New Obamacare confusion: Can you keep your policy? Maybe.

November 20, 2013: 11:48 AM ET

President Obama now wants to let consumers keep their canceled health plans. Easier said than done.

By Jen Wieczner, writer-reporter

A group of CEOs of major health insurers visited the White House to discuss the rollout of Obamacare in late October.

A group of CEOs of major health insurers visited the White House to discuss the rollout of Obamacare in late October.

FORTUNE -- Last week, President Barack Obama said he would allow insurers to extend for another year health insurance plans that they canceled because the policies don't meet Affordable Care Act standards. The President's about-face, announced as he apologized for the "fumbled" rollout of the law, echoed his early health reform promise that, "If you like your health-care plan, you can keep your health-care plan."

But in doing so, Obama might have made a pledge that he can't keep.

The reversal whipsawed insurance companies, who were preparing to terminate and forever put to rest thousands of individual health policies that were inadequate under the new law, and to transition customers to more comprehensive plans. Now, it's up to the insurers to carry out the President's promise—and they have several good reasons not to. Even if they agree, many state regulators still might put a stop to it.

Bringing health plans back from the dead—if it's possible at all—is a nightmare in practice for insurance companies, regulators, and even consumers, policy experts say. After all, insurers canceled health plans that were below standards of the Affordable Care Act in order to comply with the legislation. In many cases, reinstating the policies could require more than flipping a switch. Rather, insurers might have to rebuild policies from scratch—renegotiating terms with hospitals and doctors and setting prices for a sub-par product they never expected to sell.

"There are a number of operational questions about how it will be possible to go back and change what's already been done this late in the process," says Robert Zirkelbach, spokesperson for America's Health Insurance Plans, the trade organization representing the industry. "They're changing the rules in the middle of the game."

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Except that, actually, the rules didn't technically change, despite what the President said. His new directive is not binding. So nothing is actually forcing insurers to continue offering medical policies that would have been illegal under the health law next year. Sen. Mary Landrieu (D-La.) quickly put forward the Keeping the Affordable Care Act Promise Act, a bill that would require insurers to extend or reinstate consumers' current plans. But as the law stands now, insurers can make their own call. "There's no mandate here," adds Zirkelbach.

Still, though insurers are not required, renewing policies would likely curry favor with the federal government, says Vishnu Lekraj, a senior analyst at Morningstar covering health care. And while doing so would likely put a "greater administrative burden" and cost pressures on smaller, regional insurers, it's not such a big deal for national companies like UnitedHealth Group (UNH), WellPoint (WLP), and Aetna (AET), for whom individual health plans are only a "very tiny" 2% to 2.5% of their total insurance business, according to Lekraj. "It's not going to take a whole lot for them to renew these policies" he says.

Some insurers are actually welcoming the change as an opportunity to satisfy and retain the handful of customers whose plans were canceled. Cigna (CI) says its 200,000 individual and family health plan customers make up just over 1% of its overall business, and 99% of them already have the option to renew their coverage. Now, the company is working to give all of them that choice, says spokesperson Joe Mondy.

But the bigger question seems to be whether state insurance commissioners will actually allow companies to sell low-quality policies that health reform was supposed to phase out. So far, 13 states have said that they will allow consumers to renew canceled plans, and eight states, including New York, have announced that they will not honor the President's request.

Aetna, for one, says it supports efforts allowing consumers to keep their current insurance coverage, but with the caveat that regulators would not only have to expedite the usual rate approval process, but also figure out a way to counteract the "destabilizing impact" the move is likely to have upon plans sold in the ACA exchange marketplaces, says Aetna spokesperson Susan Millerick.

UnitedHealth Group says it is likewise waiting for cues from the states before moving forward, and WellPoint, which operates Anthem Blue Cross and Blue Shield plans, says it has yet to make a decision. Regulators, for their part, are ambivalent at best: "It is unclear how, as a practical matter, the changes proposed today by the President can be put into effect," Jim Donelon, Louisiana insurance commissioner and president of the National Association of Insurance Commissioners, said in a statement.

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Indeed, while some consumers and Republican lawmakers cheered the President's change of tune, insurance policy makers are warning of an Obamacare apocalypse if insurers do actually bring the canceled policies back to life. Beyond the operational headache of allowing people to stay on their old insurance—some of whom may have already enrolled in a new health plan—insurers and regulators worry that the move could splinter the insurance market, making it harder for companies to cover their costs.

The people most likely to renew cancelled plans are young, healthy consumers, as the plans generally had inexpensive premiums and minimal coverage. Insurers, however, were counting on those healthy people to enroll in new (potentially more expensive) health plans, subsidizing the influx of sicker customers who are likely to buy coverage in the health insurance marketplace created by the Affordable Care Act. "Being able to bring in a variety of customers and a diverse risk pool is essential in order to price your products properly," says Lekraj.

Without the healthy cohort, the new market could end up being disproportionately exposed to risk—and much costlier to insure. "If people stay on their policies and don't go on the marketplace, that could result in fewer, younger healthier people, and much higher premiums as a result," says Zirkelbach. Not exactly a recipe for success.

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