Reform Update: White House Move to Limit Insurance Cancellations May Backfire
By Paul Demko, November 14, 2013
Seeking to defuse a growing political furor as millions of Americans receive cancellation notices from health insurers, the Obama administration will not require insurance companies to upgrade existing individual plans to meet the requirements of the federal healthcare law for 2014.
The announcement comes a day after the administration reported that just 106,000 Americans enrolled in private plans through the law's health insurance exchanges through Nov. 2. A number of Democrats have signaled they would support legislation to address the cancellations and the troubled rollout of the exchanges.
“This fix won't solve every problem for every person, but it's going to help a lot of people,” President Barack Obama said in announcing the change during a White House briefing Thursday.
But the change, which administration officials said can be done without legislation, could lead to increased premiums and undermine the risk pool for the fledgling state and federal insurance exchanges. In addition, insurance commissioners in at least two states—Washington and Arkansas—quickly indicated that they would not allow insurance firms to reinstate canceled plans.
The change is, in essence, an extension of the grandfather clause that was part of the Patient Protection and Affordable Care Act. Under that provision, individuals can keep plans they had at the time the law was enacted in 2010 (unless the insurer had made significant changes to the plan). The administration now says the exemption will allow consumers to keep any plan they're currently enrolled in—provided their insurance company continues to offer it.
“We put a grandfather clause into the law, but it was insufficient,” Obama said. “That's something I deeply regret because it's scary getting a cancellation notice.”
Insurance companies will have the discretion to decide if they want to continue offering the non-complying plans for 2014. They'll also need to get permission from state insurance commissioners. Given that there are fewer than six weeks left until those plans would take effect, this could prove a formidable logistical hurdle to overcome.
Insurers that choose to take advantage of the change also will have to follow two rules. They'll have to notify consumers what benefits their plans exclude that would otherwise be required under the Affordable Care Act. In addition, they must tell consumers that they have other options available to them through the exchanges.
“Changing the rules after health plans have already met the requirements of the law could destabilize the market and result in higher premiums for consumers,” Karen Ignagni, president and CEO of the trade group America's Health Insurance Plans, said in statement reacting to the policy. “Premiums have already been set for next year based on an assumption of when consumers will be transitioning to the new marketplace. If now fewer younger and healthier people choose to purchase coverage in the exchange, premiums will increase and there will be fewer choices for consumers.”
The National Association of Insurance Commissioners and the American Academy of Actuaries likewise said that the administration's new policy could upset the individual insurance market.
Premiums approved for 2014, the actuaries said, may not “adequately cover the cost” of providing benefits for a population with higher claims than what was assumed when premiums were calculated. The group also said relaxing the plan cancellation requirements could hike premiums for 2015.
“Insurers cannot increase premiums in future years to make up for prior losses,” the organization said in a statement. “However, assumptions regarding the composition of the risk pool would reflect plan experience in 2014.”
Meanwhile, the change is unlikely to placate Republicans who have repeatedly sought to repeal or cripple the controversial healthcare legislation. But Obama took action after a growing chorus of Democrats, including former President Bill Clinton, called for allowing current individual policies to be renewed.
The House is expected to vote Friday on a bill, sponsored by Rep. Fred Upton (R-Mich.) that would allow insurance companies to continue selling all policies currently on the market in 2014 regardless of their adherence to ACA requirements. It would also stipulate that any policy sold by insurers satisfies the individual mandate.