills or raise their rates. That is the point of Obamacare; it protects people who get serious illnesses from rate hikes or losing their insurance.
The Washington Post lead front page article has a headline telling readers that “sticker shock” is leading to “anger” over Obamacare. Whatever the reality of this anger, the information presented for the piece’s poster child is wrong.
The article begins by telling readers about a 58-year-old lawyer in Washington, DC who will see her premiums increase from $297 a month to $463 a month with a policy purchased through the exchange. The piece tells that with the policy purchased through the exchange her maximum out of pocket expenses would double. It then informs readers:
“That means she could end up paying at least $5,000 more a year than she does now.”
This conclusion does not follow. If this lawyer actually did hit the new maximum under the policy available through the exchanges, then she would almost certainly have been dropped from her other plan, since the insurer would otherwise be losing money on her. (If we assume the information given here is accurate, then if she just hit the maximum deductible for the exchange plan, it implies that her current insurer would have been paying out $3020 more over the course of the year than the insurer in the exchange. This is on a policy for which it collects $3,564 in premiums.)
Under current law, insurers can drop people with high bills or raise their rates. That is the point of Obamacare; it protects people who get serious illnesses from rate hikes or losing their insurance.
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The official German unemployment rate includes people working part-time who would like full-time jobs. For this reason it is not directly comparable to the unemployment rate in the United States. Fortunately the OECD produces a harmonized unemployment rate for its members which is directly comparable.
For this reason it was needlessly misleading for the NYT to tell readers that the unemployment rate across Germany is 6.5 percent. This refers to the official Germany government measure. The OECD harmonized unemployment rate for Germany is 5.2 percent.
The official German unemployment rate includes people working part-time who would like full-time jobs. For this reason it is not directly comparable to the unemployment rate in the United States. Fortunately the OECD produces a harmonized unemployment rate for its members which is directly comparable.
For this reason it was needlessly misleading for the NYT to tell readers that the unemployment rate across Germany is 6.5 percent. This refers to the official Germany government measure. The OECD harmonized unemployment rate for Germany is 5.2 percent.
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That’s what the headline of the front page Washington Post story might have read if the purpose was to inform readers. Instead the lengthy piece (which covers the whole back page) told readers that Social Security paid out $133 million in benefits to people who were dead over the last three years.
While it is useful to weed out such improper payments, this piece likely led many readers to wrongly conclude that such payments are a major cost to the program. They are not. Nothing about the finances of Social Security would be noticeably changed if the amount of such improper payments were immediately reduced to zero.
If the Washington Post followed the NYT’s commitment to putting big numbers in context, it would have expressed $133 million as a share of the $2102 billion paid out in benefits over the relevant time frame. That way readers would realize that these mistakes have little impact on the program’s financial condition.
That’s what the headline of the front page Washington Post story might have read if the purpose was to inform readers. Instead the lengthy piece (which covers the whole back page) told readers that Social Security paid out $133 million in benefits to people who were dead over the last three years.
While it is useful to weed out such improper payments, this piece likely led many readers to wrongly conclude that such payments are a major cost to the program. They are not. Nothing about the finances of Social Security would be noticeably changed if the amount of such improper payments were immediately reduced to zero.
If the Washington Post followed the NYT’s commitment to putting big numbers in context, it would have expressed $133 million as a share of the $2102 billion paid out in benefits over the relevant time frame. That way readers would realize that these mistakes have little impact on the program’s financial condition.
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Chrystia Freeland has a good piece in the NYT on the rise of plutocratic politics in the United States and elsewhere and the populist opposition it has provoked. The piece makes many interesting points but then towards the end strangely tells readers:
“Part of the problem is that no one has yet come up with a fully convincing answer to the question of how you harness the power of the technology revolution and globalization without hollowing out middle-class jobs.”
No, this is very far from true. There are very convincing answers to this question, it’s just the plutocrats block them from being put into practice.
Topping the list of course would be aggressive stimulus to bring the economy back to something resembling full employment. This not only would give tens of millions of people more income, it would make many bad jobs into decent jobs.
In a tight labor market employers will pay someone $15-$20 hours to work as a retail clerk at big box stores or fast food restaurants or as custodians. These jobs pay very low wages in the current economy because government policy acts to limit employment. If we didn’t have policy (fiscal and exchange rate policy) that reduced employment, then there would be more demand for labor and the wages in low-paid occupations would rise.
In terms of globalization, we have deliberately structured globalization so as to put downward pressure on the wages of low and middle wage earners. There is no reason, except for political power, that we could not have designed globalization to put downward pressure on the wages of the doctors and other highly paid professionals. This was a policy choice, it has nothing to do with the inherent dynamics of globalization.
Also, the high pay on Wall Street would be brought down to earth with the end of too big to fail subsidies. This policy reversal coupled with the imposition of financial speculation taxes or other taxes that would bring taxation in the financial industry in line with taxation in other industries (a policy even advocated by the IMF), would substantially reduce the take of Wall Street plutocrats.
And replacing government granted patent monopolies in the drug and high tech sectors with more efficient mechanisms of supporting innovation would also go a long way towards both reducing high end incomes and making essential medicines more affordable. These and other issues are discussed in The End of Loser Liberalism: Making Markets Progress, among other places.
Anyhow, it is bizarre that Freeland would end her piece by asserting the problem is a lack of answers. As she effectively documents, the plutocrats have managed to seize control over politics in the United States and elsewhere. There is no lack of good answers, the problem is that the plutocrats have power to stop them from being put into practice.
Chrystia Freeland has a good piece in the NYT on the rise of plutocratic politics in the United States and elsewhere and the populist opposition it has provoked. The piece makes many interesting points but then towards the end strangely tells readers:
“Part of the problem is that no one has yet come up with a fully convincing answer to the question of how you harness the power of the technology revolution and globalization without hollowing out middle-class jobs.”
No, this is very far from true. There are very convincing answers to this question, it’s just the plutocrats block them from being put into practice.
Topping the list of course would be aggressive stimulus to bring the economy back to something resembling full employment. This not only would give tens of millions of people more income, it would make many bad jobs into decent jobs.
In a tight labor market employers will pay someone $15-$20 hours to work as a retail clerk at big box stores or fast food restaurants or as custodians. These jobs pay very low wages in the current economy because government policy acts to limit employment. If we didn’t have policy (fiscal and exchange rate policy) that reduced employment, then there would be more demand for labor and the wages in low-paid occupations would rise.
In terms of globalization, we have deliberately structured globalization so as to put downward pressure on the wages of low and middle wage earners. There is no reason, except for political power, that we could not have designed globalization to put downward pressure on the wages of the doctors and other highly paid professionals. This was a policy choice, it has nothing to do with the inherent dynamics of globalization.
Also, the high pay on Wall Street would be brought down to earth with the end of too big to fail subsidies. This policy reversal coupled with the imposition of financial speculation taxes or other taxes that would bring taxation in the financial industry in line with taxation in other industries (a policy even advocated by the IMF), would substantially reduce the take of Wall Street plutocrats.
And replacing government granted patent monopolies in the drug and high tech sectors with more efficient mechanisms of supporting innovation would also go a long way towards both reducing high end incomes and making essential medicines more affordable. These and other issues are discussed in The End of Loser Liberalism: Making Markets Progress, among other places.
Anyhow, it is bizarre that Freeland would end her piece by asserting the problem is a lack of answers. As she effectively documents, the plutocrats have managed to seize control over politics in the United States and elsewhere. There is no lack of good answers, the problem is that the plutocrats have power to stop them from being put into practice.
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Paul Krugman is wrongly beating up on the euro zone for its current account surplus, showing that it is now larger than China’s. The problem with the comparison is that China is an extremely fast growing developing country. This is the sort of place that in the good old days we expected to run trade deficits.
The euro zone on the other hand is a bloc of slow growing rich countries. We would expect them to be running trade surpluses. This does not negate the fact that the euro zone could and should be doing much more to stimulate its economy with larger budget deficits and more aggressive monetary policy, but that fact that it has a larger trade surplus with the rest of the world than China really doesn’t tell us much of anything.
Addendum:
I’m not gratuitously beating up on Krugman here, there is a real point. If a country is growing rapidly, like China, we would expect it would have a high return on capital. On the other hand, the return on capital is likely to be lower in the slow growing rich countries. This means that we should see a flow of capital from rich countries to developing countries. That would imply a trade surplus for the rich countries and a trade deficit for developing countries.
Another way to think about this is that the developing countries need to both build up their capital stocks at the same time that they continue to feed and house their people. By running trade deficits with rich countries, they can get the extra goods and services that allows them to do both simultaneously.
In reality, the capital flows from rich to poor countries have been at best uneven. This is a case where the real world has stubbornly resisted the textbook story. To my mind this is an indictment of the international financial system which has not generally accommodated this flow of capital from rich countries to poor countries. This is quite evident in the most recent reversal, which followed the botched bailout by the IMF-U.S. Treasury form the East Asian financial crisis in 1997.
But if we could somehow get things right and create a mechanism whereby excess capital in the EU and other rich countries helped finance investment in the developing world, that would be a good thing. This is why showing that the EU has a larger trade surplus than China does not necessarily mean that the EU is a bad actor in the world (although it is).
Further Note:
Reference to EU changed to euro zone — thanks folks.
Paul Krugman is wrongly beating up on the euro zone for its current account surplus, showing that it is now larger than China’s. The problem with the comparison is that China is an extremely fast growing developing country. This is the sort of place that in the good old days we expected to run trade deficits.
The euro zone on the other hand is a bloc of slow growing rich countries. We would expect them to be running trade surpluses. This does not negate the fact that the euro zone could and should be doing much more to stimulate its economy with larger budget deficits and more aggressive monetary policy, but that fact that it has a larger trade surplus with the rest of the world than China really doesn’t tell us much of anything.
Addendum:
I’m not gratuitously beating up on Krugman here, there is a real point. If a country is growing rapidly, like China, we would expect it would have a high return on capital. On the other hand, the return on capital is likely to be lower in the slow growing rich countries. This means that we should see a flow of capital from rich countries to developing countries. That would imply a trade surplus for the rich countries and a trade deficit for developing countries.
Another way to think about this is that the developing countries need to both build up their capital stocks at the same time that they continue to feed and house their people. By running trade deficits with rich countries, they can get the extra goods and services that allows them to do both simultaneously.
In reality, the capital flows from rich to poor countries have been at best uneven. This is a case where the real world has stubbornly resisted the textbook story. To my mind this is an indictment of the international financial system which has not generally accommodated this flow of capital from rich countries to poor countries. This is quite evident in the most recent reversal, which followed the botched bailout by the IMF-U.S. Treasury form the East Asian financial crisis in 1997.
But if we could somehow get things right and create a mechanism whereby excess capital in the EU and other rich countries helped finance investment in the developing world, that would be a good thing. This is why showing that the EU has a larger trade surplus than China does not necessarily mean that the EU is a bad actor in the world (although it is).
Further Note:
Reference to EU changed to euro zone — thanks folks.
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The New York Times has committed itself to changing the way it writes large numbers so that they actually convey information to readers. A piece today on Germany’s economic policy shows the need for this change.
At one point the article referred to Germany’s infrastructure needs, telling readers:
“A recent study said that Germany would have to spend more than €100 billion, or about $135 billion, over the next 15 years just to repair its existing stock of roads, bridges and railways, which in populous areas of western Germany have been neglected for years.”
Okay, we can all appreciate the euro to dollar conversion, but how many NYT readers have any clue how large $135 billion over the next 15 years is to Germany’s economy? I suspect the number is well under 1 percent of the NYT’s highly educated readers.
It would have been a simple matter to tell readers that this is equal to about 0.25 percent of Germany’s projected GDP over this period or less than 0.5 percent of projected government spending. This would have been far more meaningful to the vast majority of the people reading the article.
The New York Times has committed itself to changing the way it writes large numbers so that they actually convey information to readers. A piece today on Germany’s economic policy shows the need for this change.
At one point the article referred to Germany’s infrastructure needs, telling readers:
“A recent study said that Germany would have to spend more than €100 billion, or about $135 billion, over the next 15 years just to repair its existing stock of roads, bridges and railways, which in populous areas of western Germany have been neglected for years.”
Okay, we can all appreciate the euro to dollar conversion, but how many NYT readers have any clue how large $135 billion over the next 15 years is to Germany’s economy? I suspect the number is well under 1 percent of the NYT’s highly educated readers.
It would have been a simple matter to tell readers that this is equal to about 0.25 percent of Germany’s projected GDP over this period or less than 0.5 percent of projected government spending. This would have been far more meaningful to the vast majority of the people reading the article.
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Most people have no clue how much the government will spend this year and even less idea of how much money it will spend over the next decade. That is true even of the highly educated people who listen to National Public Radio. That is why it is just awful reporting on NPR’s part when it tells listeners about a $5 billion cut to food stamps this year or a Republican proposal to cut benefits by $40 billion over the next decade.
This provides no information whatsoever to the overwhelming majority of NPR’s listeners. On the other hand, it would be informative to tell listeners about a cut to food stamps equal to 0.14 percent of the budget this year and the Republican proposal to cut benefits by an amount equal to 0.09 percent of projected spending over the next decade. (Both numbers immediately available through use of CEPR’s extraordinary Responsible Budget Calculator.)
The key point that many NPR listeners likely missed is that these cuts could be a big deal for food stamp beneficiaries, but they are trivial in terms of total federal spending. Many NPR listeners may wrongly been led to believe that the decision on these cuts will have a substantial impact on the budget and the deficit.
Unlike NPR, the New York Times recognizes this problem and has committed itself to present big numbers in a way that are understandable to its audience. Maybe one day NPR will begin to take news reporting seriously.
Most people have no clue how much the government will spend this year and even less idea of how much money it will spend over the next decade. That is true even of the highly educated people who listen to National Public Radio. That is why it is just awful reporting on NPR’s part when it tells listeners about a $5 billion cut to food stamps this year or a Republican proposal to cut benefits by $40 billion over the next decade.
This provides no information whatsoever to the overwhelming majority of NPR’s listeners. On the other hand, it would be informative to tell listeners about a cut to food stamps equal to 0.14 percent of the budget this year and the Republican proposal to cut benefits by an amount equal to 0.09 percent of projected spending over the next decade. (Both numbers immediately available through use of CEPR’s extraordinary Responsible Budget Calculator.)
The key point that many NPR listeners likely missed is that these cuts could be a big deal for food stamp beneficiaries, but they are trivial in terms of total federal spending. Many NPR listeners may wrongly been led to believe that the decision on these cuts will have a substantial impact on the budget and the deficit.
Unlike NPR, the New York Times recognizes this problem and has committed itself to present big numbers in a way that are understandable to its audience. Maybe one day NPR will begin to take news reporting seriously.
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Glenn Kessler, the Washington Post’s fact checker, gave President Obama four Pinocchios for telling people that under the Affordable Care Act (ACA) they would be able to keep their insurance plan, if they liked it. Kessler points out that many plans are being terminated because they do not comply with the minimum standards laid out by the ACA. The people on these plans are not able to keep their insurance.
Kessler notes that the plans in existence as of the time the ACA was passed would be grand-fathered, which would mean that the plans in effect at the time that President Obama was pushing the bill could still be offered even if they did not meet all the standards laid out in the ACA. The plans being terminated because they don’t meet the minimal standards were all plans that insurers introduced after the passage of the ACA, knowing that they would not meet the standards that would be put into law in 2014.
However Kessler points out that the ACA sharply restricts the ability of insurers to alter the grandfathered plans and still maintain their status. For example, they can only raise their premiums or deductibles by a small amount above the rate of medical inflation.
Kessler interprets this as a narrow restriction that would cause many plans to lose their grandfathered status. However, the price increases charged by insurers are not events outside of the control of insurers. If an insurer offers a plan which has many committed buyers, then presumably it would be able to structure its changes in ways that are consistent with the ACA. If it decides not to do so, this is presumably because the insurer has decided that it is not interested in continuing to offer the plan.
Whether such a decision can be blamed on the ACA and interpreted as a violation of President Obama’s pledge depends on how people think about the commitment. Insurers change and drop their plans all the time. (As the co-director of a small business, I can give personal testimony on that one.) If people thought that Obama’s pledge meant that he would freeze the insurance market — in effect have the government take over the industry and prohibit any changes to existing policies — then Kessler is absolutely right, Obama broke the pledge. Under the ACA insurers still can change and eliminate plans.
However, if people interpreted the pledge as meaning that the ACA would not directly eliminate the insurance plans that people had at the time, then Obama was being honest. The ACA did not end plans that were in effect at the time the plan was being passed.
Glenn Kessler, the Washington Post’s fact checker, gave President Obama four Pinocchios for telling people that under the Affordable Care Act (ACA) they would be able to keep their insurance plan, if they liked it. Kessler points out that many plans are being terminated because they do not comply with the minimum standards laid out by the ACA. The people on these plans are not able to keep their insurance.
Kessler notes that the plans in existence as of the time the ACA was passed would be grand-fathered, which would mean that the plans in effect at the time that President Obama was pushing the bill could still be offered even if they did not meet all the standards laid out in the ACA. The plans being terminated because they don’t meet the minimal standards were all plans that insurers introduced after the passage of the ACA, knowing that they would not meet the standards that would be put into law in 2014.
However Kessler points out that the ACA sharply restricts the ability of insurers to alter the grandfathered plans and still maintain their status. For example, they can only raise their premiums or deductibles by a small amount above the rate of medical inflation.
Kessler interprets this as a narrow restriction that would cause many plans to lose their grandfathered status. However, the price increases charged by insurers are not events outside of the control of insurers. If an insurer offers a plan which has many committed buyers, then presumably it would be able to structure its changes in ways that are consistent with the ACA. If it decides not to do so, this is presumably because the insurer has decided that it is not interested in continuing to offer the plan.
Whether such a decision can be blamed on the ACA and interpreted as a violation of President Obama’s pledge depends on how people think about the commitment. Insurers change and drop their plans all the time. (As the co-director of a small business, I can give personal testimony on that one.) If people thought that Obama’s pledge meant that he would freeze the insurance market — in effect have the government take over the industry and prohibit any changes to existing policies — then Kessler is absolutely right, Obama broke the pledge. Under the ACA insurers still can change and eliminate plans.
However, if people interpreted the pledge as meaning that the ACA would not directly eliminate the insurance plans that people had at the time, then Obama was being honest. The ACA did not end plans that were in effect at the time the plan was being passed.
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