In a desperate, and likely futile attempt to stem losses in the November mid-term elections Obama Said to Allow Two-Year Renewal for Old Health Plans.

Americans who kept health plans that don’t comply with Obamacare requirements will be able to renew those policies for two more years, according to a person familiar with the matter.

The Obama administration, which has been deliberating the issue since November, is expected to announce today the extension of the health plans, said the person, who asked not to be identified because the decision wasn’t yet public.

Insurers sent letters to policyholders canceling the health plans as the new government exchanges opened Oct. 1. The letters caused a political headache for President Barack Obama, who had promised during the debate on the Patient Protection and Affordable Care Act that people who liked their health plans wouldn’t have to change them. About 2.6 million Americans received the cancellation notices, according to a study published March 3 by the journal Health Affairs.

“It’s clearly been a damaging gaffe that the president doesn’t want to hang around the neck of fellow Democrats this fall,” John Gorman, the executive chairman of Gorman Health Group, a Washington consulting firm, said in a phone interview. 

Allowing people to renew old health plans may mean that some young and healthy Americans won’t have to sign up for plans in the Affordable Care Act’s exchanges, leaving a sicker and older population of customers.

“Exchange enrollment will be lower than expected,” Brian Wright, an analyst with Monness, Crespi, Hardt & Co. Inc. in New York said by e-mail.

One consequence of Obama’s policy may be that insurers in the exchanges, faced with sicker customers than they expected, will have to draw more heavily on federal programs intended to limit their financial losses.

The Obama administration said yesterday that one such program is expected to payout about $5.5 billion to companies that lose money on their exchange business next year. While the program, called risk corridors, is supposed to be fully funded by taking money from insurers who turn a profit on the exchanges, there may not be enough plans in the black.

“It does mean that they’ll be tapping more into that pool of money to backstop some of the losses, I would think,” Ana Gupte, an analyst at Leerink Partners in New York, said in a phone interview.

People who stayed on old plans, which don’t carry the Affordable Care Act’s consumer protections, are believed to be younger and healthier in general than people on exchange plans. The insurer Humana Inc. (HUM) said in January that its exchange customers would be sicker and older than it expected in part because Obama allowed renewals of old plans.

Allowing the plans to be renewed “is sort of anathema to the rest of Obamacare,” Gorman said. At least 28 states allowed plans to be extended under Obama’s policy, according to the Commonwealth Fund, a New York foundation that studies health policies.

Don’t Expect Insurers to Follow 

Although 28 states allow plan extension, insurers will not necessarily follow. Once plans are cancelled there are regulations, procedures, and costs associated with bringing those plans back. Then the plans will go away in two more years anyway.

Although cancellations only affected a small number of people percentage-wise,  that still amounts to 2.6 million unhappy voters.

Millions of others are unhappy their costs went up.

Of course some are happy their costs went down, but the overall effect of Obamacare is that some small number of people are way better off, with a far larger number of people who are somewhat to way worse off.

This does not bode well for Democrats in the mid-term election.

Mike “Mish” Shedlock