By now you’ve seen the stories: people across the country have been notified that their existing healthcare plans are being canceled thanks to the new Affordable Care Act (ACA) rules going into effect in 2014. What's behind health insurance cancellation?
In some cases employers are choosing to drop coverage - for reasons unrelated to the ACA. But when the canceled plan is an individual policy, the reasons for cancellation can be a little more complicated—and the final decision to keep or kill a policy is usually up to the insurer.
No love for grandfathered health insurance plans
You may have heard reference to Obama’s statement that, “If you like your plan, you can keep it.” While that statement was clearly an oversimplification of the reality of the ACA, it’s generally true under the law’s “grandfathering” provision.
What’s grandfathering, you ask? The law offers insurers “grandfathered” status to plans sold on or before March 2010 on one condition: from that point forward, the insurer can only change the plan up to a certain point when it comes to reducing coverage or increasing costs. For example, the insurer can raise your premium, but it can’t increase your co-payment more than a certain amount, and it can’t lower the annual dollar amount limit of your benefits at all. You can see a full list of dos and don’ts on page 2 of this fact sheet from the Department of Health and Human Services.
But just because a plan is grandfathered doesn’t mean an insurer will want to keep offering it.
First of all, the insurer might want to increase the cost of a current plan more than what’s allowed. Before the ACA, each time the policy was renewed (usually annually), the insurer could—and usually did—make adjustments to cost sharing and benefits that reduced its value to the consumer. Now, there are limits to how much it can change. From a business perspective, it’s sometimes better to just start over from scratch.
What’s more, in some cases the insurer may want to push a far more expensive plan but sidestep customer anger. Some canceled plan letters that insurers have sent out fail to mention the ACA marketplace and instead recommend alternate plans that are considerably more expensive. The new 2014 requirements and general public confusion here at the end of 2013 offer a perfect smokescreen for pushing these plans while avoiding blame.
In other words, that “keep your plan” promise should in this case be changed to, “If you like your grandfathered health plan and your insurer decides to keep offering it, you can keep it."
There’s no denying that the ACA is forcing insurers to offer higher-quality plans from now on, which is ultimately a good thing. A report on essential health benefits from December 2011 notes that 9% of individual policy holders didn’t have basic prescription drug coverage, 34% didn’t have substance abuse coverage, and a whopping 62% didn't have maternity coverage.
Insurers are adjusting their offerings accordingly to meet profitability requirements, but the use of the word “canceled” is something of a marketing ploy. Well before the ACA, insurers often raised costs and reduced benefits when renewing plans. This year, the ACA just happens to be a great place to hide the changes.