Getting Past The Health Insurance Plan Cancellation Hysteria

Much has been said recently about how the ACA is causing a tidal wave of policy cancellations, and resulting in people losing coverage that they would prefer to keep.  The frustrating part about this – as has generally been the case with every big uproar about the ACA – is that we’re not really getting a complete picture of what’s going on, and it’s hard to see the reality through all the hype and hysteria. So lets take a look at some facts:

  • The ACA relies largely on private health insurance carriers (the option for a single payer system was off the table before it was ever really on it).  Private health insurance carriers have always had the option to stop offering some plans or pull out of the market entirely.  They will continue to have that option in the future.   It’s true that complying with ACA regulations means that all carriers have to examine and possibly replace their plans all at the same time, but the same thing has been happening in a much more haphazard fashion – with much less in the way of regulations or consumer protections – for as long as there has been private health insurance.
  • In almost all cases, carriers who are sending out termination letters are continuing to provide health insurance.  They are offering to switch their insureds to new, ACA-compliant plans (of course, you also have the option to enroll in coverage from another carrier via the exchange – or off-exchange – during open enrollment).  In most cases, these carriers are not “exiting the market,” although I’ve seen it reported that way.
  • Mini-med policies and very limited benefit plans are a complete waste of money.   They never should have been allowed in the first place, but the part that – in my mind – borders on criminal is the fact that so many of these plans have long been marketed to people whothere are also policies that are really good, but lacking in minor areas:  an out-of-pocket maximum that's a little over the ACA limit, a policy that doesn't cover pediatric vision care... these are not in the same league as policies that cover $100/day in hospital benefits and leave the patient with the rest of the bill.  And yet they all fall into the same category of being not compliant with ACA regulations do not understand the downsides of the “coverage” they are purchasing.  Sales people for these plans prey on people who have low incomes and are desperate for coverage.  They love to explain how the policies have no underwriting, and cover “unlimited” doctor visits (or whatever other gimmick they contain) but gloss over the fact that almost nothing is covered if and when you have a serious medical issue and actually need health insurance.
  • Marsha Blackburn’s comment about people who prefer to “drink out of a red Solo cup and not a crystal stem” is not a good analogy if we’re talking about limited benefit plans.  The fact is, a red Solo cup and a crystal stem both get the job done:  they hold your beverage while you drink it.  A better analogy would be to ask if people prefer to drink out a sieve.  Because if you’re looking for something to hold your drink, that’s what a limited benefit plan is.
  • Then again, Marsha Blackburn’s primary concern seems to be getting rid of the ACA.  That doesn’t mean that she really understands the finer points of the law, only that she hates it.  Possibly more than she loves her country.
  • Some people do have high quality coverage that is getting cancelled and replaced with an ACA-compliant plan (we consider our family’s coverage to be in this category).  It may be that the policy has out-of-pocket limits that are above the limits set by the ACA, or it could be that some relatively minor component of the policy doesn’t meet the standards of the law.  If you have a policy like this and you’d prefer to keep it, you can check with your carrier to see if you can retain your current coverage until your renewal date in 2014.  And some carriers are offering early renewal at the end of this year that will allow policy-holders to keep their plans until the end of next year.  I know that this is frustrating.  Our family is in this situation.  I would have preferred that the ACA allowed higher out-of-pocket limits as an option for insureds who prefer to take on more risk in exchange for lower premiums.  But no law will ever fulfill every wish on everyone’s list.
  • If your policy is truly a high-quality plan (which means that it covers all or nearly all of the essential health benefits, has an out-of-pocket limit that you could actually afford to pay if necessary, includes a decent network of providers, etc.) and you have to switch to better coverage at a higher price next year, I understand your frustration.  And in that case, the red Solo cup might be an accurate analogy.  But if we’re talking about people like Diane Barrette and her $50/month policy that covered almost nothing, she’s switching from a sieve to something that will at least hold water (and  her subsidized premiums are around two hundred dollars a month.  She wouldn’t be paying the “retail” rate of five hundred plus that was widely reported across the internet).
  • But what about all the people who have purchased policies with very high deductibles in the past, simply because that was all they could afford?  Were those policies really creating a safety net if the insured was on the hook for $10,000+ in the event of a large claim?  Were the providers going to get that money in a timely fashion?  Was the insured still going to have to declare bankruptcy because of medical bills?  Maybe those people would be better served by a policy that has lower out-of-pocket limits (possibly in the form of a cost-sharing subsidy) and a subsidized premium.
  • If you “like” your policy even though it falls into the category of truly awful plans that don’t cover much of anything, chances are you haven’t ever had to use it for anything more than an office visit here and there.  That’s not the test of a good health insurance policy.  What would your policy cover in a worst case scenario?  Office visits are best case scenarios when it comes to health care.  Nobody goes bankrupt over a $150 office visit.  But people do go bankrupt over surgeries, hospitalizations, ICU stays, high-priced prescription drugs and chronic medical conditions that require extensive ongoing care.  Coverage for those sorts of things are the standard by which you want to judge your health insurance.
  • There are a wide range of plans that “aren’t good enough” to be ACA-compliant.  In some cases, the distinction is warranted:  plans that don’t cover prescription drugs at all (or only cover generics), limited benefit plans, policies with significant gaps in coverage for unarguably necessary services like hospitalizations and surgeries.  On the other hand, there are also policies that are really good, but lacking in minor areas:  an out-of-pocket maximum that’s a little over the ACA limit, a policy that doesn’t cover pediatric vision care… these are not in the same league as policies that cover $100/day in hospital benefits and leave the patient with the rest of the bill.  And yet they all fall into the same category of being not compliant with ACA regulations.  It’s understandable that people with the latter plans are irritated when they have to switch to new coverage, especially if the new policy ends up being significantly more expensive and they don’t qualify for subsidies.

All in all, there’s a lot of hype about policy cancellations.  Some valid, some not.  Everyone will have access to health insurance in the future.  Some will pay more for it than they do now.  The people with the lowest incomes will generally pay less.  But truly awful policies that don’t provide any sort of safety net are going away.  That’s a good thing.  And people with pre-existing conditions will be able to get coverage.  That’s another good thing.

Comments

  1. Sick of the Nonsense says:

    Best analysis I’ve read on the ACA. Thank you.

    People keeping asking if the President lied about keeping your existing health plan. Based on the 2010 ACA grandfathering, the President appeared to be (reasonably) accurate when making this statement in 2009.

    Why didn’t he “pivot” to a more complicated post-2010 statement? Something to the effect that the quality early ACA plans were part of the path to fair insurance that includes a larger risk pool.

    I’m one of those that’s enjoyed two years of free yearly checkups, a free colonoscopy, relatively low premiums with a hard OOP max, etc. I don’t like being mislead, but I get that politics has become like the famous Jack NIcholson line in “A few good men” — “You can’t handle the truth!”

  2. I’ve got to wonder about those plans that are being cancelled because of some minor thing that makes it non-ACA compliant. In some cases, insurance companies are telling people that they can switch to a different plan that is ACA compliant, but the cost for the new plan is far higher than the cost for the old plan. It seems to me that if the changes are minor, the cost of the new plan doesn’t need to be all that much higher than the cost for the old plan. This sounds like just a case of insurance companies trying to push people into buying a much more expensive plan, for the sake of padding their own profits.

    • Margie, even if the coverage isn’t dramatically different, the primary difference is that the new plans are guaranteed issue, while the old plans were medically underwritten. This makes a huge difference in premiums. If you compare existing individual plans with small group plans, you’ll find that the individual plans are usually about half the price of the group plans, even for comparable coverage. That’s primarily because group plans are guaranteed issue. The new ACA-compliant plans are much more like group plans in that regard. Although the existing individual plans were much less expensive than group coverage, they were only available to people in relatively good health. People with pre-existing conditions either paid more for their coverage or were declined. With the new plans, that’s no longer the case.

      The ACA brought in medical loss ratios (which have already been in use since 2011), limiting total admin expenses – including profits – in the individual market to no more than 20% of premiums collected. So premiums cannot be raised just to raise profits.

      • And that guaranteed issue is what makes insurance actually insurance. People talking about “the young and healthy” seem to think being young is a permanent state of being. Up until the ACA, once people became sick or older, their premiums often shot way up to the point they were unaffordable, or their policies were cancelled altogether. That might be another reason why the insurance companies raised rates. The pool of people the policy covered passed a certain age, so the insurance company might have to actually pay out on the policy. With the ACA, there’s a limit to how much higher the premium can be due to age, and your premium doesn’t go up because you get sick. In addition, for many people, there are the subsidies which bring costs down. The way insurance has been until the ACA, you could pay for it and pay for it when you were younger and then find its not there for you when you’re older and really need it.

        • Lots of good points Margie. The ACA does a good job of spreading the risk across a larger pool. Younger people will pay more than they used to in the past, but they will benefit directly from the law as they get older and/or develop health conditions.

          It’s a common misperception that pre-ACA health insurance could raise your rates simply because you got sick. This was not the case. People could not be singled out for rate increases based on their own health status, even prior to the ACA. Their initial rates when they applied for a policy were based on their health history – that’s what medical underwriting was all about. But once you had coverage, rate increases had to be applied uniformly across the group of insureds you were in (usually age-banded groups and geographic locations).

          • At yet it seemed to happen to plenty of people. Or people got their insurance cancelled. Part of it might be dramatic increases in the entire group because of age or because some people in the group got sick as time went on. That’s the danger of small pools or pools based on age. But I think there were also games based on pre-existing conditions, like combing through someone’s health records when they got sick and saying, “Here’s something you didn’t tell us about,” when it was something so minor, you didn’t think to tell them about it.

            • Yes, policy rescission was definitely a potential problem. Although it wasn’t as common as you might think, especially if applicants were using a reputable carrier and a broker who explained the importance of not being fraudulent in the health history section of the application, no matter how trivial the issue might have seemed (out of all the clients we’ve assisted with applications in nearly 12 years, we’ve never had a policy rescinded). Rescission was a scary possibility, and it’s true that some carriers (especially the ones that were shady in other respect too) did go back through applications after the fact, looking for medical history info that an applicant omitted. Now that medical history questions are no longer being asked, this is no where near as much of an issue as it used to be (the ACA still permits rescission in cases of fraud or misrepresentation, but there’s not as much possibility of this without medical history questions on the application).

              • I think you’ve hit the nail on the head, with the importance of medical history questions not being on the application. As to reputable carriers though, I’ve heard of or experienced problems with “reputable” carriers, so I’m not sure that “reputable” means much. We had a “reputable” carrier that continued to just say claims were “pending” while we continued to get bills from doctors that were getting more and more past due. We finally had to get help from our state’s insurance department (we had a good insurance commissioner at the time), and I had to spend hours putting together a five-page explanation and documentation of everything that had gone on. It was a good thing that I keep very good records, including records of conversations with the insurance company, or there’s no way I could have gotten the problem resolved. And sometimes a carrier that might be fine as long as you have a group policy with a large corporation, becomes a problem when you get into the individual market. In other words, when they’ve got an incentive to behave, because they don’t want to lose the business of a large corporation, they are more likely to behave. But when they’re dealing with an individual, the situation changes.

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