The Affordable Care Act continues to unravel before our eyes. Tonight, Ezra Klein blogs that “The individual mandate no longer applies to people whose plans were canceled.” Now, you may ask yourself, what mandate? Isn’t there merely a tax on those who cannot afford health insurance? There was no mandate. The Solicitor General told us so.

Not so fast. In an effort to deal with the millions of people who have had their policies cancelled as a direct result of the ACA (even if you like your policy, you can no longer keep it), a few days before their own self-imposed December 23 deadline, HHS has determined that the individual mandate will not apply to anyone who had their policy cancelled. How in the world can HHS decide that the mandate, or tax, or penalty, or whatever it is applies?

Klein explains:

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.

Digest that for a second. “Obamacare itself is the hardship.” And I didn’t say this. Ezra Klein, perhaps the biggest champion of the ACA said it. This is a stunning admission. The crux of the entire law is beginning to unravel.

This new policy came in a letter Sebelius sent to a number of Senators, and a guidance document from CMS.

The guidance states:

If you have been notified that your individual market policy will not be renewed, you will be eligible for a hardship exemption and will be able to enroll in catastrophic coverage. If you believe that the plan options available in the Marketplace in your area are more expensive than your cancelled health insurance policy, you will be eligible for catastrophic coverage if it is available in your area.

And how does one request an exemption? By filling out a form and mailing it to London, Kentucky. You can’t even do it online?!

In order to purchase this catastrophic coverage, you need to complete a hardship exemption form, and indicate that your current health insurance policy is being cancelled and you consider other available policies unaffordable. You will then need to submit the following items to an issuer offering catastrophic coverage in your area: (1) the hardship exemption form; and (2) supporting documentation indicating that your previous policy was cancelled.

Oh, that’s easy enough.

For example, you can submit your cancellation letter or some other proof of cancellation. If you are applying for catastrophic coverage from the same issuer that cancelled your previous policy, the issuer may be able to confirm that based on its internal records. You may then purchase catastrophic coverage from that issuer. Your issuer will send these items to CMS, and CMS will verify that you were eligible for this hardship exemption. If you are not able to submit supporting documentation at the time you submit the exemption form, CMS will contact you to let you know your application is incomplete and cannot be processed until you submit supporting documentation of your previous policy’s cancellation

Remember all those Republican blogs where people post their cancellation notices. Life is imitating a parody. You have to send your cancellation notices to HHS. This is unreal. Like, we messed up your insurance. Send us a copy of your humiliating letter and we’ll not fine you.

This is surreal. Klein is concerned:

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 its wrong. But it’s hard to argue that it’s right for the currently uninsured but wrong for people whose plans were canceled.

And how come only those with cancelled policies will be exempt from the mandate/penalty/chimera? Why not those who lack insurance or could not obtain it.

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?

For crying out loud, Obama is doing what Ted Cruz wanted!? And now that they caved, there is blood in the water.

The entire core of Obamacare is unraveling before our eyes. Klein writes:

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.

If this law is delayed for another year, why not delay it another year. This makes repeal a much more viable option.

I’ll wait for Seth Chandler to assess how this will affect our adverse selection death spiral, but without revenue from the penalty, this could unravel very soon. Though, on the one hand, the President (finally) cut taxes for millions of Americans!

Update: More from Politico:

The move, which a senior administration official called a transition policy, would make the catastrophic option more widely available amid the political crisis over broken promises. The administration does not expect many people will take up the new option, but wants to ensure that it is available to those who had plans canceled. But it immediately provided new ammunition to Republican opponents of the health law.

“The Administration is recognizing the grim reality that more Americans have lost health insurance than gained it under ObamaCare,” Sen. Marco Rubio (R-Fla.) said Thursday evening. “Holding a fire sale of cheap insurance is not a responsible fix for a broken program. This is a slap in the face to the thousands of Americans who have already purchased expensive insurance through the Obamacare exchanges.”

Making catastrophic health plans more broadly available also poses problems for insurers. It could disrupt the insurance pools, since insurers and actuaries had assumed that people shifting from the old individual market would go into the new bronze, silver or gold plans on the Obamacare exchanges.

“This latest rule change could cause significant instability in the marketplace and lead to further confusion and disruption for consumers,” said Karen Ignagni, president of America’s Health Insurance Plans, an industry trade group.

The estimate that under a half million now lack coverage is much smaller than the projections that millions of people who lost coverage on the individual market could be uninsured on Jan. 1. Some reports had said as many as 14 million people could be affected by the cancellations but senior administration officials said the number was never that large. Some plans had been automatically renewed by insurers or extended under a grandfather provision of the law. Other plans were canceled because they didn’t meet Obamacare coverage requirements.

The officials said the half-million estimate represents their best approximation after gathering figures from insurance companies and state officials.