The individual mandate no longer applies to people whose plans were canceled

By Ezra Klein, Updated: December 19, 2013 - Washington Post

1. The individual mandate includes a "hardship exemption." People who qualify can either ignore the individual mandate altogether or purchase a cheap, bare-bones catastrophic insurance plan that's typically only available to people under 30.

2. According to HHS, the exemption covers people who "experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage under a qualified health plan."

3. Today, the administration agreed with a group of senators, led by Mark Warner of Virginia, who argued that having your insurance plan canceled counted as "an unexpected natural or human-caused event." For these people, in other words, Obamacare itself is the hardship. You can read HHS Secretary Kathleen Sebelius' full letter here. HHS's formal guidance is here.

4. How may people does this affect? No one quite knows. Republicans estimate that about 5 million people have seen their plans canceled. The Obama administration believes the number, at this point, is actually in the hundreds of thousands. There's no truly reliable figure here.

5. The Obama administration argues that there's little reason to fear that these people won't purchase health insurance if they could otherwise afford to. After all, they were already buying health insurance on the individual market before there was any penalty at all. They clearly want health insurance. This just smooths their transition and, in the cases where there really is financial strain, gives them time to figure out a solution.

6. But this puts the administration on some very difficult-to-defend ground. Normally, the individual mandate applies to anyone who can purchase qualifying insurance for less than 8 percent of their income. Either that threshold is right or it's wrong. But it's hard to argue that it's right for the currently uninsured but wrong for people whose plans were canceled.

7. Put more simply, Republicans will immediately begin calling for the uninsured to get this same exemption. What will the Obama administration say in response? Why are people who plans were canceled more deserving of help than people who couldn't afford a plan in the first place?

8. The same goes for the cheap catastrophic plans sold to customers under age 30 in the exchanges. A 45-year-old whose plan just got canceled can now purchase catastrophic coverage. A 45-year-old who didn't have insurance at all can't. Why don't people who couldn't afford a plan in the first place deserve the same kind of help as people whose plans were canceled?

9. The insurers aren't happy. "This latest rule change could cause significant instability in the marketplace and lead to further confusion and disruption for consumers," says Karen Ignani, head of the trade group America's Health Insurance Plans. They worry the White House is underestimating the number of people whose plans have been canceled and who will opt to either remain uninsured or buy catastrophic insurance rather than more comprehensive coverage.

10. This puts the first crack in the individual mandate. The question is whether it's the last. If Democratic members of Congress see this as solving their political problem with people whose plans have been canceled, it could help them stand against Republican efforts to delay the individual mandate. But if congressional Democrats use this ruling as an excuse to delay or otherwise de-fang the individual mandate for anyone who doesn't want to pay for insurance under Obamacare, then it'll be a very big problem for the law.

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