What the “Doc Fix” Should Tell You About the “Grandfather Fix”

With his announcement on Nov. 14 of a plan to offer a temporary reprieve to people facing cancellation of their health-care policies, President Barack Obama may have created his own version of the much-maligned, often yearly, Medicare “doc fix”.

The doc fix, a recurring effort by Congress to override statutory formulas that limit the growth in Medicare payments to doctors, often sparks political theatrics as lawmakers work to assuage the concerns of physician groups and Medicare recipients. Many members of Congress want to repeal and replace the underlying program — the sustainable growth rate formula for reimbursing physicians — but agreement has proved elusive, in part because of deficit concerns and the high cost of repealing the formula.

The president may have set himself up for another situation similar to the doc fix with his proposal to administratively tweak the health law. Obama said he will temporarily allow health insurance companies and state insurance commissioners to continue offering insurance plans “that would otherwise be terminated or canceled” for failing to meet the requirements of the Affordable Care Act (ACA).

Has President Obama created his own version of the annual “doc fix” by continuing insurance plans that would have otherwise been canceled?

While this change will help some health-insurance consumers, it is a serious complication for health insurers who in a few weeks will have to readjust their plans. In the 24 hours since the announcement, the initial reaction from insurers and state health insurance commissioners has been mixed. Some insurers have already voiced concerns that any short-term fix will deprive their ACA-compliant exchange plans of the healthier customers needed to keep rates down for everyone, including older, sicker customers.

Fast-forward 11 months to late October, 2014, with the midterm elections imminent and the president’s “transitional policy” about to expire. Will Democrats want the issue of whether people can “keep their health plan if they like it” raising its ugly head again, just as voters are about to cast their ballots?

The sentiment of voters on the health law probably will be a key factor in next year’s elections, and having the one-year extension about to expire could prove damaging to the law’s supporters. The administration may feel enormous pressure from vulnerable Democrats to issue another administrative extension — even if it is unwelcome to insurers and state officials.

The doc fix provides a relevant example of how elected officials will maneuver to avoid tough choices that could cost them their jobs, instead preferring small steps that do nothing to address an underlying problem.

Until now, efforts to repeal and replace Obama’s health law have come almost exclusively from Republicans. That political calculus may be changing as events unfold and bad news mounts in the rollout of the health law.

The fate of the law may depend on the response of consumers, insurers and state health commissioners to the new transitional policy. If only a small number of people choose (or are allowed to choose based on the actions of their insurers and state officials) to retain their existing or previously canceled coverage, the issue may fade quickly.

But if a significant number of people opt to continue their existing coverage, the chances of a “grandfather fix” next fall (and beyond) increase dramatically. And if that happens, the prospects for continued fixes in years ahead, as with the doc fix, also grow. Too many of these fixes could undermine the actuarial balance of the new insurance policies created by the Affordable Care Act, and with it the law itself.

Matt Barry is a senior health-care analyst with Bloomberg Government, where this post originally appeared.

11 replies »

  1. While the move endangers the short-term success of the healthcare law, it ensures its survival, even if it is temporary.

    Republicans are playing a full court press against the White House and Democrats for not upholding a promise made by the President in 2009 when he said: “If you like your health care plan, you’ll be able to keep your health care plan, period”. By extending existing insurance plans for another year, the President takes away a powerful political weapon from the Republicans. There is no doubt that the Republicans will continue their relentless attack on the healthcare law. But the dialogue during the next twelve months will focus on the insurance cancellations that will ensue in 2015 and not on the insurance cancellations of 2013 and 2014. And that may give the White House enough wiggle room to regain control of the narrative.

    More critically, the announcement buys the White House precious time with many Congressional Democrats up for reelection in 2014 and 2016. Congressional Democrats are receiving increased scrutiny from constituents who are fed up with the issues surrounding healthcare.gov and are angry over insurance cancellations. Even the President himself admitted yesterday that Democrats are under considerable pressure from the implementation failures of the healthcare law. Bloomberg News quoted him as saying, “there is no doubt that our failure to roll out the ACA smoothly has put a burden on Democrats”. The House voted today on a measure proposed by Republican Fred Upton of Michigan that would let Americans keep their existing insurance plans through 2014. The White House announcement provided cover for House Democrats who voted with the Republicans and allowed Democrats to take credit for the fix.

    The White House also knows that the administrative fix will not necessarily lead to higher premiums and a decrease in enrollment. The conversations surrounding yesterday’s announcement largely ignored the temporary risk corridors program, a relatively unknown program authorized by the healthcare law to mitigate premium fluctuations associated with unknown variables. According to the CMS, the program protects healthcare insurers against “inaccurate rate-setting by sharing risk (gains and losses) on allowable costs between HHS and qualified health plans”. This helps to ensure stable health insurance premiums in the insurance exchanges. It is possible that any premium fluctuations as a result of the fix will be contained by this program.

    Read more: http://www.hirokawashima.com/why-president-obamas-fix-this-week-is-necessary/

  2. I’ll agree with the old plans – if I can get one too. Why should I be forced to pay the higher prices of ACA when my neighbor can “opt-out”?

  3. Here is what I do not understand.

    When the ACA was passed Harry Reid made it clear that the law could not be changed in any way for ten years without a majority vote in the House and a Super Majority in the Senate.

    How can Obama and the Democrats hope to “change” the law without all this in place?

    How far can Obama’s penswipe go?

  4. Matt –

    Completely agree with the analogy. But I’m not sure things will play out this way. Unlike the doc fix, this one is on the main stage with all the cameras rolling. It’s hard to imagine that anybody is going to sign off on two completely separate sets of rules for extended period of time. Still, I’m guessing there are a lot of frazzled actuaries in town today, trying to figure this one out for their bosses. Then again, this is Washington we’re talking about ..

  5. Now the insurance companies have to call out their Quants to model some new solutions with the extension and remember this is 5% of the entire group of insured. It does matter though as it has had a profound effect on many. Insurers kept on selling the bare bones policies and had time to make changes along the way but some did not and it was their approach on how to notify customers and their course of action and methodologies were their own so it came back to haunt.

    Being this is more profit oriented I would assume the quants would do the job and not actuaries here as it is a “model” change. How many actuaries have you seen that can write C, VB, dot net, PHP, Java , R or Python? Risk assessments with an automated price calculation for quotes will need to be in there.

    It’s odd as you don’t really know if insurers are behind this or not as if you look at United with 1/3 of their revenue coming from other non insurance subsidiaries, so everything they receive from the law is kind of like gravy. So the President is meeting with the CEOs for next course of action.


    Just like the markets, Obamacare is the continuous rise and fall of the machines…


  6. Obama will try to demonize the insurance companies if they do not re-open their old plans.

    The insurance companies have never made their major profits on the individual market, so they will really resent all the letters they are supposed to send out. Some of them were probably eager to get out of the individual market. The exchanges would give them higher premiums, part of which was paid by reliable subsidies.

    Still, a man from Mars would ask this:

    If Joe Smith has a non-compliant policy from Aetna, and has been paying $350 a month every month since 1-1-2013, how hard is it to keep billing him $350 a month and paying the same claims (if any) that he had for the first ten months of 2013?

    I am not trying to be sarcastic. Someone tell me if I am missing something.

  7. If this is anything like the “doc” fix, we are in big trouble.
    And—I don’t see how all of a sudden companies can go back and reinstate these policies.