Why some plans are being canceled
Q: These insurance cancellation notices. What’s the deal?
A: Let’s start with the very basics. About 15 million people purchase health insurance policies on the individual market. That’s about 5 percent of the population. When they do so, they typically purchase a 12-month contract with an insurance company. And when that contract runs out, both the individual and the insurance plan have an escape hatch. The individual can decide to no longer purchase the plan — and the insurance company can decide to no longer offer the plan.
Most individuals don’t stay in the individual market very long: One study, published in the journal Health Affairs, found that 17 percent of individual market subscribers purchased the same plan for two straight years or longer.
There are some restrictions on how insurance companies can terminate products. HIPAA, a health law passed in the 1990s, requires that insurance companies offer subscribers the opportunity to renew their policy, so long as they continue to pay monthly premiums. If they want to discontinue a subscriber’s policy, the insurance plan must provide 90 days notice and “the option to purchase any other individual health insurance coverage currently being offered by the issuer for individuals in that market.”
And these are the notices that insurance plans are sending out right now, to hundreds of thousands of subscribers: notices saying that they do not plan to offer the policy anymore, and information about what policies will be available.
Q: Why now?
A: Some — or maybe even most — of the plans offered on the individual insurance market right now don’t meet requirements in the health care law. They may not offer preventive care without co-payment, for example, or leave out coverage of maternity care, one of the health care law’s 10 essential benefits. Some of these plans have stuck around for a little bit. The health law allowed plans that existed in March 2010, when it became a law, to keep selling coverage. These are known as “grandfathered plans:” They don’t meet the health law’s requirements, but as long as they don’t change much, insurers can keep offering them.
Insurance companies typically do like to change their insurance plans, making changes to cost-sharing or the benefits they offer. That means that grandfathered plans have disappeared.
These cancellations are, essentially, a lot of grandfathered plans exiting the insurance marketplace. From an insurance company’s vantage point, grandfathered plans are a bit of a dead end: They can’t enroll new subscribers and are really constrained in their ability to tweak the benefit package or cost-sharing structure. There’s not a whole lot of business sense, for a managed care company, in maintaining a health plan that doesn’t meet the health law’s new requirements.
Q: How many people are going to get cancellation notices?
A: It’s hard to put an exact number on this, given that insurance plans are the ones who decide whether or not to continue offering an insurance product. Experts have estimated that somewhere between half and three-quarters of those who currently buy their own policies will not have the option to renew coverage, which works out to around 7 to 12 million people.
Q: Does a cancellation mean I’m going uninsured?
A: No. Insurance plans are required by law to tell you about other options they offer if they discontinue their policy. Individuals with discontinued policies will have the option to buy through the new insurance marketplaces (well, if they start working a little better) or they can do so outside the new marketplaces, pretty much like they have in years past.