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Let’s call the whole thing off

When President Obama signed Obamacare into law, Joe Biden famously told him, “this is a big f___ing deal.” So too, minus the adjective, is the Obama administration’s decree that those whose health insurance policies were terminated will be allowed to buy catastrophic coverage and will be exempt from the statutory penalty if they choose to opt out of Obamacare next year.

Democratic Senators from swing states certainly hope that their constituents will see the exemption as a big deal. Six of them (Warner, Kaine, King, Landrieu, Shaheen, and Heitkamp) apparently requested it, and HHS Secretary Sibelius announced the change in a letter to the six.

However, these Senators and others touting the decree will have to explain why the exemption (a) is only temporary, presumably good for one year and (b) is offered only to those who lost their insurance plans this year. After all, Obama didn’t promise that if you like your insurance plan you can keep some other plan you may like for a year.

As Ezra Klein puts it:

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.

Obamacare proponents must also be prepared to discuss what comes next. Millions of people will likely lose their existing insurance coverage in 2014, as employers conclude they would rather pay a penalty than provide the kind of coverage Obamacare mandates. Will these people get an exemption? If so, it will blow a huge hole in Obamacare. If not, why not?

And what will be the impact on the insurance market of the exemption just granted, which permits a large group of relatively healthy individuals (the kind who favor catastrophic plans or who are now willing to forgo insurance entirely for a year) to opt out of Obamacare? According to Avik Roy, it will be substantial and adverse:

This new “hardship exemption” will encourage healthier individuals, whose expected spending would be low, from dropping out of the pool. As a result, average spending per enrollee on the exchanges is likely to be substantially higher than the insurers had planned for, forcing them to lose money on their policies.

This means that prices for 2015 will probably rise. And that means that the “hardship” of purchasing Obamacare-compliant plans will become even greater than the hardship that spurred this exemption.

Obama clearly is less concerned with the long-term consequences of the exemption than with helping nervous Democrats to get through the next election. But I doubt that the finger he has placed in the dike will hold for the next ten months. And even if it does, enough water has already passed to jeopardize the electoral prospects of many Democrats.

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