The administration’s latest retreat on Obamacare signals the first tangible sign that the president is moving toward a one-year postponement of the individual mandate, arguably the most controversial provision of the beleaguered Affordable Care Act reform.
It also has added a new layer of complexity and problems for the insurance industry, which has been struggling to meet targets for enrolling Americans in new health plans ever since the disastrous launch of the technically flawed government websites Oct. 1.
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Late Thursday, the White House announced that people facing the cancellation of their health insurance plans will be allowed to buy stop-gap catastrophic coverage and will be exempt from penalties if they think the policies being sold on federal and state exchanges are too expensive and decide to go without insurance next year.
President Obama downplayed the significance of the latest rule change during a Friday afternoon press conference at the White House, saying it was directed at a small subset of Americans who are losing their old insurance and can’t readily find an affordable replacement policy. “The majority of folks are going to have different options,” Obama explained. “This is essentially an additional net in case folks might have slipped through the cracks. We don’t have precision on those numbers but we expect it to be a relatively small number.”
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Regardless of how many people eventually take advantage of this exception to avoid having to pay a penalty to the Internal Revenue Service beginning in 2015, political pressure is certain to grow to extend the tax penalty armistice to every uninsured American who fails to meet the enrollment deadline because of a myriad of technical problems with the government’s online insurance exchanges.
The requirement that uninsured Americans either buy coverage through the new government markets or pay a tax penalty has been a sore point with GOP critics since enactment of the legislation in 2010, and has been taken up as a cause by many prominent Senate Democrats more recently because of the large numbers of their constituents who have been thwarted from enrolling in new policies on HealthCare.gov.
When asked by NBC's Chuck Todd if the latest rule change is a step toward delaying the individual mandate itself, the president quickly dismissed the notion. "No that's not true," Obama said. "The basic structure of that law is working, despite all the problems."
The president added that over 500,000 people purchased health insurance plans through HealthCare.gov in December alone and that, more than one million people have selected – if not formally enrolled in – new health insurance plans through the federal and state marketplaces.
Joseph Antos, a health care expert with the conservative American Enterprise Institute, predicted that the administration will wait until a final March 31 deadline for signing up for new insurance policies this year before postponing the individual mandate penalty for all Americans.
“It doesn’t make any difference when the announcement is made because the IRS won’t even be looking at any of this stuff before the middle of 2015, after finishing the tax returns,” he said today. “So there is not exactly a real rush to do this. But you know the [mid-term 2014] election is coming up, so I have a feeling they’ll want to make a statement that makes them seem like they’re reasonable.”
“And once they do that, then I think it’s over – I think the penalty aspect of it is over,” Antos added.
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Henry Aaron, a health care policy expert with the liberal Brookings Institution, said he would be surprised if the administration scrapped the individual mandate, an integral part of the government’s overall strategy for drawing Americans into the new insurance markets.
“I think they want to hang in there if at all possible,” Aaron said. “We’re getting near to the deadline and it’s apparent that enrollments, while going much better than they were before, are still not going as well as would be hoped, and there are some people who suffered cancellations who are going to face higher premiums if they are to have access to insurance.”
“This is another effort to prevent dissension and fear among Democrats,” Aaron said. “The name of the game is, can we get this thing up and running by November of 2014 so that the issue does not unduly damage the incumbent Democrats in the House and Senate who are running for reelection.”
The individual mandate was an important concession to the insurance industry to put added pressure on people to sign up for new policies. But that was before the disastrous rollout of the Obamacare enrollment website three months ago, when massive technical problems with the on-line system prevented many Americans from signing up for new policies and determining whether they qualified for government subsidies.
Related: The Health Law’s Individual Mandate: What Is It?
The president’s latest rule change is causing some serious headaches for the insurance industry, which is already scrambling to address a host of other issues stemming from Obamacare’s botched rollout.
“This latest rule change could cause significant instability in the marketplace and lead to further confusion and disruption for consumers,” said Karen Ignagni, the president of America’s Health Insurance Plans, the industry’s largest trade group.
Insurers are fretting that the change will undermine the individual mandate, which insurance companies have relied on in order to encourage enough healthy people to buy plans. Ample analysis shows that far fewer Americans – particularly young and healthy people – would sign up for insurance without the penalty, resulting in much higher premiums for the older and sicker people who do purchase coverage.
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The latest rule change came just days after the insurance industry accepted a White House request to extend deadlines and accept consumers’ payments for their first month’s premiums through Jan. 10 rather than Dec 31. The extension is intended "to give consumers greater peace of mind about their health care coverage,” Ignagni said.
The administration had previously announced a series of other Obamacare delays, including a one-year delay of the mandate that companies with at least 50 full-time workers provide qualifying health benefits to employees or face penalties. It also delayed online enrollment for small businesses looking to buy coverage through the federal marketplace.
“Constantly changing the rules must be driving the IRS nuts,” said Donald Korb, a partner with the law firm Sullivan & Cromwell who served as the agency’s chief counsel from 2004 to 2008. “I suspect that each change results in some change to the IRS’s computer system, as well as to its planned enforcement of the law, to the extent such plans already exist.”
During his news conference, Obama once again apologized that he and other administration officials “screwed up” in developing and launching the website, but insisted that many of the problems have been worked out and that more and more people are turning to the insurance exchanges for coverage.
“I’ve said before this is a messy process,” he said. “When you try to do something this big affecting this many people, it’s going to be hard. Whether it’s Social Security, Medicare, the prescription drug plan under President Bush, there hasn’t been an instance where you’ve tried to have an impact on the American people’s lives, particularly in the health care arena, where you don’t end up having some of these challenges.”
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