Capitalism to blame for the rash of health insurance cancellations? Frank Pallone’s appearance on “The Kelly File”

“It’s capitalism. You can go out and buy whatever you want, but the insurance company realizes they can’t sell this lousy insurance policy anymore.”

—Frank Pallone, Oct. 31, 2013

 

Overview

Rep. Pallone’s description of the reasons behind the recent raft of insurance policy cancellations creates a freakishly distorted picture of reality.

The Facts

Rep. Frank Pallone (D—N.J.) appeared on the Fox News program “The Kelly File,” with host Megyn Kelly, on Oct. 31, 2013.  Kelly asked Pallone about President Obama’s promise that Americans could keep insurance policies if they were happy with them.  Pallone responded that the cancelled policies were those that insurance companies could not sell because of high prices and poor quality.  Kelly challenged Pallone repeatedly on the subject and he gave answers along the same lines each time.  The following exchange occurs near the end of the interview (bold emphasis added):

KELLY: There were 15 million people who bought them and said “I like them.”

PALLONE: They’re not going to buy them anymore when they have a better alternative.

KELLY: Thanks to you.

PALLONE: Well, I can’t go out as an insurance company and sell a lousy policy anymore at a high price.

KELLY: People like — why do you get to decide what’s lousy? Why can’t the American people say ‘it’s lousy for you. For me, I like it.’

PALLONE: It’s capitalism. You can go out and buy whatever you want, but the insurance company realizes they can’t sell this lousy insurance policy anymore.

 

The health care law, commonly known as the Affordable Care Act or “Obamacare,” set minimum coverage standards for health insurance policies nationally.  The law also laid the groundwork for insurance companies to keep offering insurance policies that failed to meet certain of the minimum standards, a provision known as grandfathering.  Those policies could lose their grandfathered status in a number of ways, including changes to co-payments or co-insurance in excess of prescribed limits.  Insurance companies may hike premiums without jeopardizing grandfathered status, however.  During the interview, Kelly incorrectly stated raising premiums could result in the loss of grandfathered status.

Analyzing the Rhetoric

We believe in offering every communication charitable interpretation.  But Pallone’s statement presents a problem, for it ignores or downplays some commonly known information about the ACA.

“You can go out and buy whatever you want”

Only health insurance plans existing on March 23, 2010 are eligible for grandfathered status, and the policy must have covered at least one person over its entire history to sustain grandfathered status.  Nobody can buy a new grandfathered plan for the 2014 plan year, but insurers could sell non-compliant insurance up through that date.  All non-grandfathered plans for the individual and small-group markets must meet a set of minimum standards in 2014, and even grandfathered plans need to meet some of those standards.

Kaiser Health News provides a description of the coverage features required of all plans, including grandfathered plans:

[T]he plans cannot impose lifetime limits on how much health care coverage people may receive, and they must offer dependent coverage for young adults until age 26 (although until 2014, a grandfathered group plan does not have to offer such coverage if a young adult is eligible for coverage elsewhere). They also cannot retroactively cancel your coverage because of a mistake you made when applying, a practice known as a rescission.

 

Each of the listed features represents potentially higher costs for insurers.  As noted above, the law places strict limits on the means insurers can use to pass their costs on to consumers while maintaining grandfathered status for a plan.

It’s worth noting that the Obama administration, through a report entered in the Federal Register on June 17, 2010 and titled “Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act,” provided low-end estimates that 39 percent of employer plans and 40 percent of non-group plans would lose grandfathered status by 2013.

No non-grandfathered policy offered for the 2014 plan year can offer the same terms as a policy needing grandfathered status.  Consumers can’t go out and buy whatever they want.

“The insurance company realizes they can’t sell this lousy insurance policy anymore”

This line from Pallone carries an element of truth.  But insurance companies can’t sell grandfathered policies because the law prevents them from selling those policies to new customers.  The normal turnover rate shrinks the number of grandfathered policies year by year, and insurance companies might terminate grandfathered policies because it isn’t worth the hassle of working within the administration’s grandfathering rules.

Pallone tries to spin the facts by suggesting that high prices make it hard for insurance companies to sell the “lousy” policies.  Yet often the canceled plans are cheaper and make more sense for customers than their options among the new ACA-compliant plans.

“It’s capitalism.”

It’s not entirely false to say that the insurance market is “capitalism” in the sense that it features private control of the means of production and an element of free market competition.  But Pallone’s remark serves to gloss over the fact that the raft of health insurance cancellations was the anticipated result of government intervention in the market.

Summary

“It’s capitalism.”

Yes, the insurance market is partly based on the free market, but saying “It’s capitalism” sets a logical booby trap, potentially deceiving listeners into thinking capitalism, specifically pricing, is the principal cause of insurance companies’ 2013 rush to cancel policies.

The insurance cancellations come as a market response to government intervention.

“You can go out and buy whatever you want”

Health insurance consumers can buy any available plan, but many plans that existed in 2013 will disappear from the market in 2014 regardless of customers’ wish to continue purchasing them.

“The insurance company realizes they can’t sell this lousy insurance policy anymore”

As noted above, the health care law literally prohibits insurance companies from selling grandfathered-style plans to new customers for 2014.  In that sense the claim is true, leaving aside Pallone’s judgment that the plans are “lousy.”  In context, however, we can’t offer Pallone that interpretation.  Pallone is saying that consumers won’t buy what the insurance companies are selling since it isn’t a good value.  But many of the cancellations would have to occur even if insurance companies tried to give away the policies for free, owing to the March 23, 2010 cutoff date.  Pricing obviously wasn’t a factor in those cases.

 

References

“Megyn Kelly vs. Dem. Rep. Frank Pallone: Obamacare Responsible For Dropped Plans.” Real Clear Politics. RealClearPolitics, 30 Oct. 2013. Web. 04 Nov. 2013.

“Grandfathered Plans.” United States Department of Health and Human Services. U.S. Deparment of Health and Human Services, n.d. Web. 04 Nov. 2013.

McGovern, Patrick, Phillip Rofsky, and Gina Scheider. “Affordable Care Act’s Special Rules for Grandfathered And Self-Insured Health Plans.” JD Supra. JD Supra, LLC, 15 Sept. 2013. Web. 04 Nov. 2013.

“Timeline of Provisions.” United Healthcare. United Healthcare Services, Inc., n.d. Web. 5 Nov. 2013.

Barr, Sarah. “FAQ: Grandfathered Health Plans.” Kaiser Health News. Henry J. Kaiser Family Foundation, 28 Aug. 2013. Web. 04 Nov. 2013.

Myers, Lisa, and Hannah Rappleye. “Obama Administration Knew Millions Could Not Keep Their Health Insurance.” NBC News. NBCNews.com, 28 Oct. 2013. Web. 04 Nov. 2013.

United States. Internal Revenue Service, Department of the Treasury; Employee Benefits Security Administration, Department of Labor. Office of Consumer Information and Insurance Oversight. Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act; Interim Final Rule and Proposed Rule. National Archives and Records Administration, 17 June 2010. Web. 4 Nov. 2013.

Roy, Avik. “Obama Officials In 2010: 93 Million Americans Will Be Unable To Keep Their Health Plans Under Obamacare.” Forbes. Forbes Magazine, 31 Oct. 2013. Web. 04 Nov. 2013.

“U.S. Departments of Health and Human Services, Labor, and Treasury Issue Regulation on “Grandfathered” Health Plans under the Affordable Care Act.” HHS.gov. U.S. Department of Health & Human Services, 14 June 2010. Web. 04 Nov. 2013.

“FAQs About the Affordable Care Act Implementation Part II.” Dol.gov. U.S. Department of Labor, n.d. Web. 04 Nov. 2013.

Pecquet, Julian. “Enzi Demands Do-over on Healthcare Grandfathering Clause.” TheHill. Capitol Hill Publishing Corp., 22 Sept. 2010. Web. 04 Nov. 2013.

Nash, Susan M. “What’s All the Buzz about Grandfathering?” Benefit News. SourceMedia, 1 Nov. 2013. Web. 04 Nov. 2013.