THE BLOG
10/30/2013 11:07 am ET Updated Dec 30, 2013

More on Health Insurance Cancellations

Well, if you want to steep yourself in the latest argument about health care reform, I hope you've got some free time. The papers are brimming with stories about the president's inaccurate statement when selling the bill that "if you like your insurance, you can keep it under this plan." I suspect I made similar comments at the time.

The accurate statement should have been: "If you're one of the 95 percent of insured Americans with health coverage through your job or the government, then your plan won't change. If you're purchasing a plan in the individual market, and that plan remains unchanged, you'll also be able to keep it. But if you're non-group plan changes for the worse, it won't be offered once the new law kicks in."

It's awfully hard to separate substance from politics right now, but this is just a simple adverse selection problem. You can't have a sustainable national health care system wherein people are allowed to impose their health costs on others, just like you can't have an auto insurance system with uninsured drivers. The key to understanding this part of the law -- and again, we're abstracting from the politics for a moment -- is that the word "insurance" implies a standard level of coverage that avoids the type of cost shifting that occurs when an un- or under-insured person gets sick.

The individual market is fraught with such plans, and many are inconsistent with the ACA. So they can't be offered under it.

Getting back to the politics, the biggest problem for the new law right now is not just that the president misspoke. It's the collision of this feature of the law with the bugs in the sign-up system (and it is a feature -- the people getting cancellation notices will generally end of with better coverage, and because of the subsidies, many will pay less for those plans than they would have absent the ACA). It's rotten to learn that your insurance policy, however insufficient, is no longer available at the same time that you can't access the new system.

I'm confident that there's an effective, affordable shopping center for health coverage at the end of a road that is still filled with potholes or worse. The people with inadequate coverage in the non-group market, many of whom are getting anxiety-producing cancellation notices, need to be able to drive down that road very soon.

This post originally appeared at Jared Bernstein's On The Economy blog.

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