By THCBist

Facing a revolt by Democratic lawmakers unhappy with the rollout of the health law, the Obama administration announced this morning that it will allow insurers to renew cancelled health plans that fail to meet the standards set by the Affordable Care Act.

Insurers will be required to notify customers with cancelled plans that they have the option of upgrading to an ACA-compliant plan. Plans can be extended through the end of 2014.

The decision does not impact new customers who will still be required to buy coverage that meets the stricter standards set by the new health law – either on the exchanges or directly from an insurer.

The move is likely to add additional confusion and uncertainty to an already chaotic marketplace shaken by the widely publicized problems at HealthCare.gov.

It is unclear, for example, how the customers of specific health plans who have already had their coverage cancelled will be impacted. The decision of whether or not to reinstate individual plans is being left up to individual insurers.

Exactly why they’d want to reinstate the cancelled plans isn’t obvious. Five million people have received cancellation letters according to one recent estimate.

Health plan insiders have argued for months that reversing course will be difficult, if not impossible, for plans that have built their actuarial models on the assumption that certain numbers of healthy people will enroll by certain dates.  Industry representatives immediately warned that the impact would likely be higher premiums.

In a letter sent to state health insurance commissioners this morning, Center for Consumer Information and Insurance Oversight (CCIIO) director Gary Cohn spelled out the details of the fix.  A plan must have been in effect on October 1st, 2013.  Health plans must notify consumers in writing of their eligibility for an ACA-compliant plan.  And they must explain what they’re not getting. A request that, in effect, asks insurers to advertise the Obamacare plans, something they haven’t exactly been enthusiastic about doing in the past. That may or may not turn out to be a smart move.

Health plan consultant Robert Laszewski – a frequent THCB contributor – warned:

This means that the insurance companies have 32 days to reprogram their computer systems for policies, rates, and eligibility, send notices to the policyholders via US Mail, send a very complex letter that describes just what the differences are between specific policies and Obamacare compliant plans, ask the consumer for their decision —  and give them a reasonable time to make that decision —  and then enter those decisions back into their systems without creating massive billing, claim payment, and provider eligibility list mistakes. This puts the insurance companies, who have successfully complied with the law, in a hell of a mess.

Health insurance industry representatives sounded officially displeased. “Changing the rules after health plans have already met the requirements of the law could destabilize the market and result in higher premiums for consumers,”  Karen M. Ignagni, the president of America’s Health Insurance Plans, said in a statement timed to coincide with the White House press conference.

“Premiums have already been set for next year based on an assumption about when consumers will be transitioning to the new marketplace. If now fewer younger and healthier people choose to purchase coverage in the exchange, premiums will increase, and there will be fewer choices for consumers.”

A spokeswoman for AETNA told The Hartford Courant that the company is willing to go along with the changes, but – and there is a big but – “We will need cooperation and expedited approval from state regulators to remove barriers that would make it difficult to make this change in such a short period of time. State regulators will need to allow us to update our policies and secure appropriate rates so we can get these plans back in the market.”

Supporters of the ACA are also likely to question the impact of the decision will be on the struggling federal and state exchanges.  Insiders are arguing that not many people are likely to leave “grandfathered” plans when the alternative is – according to critics – more expensive plans that offer less choice.

State insurance commissioners will also have the ability to override the White House decision in their own states.  Washington state commissioner Mike Kriedler said that he will will not be allowing the uncancellations.

In the interest of keeping the consumer protections we have enacted and ensuring that we keep health insurance costs down for all consumers, we are staying the course. We will not be allowing insurance companies to extend their policies. I believe this is in the best interest of the health insurance market in Washington.

GOP leaders were pessimistic that the move will make any difference. House speaker John Boehner said  “I don’t think they can pull this off administratively. There is no way they can fix this.”

H.R. 3530 “If You Like Your Health Plan You Can Keep It.” House Republicans say they will continue to push for the passage of a bill introduced last week by Fred Upton (R-Michigan) that calls for the health insurance market to effectively be returned to pre-October 1st conditions, allowing anybody to buy coverage under the old rules until the end of 2014.  Critics have argued that doing so would effectively push back the launch of the health reform law for a year.