Canceled insurance policies lead to confusion as health care law kicks in

One of President Barack Obama’s chief selling points for the highly contentious Affordable Care Act (ACA)  was the promise that Americans wouldn’t have to give up their current insurance plans in order to adhere to the new law.

“If you like your current plan, you can keep it,” the president said repeatedly while campaigning for his signature legislative initiative.

But this week, Republicans were incensed about reports that health insurance companies were mailing letters to their enrollees telling them that their insurance plans are terminated starting in 2014 in order to meet the standards of the ACA. That raised a new wave of confusion about the already complex law. Could people keep their plans or couldn’t they? Why were plans being canceled?

GOP lawmakers tore into top health care administrators during congressional hearings this week, grilling both Health and Human Services Secretary Kathleen Sebelius and Medicare and Medicaid Services chief Marilyn Tavenner about the chaotic rollout of the law and the HealthCare.gov website, where uninsured Americans and those who don’t receive health insurance through their jobs have been told they can shop for affordable plans.

“Based on what little information the administration has disclosed, it turns out that more people have received cancellation notices for their health care plans this month than have enrolled in the (health care website)," said Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, during a hearing Tuesday in which Tavenner was questioned for nearly three hours.

He was referring to news reports and complaints from his constituents that at least 146,000 people in Michigan who currently purchase their health insurance plans on the open market would have their plans canceled. Hundreds of thousands of people in other states experienced the same phenomenon: Florida Blue is terminating 80 percent of its policies, affecting about 300,000 people, and Independence Blue Cross in Philadelphia will cancel policies for 45 percent of its customers.

Last spring, the National Association of Insurance Commissioners warned that health insurance carriers were planning to cancel plans and issue new ones, bringing them up to code, according to The Associated Press. And earlier this week, NBC News revealed that Obama had apparently known for years that millions of people who currently buy their own health insurance would have their plans canceled next year for not being up to code.

The president did concede in a speech in Boston on Wednesday that there were exceptions to his original promise, but he said the new standards as outlined by the ACA were replacing “substandard plans” offered by “bad-apple insurers.”

He urged those consumers with terminated plans to shop around on the marketplaces, admitting that while some would pay more for their new plans, most people would “get a better deal.” And White House spokesman Jay Carney told reporters that most people are “actually going to pay less come January for better coverage than what you’re paying now for far worse coverage.” 

Regardless of what the Obama administration knew or when it knew it, health policy experts say it’s crucial to remember that plans are being terminated because they don’t have the beefed-up patient protections that the new law requires.

While they may have been cheaper, those canceled plans didn’t include basics like hospitalization or even prescription drug benefits, which are among the 10 “essential health benefits” the ACA requires for all individual and small group health plans starting in 2014. Once their 2014 renewal date comes up, consumers will have to pick a new plan that provides those benefits, which is why so many insurers have opted to just cancel them now.

Employer-issued insurance is largely exempt from these requirements, meaning the changes affect only the 5 percent of the U.S. population who buy their plans directly from insurers, an estimated 10 to 15 million people, according to the Kaiser Family Foundation.

What’s more, the health care law has enacted new consumer protections barring insurers from discriminating based on health status or dropping customers altogether when they get sick — a far cry from the current market, in which initial prices will appear reasonable but will skyrocket as soon as a customer gets a serious illness such as cancer, according to Karen Pollitz, a senior fellow at the Kaiser Family Foundation.

Until the ACA passed, the individual health insurance market had been a Wild West of sorts, far more volatile and unreliable in terms of coverage or price in any given year and often offering minimal protections. In a word, “it’s flimsy,” Pollitz said. “It discriminates.”

“People tend to assume, not correctly, that when they do come into this market, that the insurance they buy is going to be the same as the coverage that they’d get through a job,” she said. “That has not been true, but people usually find out the hard way — they got sick, and now they’re in trouble.”

Many of these insurance plans, she said, offer partial protection, “kind of like having a seat belt that’s not connected to the seat.”

The Massachusetts health care law had something akin to the ACA’s essential benefits, called minimum creditable coverage. Not everyone was pleased about the state’s decision that insurance had to include prescription drug coverage, according to Jon Kingsdale, a director at Boston-based Wakely Consulting Group and the former director of the Commonwealth Health Insurance Connector Authority, the agency that led the state’s 2006 health insurance reform.

While there were some complaints from the 7.5 percent of the state’s population who hadn’t previously paid for prescription coverage and whose premiums and deductibles may have cost more, “it played out fine,” Kingsdale said.

He was quick to add, though, that his state wasn’t necessarily a good guide to the national outlook. “We didn’t have an entire political party trying to block and criticize and de-legislate health reform in Massachusetts,” he said.

Furthermore, it might be unreasonable for people to be making judgments about pricing in the new exchanges at this early juncture, experts say.

“This is very much evolving, even after January 2014,” Kingsdale said. “The health plans they are offering are going to change, the prices they’re offering are going to change," because insurers are essentially guessing how many people will sign up and, because pricing is based on the size and composition of the group, how much to charge.

The whole theory that competition will bring prices down did play out in Massachusetts, Kingsdale said — but it was six years after the fact. “It takes years for carriers to develop networks and figure out how to price,” he said. “The experience of Massachusetts is that competition will increase significantly, and there are some early indications of that.”

Finally, in regard to Obama’s claim that people whose plans are terminated can find better coverage on the new marketplaces at a similar price, analysts say that’s largely accurate because most applicants will qualify for government subsidies.  

“For most people, your premium is not going to be the sticker price, but some smaller price based on your income,” Pollitz said.

While some people may end up paying more than they did previously if their incomes are above 400 percent of the federal poverty line, the highest rate at which they’d qualify for subsidies, “there’s a whole range of circumstances, and I think where the administration got in trouble was saying, ‘You don’t have to change your policy,’” said John Holahan, a health policy fellow at the Urban Institute, a Washington-based think tank.

Because the law can't discriminate and healthier and sicker people will be placed in the same pool, costs for healthier people will go up, too. "Some people will be worse off," Holahan said.

And while new entrants to the market may not take great comfort knowing what might have happened if the ACA’s patient protections hadn’t been enacted, the reality is that what they spend on insurance in 2015 will look a lot closer to what they spend in 2014.

“They won’t see a dramatic pendulum of premium prices because you’ve made claims or just stayed in the market,” Pollitz said. “This (marketplace) really will become a place where you can come and safely and affordably stay for as long as you need.”