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Topics: Obamacare

HHS rule would further tighten noose on individual insurance market

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Beltway Confidential,Opinion,Philip Klein,Obamacare,HHS

President Obama's health care law vastly expanded the role of the federal government in regulating health insurance, a job that has traditionally been left to state governments. Fearing that individuals might exploit an exception in the existing regulations, the Department of Health and Human Services has proposed a new rule that would further tighten the noose.

As most people know, under Obamacare, individuals must either purchase a federally-approved insurance policy or pay a penalty. The problem is, because Obamacare policies must provide a mandated set of benefits, they generally cost more. That makes them less attractive to healthier Americans with fewer medical needs. There is, however, another option available to people who don't want to purchase comprehensive insurance, but want some modicum of coverage.

Called “fixed-indemnity insurance,” these policies, in states where they’re available, pay beneficiaries a predetermined amount for certain medical costs. The policies do not comply with Obamacare, so beneficiaries are still subject to the individual mandate penalties. But because they can have significantly lower monthly premiums (think around $70 per month), it may be cheaper for individuals to purchase these non-compliant policies – even after taking into account the mandate.

With these policies achieving more attention and growing in popularity as individuals sought a way out of Obamacare, the scrutiny rose. Many liberals attacked these plans as a loophole within Obamacare, arguing that they were being marketed deceptively so that individuals would buy them thinking they were covered just as with regular insurance. But the plans are exempted from Obamacare's annual limit caps and because they only pay out a fixed amount, they can leave policyholders with an expensive stack of bills in the event of major medical losses.

HHS responded last month with a proposed rule that would only allow these plans to be exempted from Obamacare’s rules if individuals purchase them in tandem with another policy that is compliant with Obamacare. For instance, if you purchase qualifying insurance through an exchange that carries a higher deductible, you can still purchase a fixed-indemnity policy to help out with some of your out-of-pocket costs. But the plans would no longer be available to individuals looking to get around Obamacare by simply buying a bare-bones, non-compliant policy and paying the penalty.

In addition to taking away another choice remaining to individuals, the rule would represent a further expansion of federal power over the health insurance market.

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