The Commonwealth Fund
Pros and Cons of the President's Policy Fix for Health Plan Cancellations
November 18, 2013
By Sara Collins, Ph.D.
Last week, President Obama announced a transitional policy that would allow
many Americans whose insurance companies have cancelled their health coverage
this year to remain in their plans. This intervention was prompted by many
carriersf decisions to send cancellation notices to people and small businesses
with health plans through the individual and small-group markets that do not
meet the Affordable Care Actfs new standards for health insurance coverage.
While more comprehensive coverage is available through the Affordable Care Actfs
new insurance marketplace, many people who purchase coverage on their own have
been unable to easily determine their new options because of problems with
HealthCare.gov and some state marketplace websites.
The presidentfs policy is a way to honor his promise that Americans who wish
to keep their insurance can do so, despite the fact that the plans donft comply
with the lawfs consumer protections. But this idea is not without risk: If
younger and healthier people choose to stay in their old plans, there is a
chance that everyone in the marketplaces will face higher premiums. Fortunately,
there are a number of factors that should help mitigate that risk.
The Presidentfs Transitional Policy
The administration
details its new policy in a letter to state insurance commissioners. State insurance
departments are encouraged, but not required, to enforce this new policy, which
allows noncompliant insurance policies that have been cancelled, or are slated
for cancellation, to be renewed for plan years starting any time between January
1 to October 1, 2014. The proposal also leaves open the possibility that this
transitional period might be extended beyond next year.
Insurance carriers that opt to reinstate or continue substandard policies
must provide a notice to their customers that explains:
- how their health plans fall short of the Affordable Care Actfs new
standards;
- that the reform law provides new health plan options and that they might
be eligible for financial assistance through the lawfs new
marketplaces;
- how they might access the new marketplaces;
- that they may also enroll in a plan that meets the new requirements
outside of the marketplaces.
Potential Effects
While the presidentfs proposal could
help provide temporary relief to people whose plans no longer meet the lawfs
consumer protections, the policy also carries risk, foremost of which is higher
premiums for the millions of people expected to gain coverage in the
marketplaces in the coming years. Because carriers assumed that people in
substandard policies would buy new policies that do meet the lawfs new standards
next year, many priced their new products with the expectation that they would
be purchased by people of many different ages and health statuses. But because
younger and healthier people are the most likely to have had inexpensive plans,
this group might stay in their old plans. This means that people signing up for
marketplace plans could be disproportionately older and sicker. Some carriers
could consequently suffer unexpected losses in the marketplace plans and either
leave the marketplaces in 2015 or raise their premiums.
But these risks will likely be mitigated by at least three factors:
- the lawfs transitional risk corridor program;
- the comparatively small number of people who are affected and will
maintain their old plans; and
- improvement in the performance of the marketplace websites.
Risk corridor program. Insurers that face
higher-than-expected claims costs relative to their premium revenues will be
partly compensated through the lawfs so-called grisk corridor program.h Under
this existing three-year program, which is part of a broader premium
stabilization program under the law, insurance carriers with higher costs
relative to their premiums receive payments from the program, while those with
lower costs relative to their premiums make payments to the program. The new
policy letter suggests that the federal government might now enhance this
program. The downside is that the federal government may absorb some of the
cost. And carriers might still price products higher in 2015 than they might
have in the absence of the new policy.
Small numbers. We can assume that the number of people
likely to take advantage of the new policy will be relatively small. There are
an estimated 12.7 million people ages 19–64 who currently buy health insurance
on their own. An analysis
by Jon Gabel of individual market policies suggests that about half of that
group may have plans that do not meet the Affordable Care Actfs new standards.
But the Kaiser Family Foundation estimates that about half of people
with individual coverage will be eligible for new subsidies, potentially
lowering their premiums as well as their out-of-pocket costs. And Jonathan Gruber, an MIT economist, estimates that about
one-third of individual market policy owners would pay higher premiums next
year. While these groups do not fully overlap, we might expect that roughly 3
million to 4 million people might choose to renew their old plans.
Yet
this group could be smaller still. Consumersf decisions to renew under the new
policy will depend on the decisions
of their state insurance commissioners and current state insurance laws,
decisions of their carriers, their own considerations of their options relative
to the new plans provided under the lawfs new standards, and the ease with which
they can access the marketplaces.
Ultimately, the effect of the policy
on the marketplaces will be highly variable across states. In Florida, for
example, where state officials have indicated a willingness to allow carriers to
provide the renewal option, there are approximately 734,000 19-64 year old
adults with individual market insurance in the state. Florida opted for a
federal exchange, and according to the U.S. Department of Health and Human
Services (HHS), just 3,571 people had selected a plan as of November 2 .This may
mean large numbers of younger and healthier people with individual market
coverage may choose to renew and stay out of the marketplace in that state next
year.
In Colorado, where an estimated 301,000 adults have individual market
coverage, the state had already decided to allow renewals, and has said it will
work with insurers on this new policy. But the state is running its own
marketplace and has mounted an aggressive campaign to inform young adults about
their coverage options. Despite having a smaller population than Floridafs,
slightly more Coloradans, 3,736, had selected a plan by November 2. Washington
State and Rhode Island are both running their own marketplaces and have decided
not to allow renewals.
Website repairs. According to HHS, only 106,000 people had selected a
marketplace plan by November 2, an enrollment number that falls far short of
expectations. But a recent
Commonwealth Fund survey found that 58 percent of people potentially
eligible for coverage who did not enroll in October said they were likely to go
to the marketplaces to shop for plans by March 31. The faster HHS and state-run
exchanges fix their websites, the more likely people who had policies cancelled
will find new options on the marketplaces—and help contribute to their success.
Looking Forward
Given the confluence of the marketplace
website problems and the health plan cancellation notices, the Obama
administration has offered a transitional salve to affected Americans. The
decisions of states, insurance companies, and consumers on whether to renew
existing health plans will have implications for how well each state marketplace
ultimately functions for the millions of uninsured and underinsured Americans
who will gain comprehensive insurance coverage next year, with most eligible for
premium subsidies
We hope it wonft be necessary to extend this transitional policy beyond next
year, so that federal and state governments may provide the protections intended
by Congress to all Americans in the near future. In the end, U.S. insurance
markets will work most efficiently and fairly when everyone plays by the same
rules.