Early Renewal Does Not Mean You’re Taking Advantage of a Loophole

A few weeks ago, I wrote a post about our family’s health insurance policy and the changes coming in 2014.  To make a long story short, our premiums are going to go up significantly and we don’t qualify for subsidies.  We’re not complaining… we know that the ACA makes healthcare more accessible for a lot more people, and we’re grateful that we’ve always been able to purchase individual health insurance with no underwriting rate-ups or worries about pre-existing conditions.  Not everyone is that lucky.

But although we understand that our premiums have to go up, we’re also choosing to delay that as long as possible.  Our current Anthem Blue Cross and Blue Shield policy renews each year in September.  We just got our rate increase for 2013 last month, and our policy is now $454/month for our family of four.  Our out-of-pocket maximum is too high to be ACA compliant, so we’ll have to switch to a much richer policy in 2014.  And we’ll also be switching to a guaranteed issue policy (as will everyone in the individual market), which means that our premiums are going to increase sharply.

Early renewal is a good option for people currently insured and not a loophole in the ACAAbout half of the people who purchase policies in the individual market will qualify for subsidies in the exchange (marketplace), and many of the people who don’t qualify for subsidies will still have premiums that are somewhat similar to what they pay now, due to age and existing underwriting rate-ups.  There aren’t really that many of us who will see significantly higher premiums.  But if you happen to be one of the people who will end up with considerable rate hikes next year and your carrier is offering early renewal, it’s worth considering that option.

I read an article recently on the Commonwealth Fund Blog about how early renewal is a threat to the exchanges and amounts to carriers taking advantage of a loophole that legislators should work to close.  I respectfully disagree.  The authors do make some good points, but while they may be right about early renewals leading to higher premiums in 2015, it also stands to reason that the influx into the exchanges in late 2014 of all the people who early renew this year will lead to lower premiums by 2016.  By the end of 2014, all of the non-grandfathered existing policies will be switched to ACA-compliant plans, so it seems a bit alarmist to be calling for states to prohibit early renewals.  If our health insurance carriers are willing to allow us another few months of lower premiums, I dislike the notion that accepting that offer is tantamount to taking advantage of a loophole.

We like our current policy and we wish that higher deductibles were allowed under the ACA.  Although I’m a strong supporter of a law, I would have preferred that it allow people to choose their level of coverage from a broader range of options.  We’ve always had the option to pick a lower deductible policy – and pay more for it – but we haven’t done so because it’s not what we consider to be the best choice for our family.  We’re not complaining about the coming rate increase (this post explains our thoughts on that in more detail).  But we’re happy that Anthem is allowing us a few extra months with our existing plan.

Here’s how the math breaks down for us:  Our current plan is $454/month and will stay at that rate until September 1, 2014.  At that point, we’ll have to switch to an ACA-compliant plan.  Bronze plans for our family are mostly in the $750 – $1150/month range, although there are some Kaiser Permanente plans that are in the $550 range.  Switching to Kaiser would mean leaving our family doctor though, so it’s not a decision we’d make lightly.

Anthem is offering us a choice to renew again on December 1, 2013 (just three months after our last renewal, and the rate increase is prorated), with a new rate of $468/month.  The price would remain at that level until December 1, 2014, at which point we’d be switching to an ACA-compliant plan.  Since our renewal is already relatively late in the year, the early-renewal option doesn’t give us a whole lot of additional time.  But it’s also a very inexpensive choice for us, mainly because a December renewal comes so close on the heels of our regular 2013 renewal.

If we opt for early renewal, we’ll pay an additional $14/month for December 2013 through August 2014 (compared with what we would pay if we just kept our policy with the existing September renewal date).  That’s $126.  If we don’t early-renew, our rate will increase in September 2014 by at least $300/month.  For September – November 2014, that’s a minimum of $900.  Early renewal saves us that $900, which seems like a pretty good trade-off for the extra $126 we’ll pay for the first two-thirds of 2014.

Yes, I realize this keeps us in our current underwritten risk pool for another year.  I know that we could choose to enter the new risk pools and help to add to the roster of healthy enrollees.  But we’ll be doing that at the end of 2014 anyway, and early renewal only adds three extra months to our policy’s current renewal date (for people who normally renew early in the year, early renewal adds several months, but will also cost more since the December 1 renewal rate increase is prorated based on how long it’s been since your regular renewal).

The exchanges were designed to have increasing enrollment over the first few years.  The individual mandate penalty is only $95 per uninsured adult ($285 family maximum) or 1% of taxable household income in 2014, but this increases to $695 per adult ($2085 family maximum) or 2.5% of household taxable income in 2016.  Obviously there will be some people who opt to remain uninsured entirely in 2014, but secure health insurance in later years when the penalty becomes a bit more onerous.  The people who hold off on enrolling in a plan in 2014 are likely to be healthy individuals without an immediate need for healthcare.  If the success of the exchanges hinged on getting everyone enrolled in 2014, why doesn’t the law call for steep individual mandate penalties right from the start?  If the law is designed to ease people into the exchanges over a multi-year period, doesn’t it make sense that people who are happy with their existing individual policies should get to keep them for another few months?

I’m glad that Colorado is allowing existing polices to remain in place throughout much of 2014 for insureds who prefer that option.  It’s beneficial to us and to many of our clients who are in similar situations (not all carriers in Colorado are allowing early renewals or even allowing existing policies to continue until their scheduled 2014 renewal, but many are).  For a lot of people, switching to the exchanges is a much better option, thanks to subsidies as well as increased plan options and better coverage for applicants with pre-existing conditions.  But there’s no one-size-fits-all.  Carriers that are offering early-renewal are not forcing their insureds to accept it.  But for people who like their current policy and will end up paying a lot more for an ACA-compliant plan, early renewal isn’t a loophole.  It’s simply another option to consider.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP. Follow on twitter and facebook.

Comments

  1. I think a lot of people find themselves in the same situation as you. They like their current policy, and need a lot of time to weigh their option before making a decision. Good luck with your decision! Hope whatever you choose works out well for you!

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