Last week, the Barack Obama administration asked health insurers to allow “retroactive payment” for policies that begin Jan. 1. The move was widely seen as a response to the problems the exchanges have been having. With millions of current policies being canceled, the administration understandably wants to minimize the possibility that people will be left uninsured because of a paperwork error.
This week, Reuters reported that insurers are a little worried about the possibility that people will game the system: have a bad emergency room visit on Jan. 3, pay for their insurance Jan. 4. Unsurprisingly, I’ve seen this popping up here and there in the conservative media world. Is this yet another unfolding Obamacare disaster?
Not really, in my opinion. Don’t get me wrong: I expect that this will happen in at least a few cases. In a country of more than 300 million people, almost anything will happen in at least a few cases. It’s very easy to imagine that folks who signed up for insurance but dithered about actually paying the premium will rush to get that check in if they actually have a bad accident.
But we’re talking about a very short window here: Insurers are saying that they will accept payments as late as Jan. 10, but that’s only for people who have already selected a policy by Dec. 23, so you can’t just do nothing, then hustle to sign up for retroactive insurance after you have an accident. And this is only for January; you can’t pull the same trick if you have an accident on Feb. 3. I have a hard time believing that the adverse-selection problem is going to be really enormous with a 10-day grace period. So I doubt the fate of the Patient Protection and Affordable Care Act hinges on this one way or another.
You can argue, of course, that the government shouldn't be “strongly encouraging” our insurers to take on more adverse selection, even if the amount is small. And fair enough. But the insurers have been willing and enthusiastic partners in health-care reform; they want this law to survive, because if it does, the law promises them millions of new customers who have a legal mandate to buy their product. They are undoubtedly under some duress from the administration, but they have plenty of incentives to enthusiastically cooperate even without that pressure. So it’s hard for me to see this as a huge scandal.
The reason to worry about the retroactive payments is not what they will do to the system, or even the insurers, but what their introduction says about the state of the Obamacare rollout. One suspects that the administration keeps pushing back the dates for people to enroll and then pay because the number of people who have managed to do so thus far is rather disheartening. And while these measures may not be enough to destroy the insurance market, I doubt they’re enough to save it, either.