Understanding Cancellations of Individual Insurance Policies
|November 19, 2013||Posted by Lucien Wulsin under Blog||
Background on ACA Reforms
There are three different kinds of very important upgrades to individual policies under the Affordable Care Act: 1) underwriting, 2) ten essential health benefits, and 3) out of pocket rules.
Underwriting refers to guaranteed issue and renewal and pre-existing condition exclusions. Underwriting also refers to geographic rating, age rating and family size rating. The ACA requires that insurers sell to all comers during open enrollment with no pre-existing condition exclusions. Carriers cannot terminate your coverage, raise your rates or cancel coverage because you get sick or injured and require extensive treatments. Premiums can vary based on age, geography and family size, but not on gender or health status.
The ten essential health benefits refer to the minimum benefits, which are now becoming available to every American. These include hospitals, doctors, emergencies, prescription medications, behavioral health, maternity care, prevention, rehabilitation and child dental and vision services.
Out of pocket refers to copays, deductibles, yearly and lifetime caps, and annual out of pocket maximums for patients and consumers. The ACA eliminates annual and lifetime caps, authorizes plans that will pay between 60% and 90% of expected medical expenses as well as catastrophic coverage for the young and for those with financial hardships, and caps individuals’ annual out of pocket maximums at $6350 for an individual and $12,700 for a family.
“Grandfathering” refers to individual and small employer plans purchased prior to March 23, 2010. Grandfathering allows individuals to keep plans with pre-existing condition exclusions and rates that vary based on gender or health status, or which lack the ten minimum benefits or have exposure to high out pocket costs.
Insurers have sent cancellation notices and the opportunity to enroll in ACA compliant plans to their individual subscribers whose coverage was both substandard and not grandfathered. For some this involved “sticker shock” as their existing plans were very substandard. This was met with a firestorm of opposition from individuals whose plans were being cancelled and some of whose premiums were about to be increased. Some were even unaware that their premiums were actually being decreased and their coverage improved under the ACA.
The President’s “Fix”
The President has now said insurers can retract those cancellations and individuals and small employers can keep substandard coverage for at least the year 2014 provided the individual plans and the individual states agree. Republicans in the House have introduced legislation that allows individuals to keep all existing policies and insurers to continue to sell sub-standard plans. This has passed the House. A Senate measure by Senator Mary Landrieu codifies the President’s actions.
The State Insurance Commissioner has stated that insurance companies that do not participate in Covered California will be allowed to reinstate cancelled policies. They may or may not do so, this is up to the individual insurance carriers. At this time, no decision has been made about companies that do participate in Covered California. Participating insurers were required to cancel all non-grandfathered policies that existed outside of Covered California. The Exchange is expected to announce their response to the President’s change this week.
The problem with these approaches is that they establish two separate risk pools in the individual market.
We are skeptical that is a good idea or even a workable one for more than a short time frame. The old substandard policies that an individual may well prefer today will over time become a stagnant risk pool; risks will rise and premiums will follow suit. Individuals will exit from their old policies into the new ACA covered plans during open enrollment periods. This could be an acceptable transition over a year or two, but the confusion factor will be substantial for individuals with substandard policies who need valuable health care and cannot get it under their old policy and want a new one. The House bill avoids the stagnant risk pool problem by allowing new subscribers to purchase the old substandard coverage policies; this has the potential to turn the ACA’s new guaranteed issue pool into a bad risk pool – a far worse scenario.
There is an enormous amount of misinformation, misunderstanding and obfuscation in the public discussions of this issue. Questions are asked about the ten essential benefits, which we will try to answer.
- Why should I have maternity coverage when I’m a 55 year old couple past child bearing years?
- Or a 24 year old unmarried male?
- Or why do I need coverage for rehabilitation or for behavioral health?
- Why should I have coverage for children’s dental and vision?
All of these benefits are in the ten essential health benefits, but they have very different values depending on your age. For example children’s dental and vision are a large part of the value/premium for children, but they represent $0 value and no part of the premium for adults.
Likewise maternity benefits make up close to $0 value for 60 year olds past the child bearing ages, but a very large share of the premium for men and women in their 20s and 30s. While cancers, heart attacks, chronic disease and strokes make up a very high share of the premiums for those 50 and above and a very small share for those in their 20s. There appears to be a complete misunderstanding of the equal importance of young men in the reproduction of the species, which typically involves the participation of both men and women.
If you have broken a leg, or hip, suffered brain trauma, been in a bad car accident, been injured in sports, been injured in the wars, had a stroke or heart attack, you understand and can vouch for the importance of the rehabilitation benefit. One may hope to never need that particular benefit, but if you are badly injured, rehabilitation is both very expensive and absolutely vital to returning as much of independent functioning in the essential activities of daily living as possible.
Mental illness affects one in five Americans during their lifetimes; it affects the young and the old, men and women, and it often arises unexpected out of unforeseen life traumas.
Because premiums under the ACA are age rated, you are paying for the benefits that people in your age cohort need. Ultimately, you do not always know what health care services you will need or when you will need them, thus it’s necessary to have coverage for all important services, should you need that benefit.
What should be done to help those with premium increases and no premium assistance under the ACA?
First for those in the individual markets who are having difficulty affording the upgraded benefits, there should be ready availability of catastrophic coverage. Under the ACA, this is available for all with financial hardship or anyone under the age 30. Financial hardship is defined as the premiums for the lowest cost bronze coverage exceeds 8% of an individual’s income. This ought to be readily available through Covered California and the Internet application process.
Caution is needed as none of the premium assistance or out of pocket assistance available through the ACA is available for individuals who choose catastrophic plans. This fix could be done with ease by the state and federal governments. Second, individuals whose premiums for the lowest cost bronze plans exceed 8% of their income should qualify for a tax deduction. This is not as valuable as the refundable tax credits/premium assistance under the ACA, but it would bring those with individual coverage more on par in terms of favorable tax status with those employees with employment based coverage. This would require a bi-partisan agreement in Congress.
 See Wulsin, Understanding the ACA’s Individual Market Reforms (ITUP, November 2013) at http://itup.org/insurance-exchange/2013/11/05/understanding-acas-individual-market-reforms/ and Coleman, Individual Insurance Cancellation Letters: Frequently Asked Questions (November 12, 2013) at http://itup.org/category/blog/ http://www.whitehouse.gov/the-press-office/2013/11/14/statement-president-affordable-care-act
 Pear, House Approves Bill That Allows Policy Renewals, New York Times November 15, 2013) at http://www.nytimes.com/2013/11/16/us/politics/obama-to-meet-with-insurance-executives.html?hpw&rref=us