(Adds details; background; Republican and business reactions; GAO probe of Oregon marketplace)
By David Morgan
WASHINGTON, March 5 (Reuters) - The Obama administration on Wednesday said it would allow health insurers to extend plans that fail to comply with its signature health law for an additional two years, a move Republicans quickly condemned as a politically motivated delay.
In a release of new guidelines to insurers and employers for 2015, the administration said it would now allow renewal of noncompliant health plans that begin as late as Oct. 1, 2016. Officials said they believe the change would affect 500,000 to 1.5 million people who hold "transitional policies" that lack consumer protections enshrined in the law known as Obamacare.
The policy stems from a wave of insurance plan cancellations last year that sparked a public outcry against President Barack Obama and Democrats, forcing the administration to abruptly allow people to renew noncompliant policies in states where regulators allowed the change. At least 23 states have accepted renewals.
Administration officials said the two-year extension was intended to give consumers added time to consider switching to Obamacare-compliant plans and predicted the number of future renewals would shrink rapidly from a limited pool of policyholders.
But Republicans, who have accused Obama of misleading the public about being able to keep their plans, said the change was intended to help Democrats in this year's November congressional midterm elections by eliminating the likelihood of more cancellations in the weeks ahead of the poll.
"This reeks of politics," said Brendan Buck, spokesman for House Speaker John Boehner. "Instead of working with Congress to prevent Americans from losing the plans they like and can afford, the president is unilaterally rewriting laws around the election calendar."
Administration officials denied political motivation, saying Obama directed his administration to provide certainty for consumers, businesses, insurers and states by getting directives for 2015 out early.
"We're doing this in the right way, for the right reasons," one official said.
Another set of guidelines laid out how the administration will mitigate risk in new private insurance markets established by Obamacare including changes intended to stabilize premium levels by compensating insurers for potential losses from the renewal extensions.
Republicans have warned that renewals could lead to a taxpayer bailout of insurers by encouraging young healthy policyholders to remain independent and leaving the marketplaces with old or sick policyholders who would be costly to insure.
But officials said they expect to make risk adjustments that would be budget neutral under Obamacare, known formally as the Patient Protection and Affordable Care Act (ACA).
"There is broad agreement that if more young and healthy individuals choose not to participate in the new marketplaces, it could lead to higher premiums for those consumers that remain in the exchanges," said Karen Ignagni, president and chief executive officer of America's Health Insurance Plans, a industry lobby and trade group.
"We are currently reviewing the new changes to the premium stabilization programs to assess their impact on affordability for consumers," she said in a statement.
More than 4 million people have enrolled in health insurance through the marketplaces since the law's botched rollout last October, which has kept enrollment numbers below initial projections. The 2014 enrollment period ends on March 31, and the administration has acknowledged that the final tally could be between 5 million and 6 million enrollees, short of the 7 million initially forecast.
Officials indicated that they could relax a consumer-protection rule that currently prohibits insurers from spending more than 20 percent of plan revenues on administrative costs, including marketing, in response to risk-related issues.
The administration also issued new rules and guidelines including an extra month for consumers to sign up for 2015 coverage, an early indication of insurance costs and extra time for states that now have federal marketplaces to decide to run their own exchanges.
Consumers will now have a three-month open enrollment period, running from Nov. 15, 2014, to Feb. 15, 2015.
But some can expect plans with higher out-of-pocket costs. Maximum levels on out-of-pocket expenses, designed to protect consumers from extraordinarily high costs, will rise to $6,600 for individuals and $13,200 for families, the administration said. Expenses are currently capped at $6,350 for an individual and $12,700 for a family.
The administration also issued regulations laying out the procedures that insurers and employers need to follow to report on the insurance status of workers and customers. Officials said the rules streamline the process that employers will have to follow as the law's employer mandate is phased in over the next two years.
But some employer groups found little to cheer about. "Complying with the ACA reporting requirements will be an extremely daunting task for retailers. The administrative complexities of collecting and reporting this data ... is mind-boggling," the Retail Industry Leaders Association said in a statement.
Under the changes, state governments that currently have federal partnership marketplaces will have until the end of June to file blueprints to run their own marketplaces beginning Jan. 1. Previously, the applications were due in January.
In separate development, the investigative arm of Congress said it would look into the operation of marketplaces run by individual states including Oregon's troubled program.
The announcement by the Government Accountability Office followed requests by a number of lawmakers, Republicans and Democrats, for an investigation into the Cover Oregon health insurance exchange and the $304 million in federal money it has received. Due to technical glitches, Oregon's exchange still does not permit members of the public to self-enroll for health insurance. (Additional reporting by Will Dunham in Washington and Caroline Humer in New York; Editing by Peter Cooney and Cynthia Osterman)