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4:58 pm ET
Oct 31, 2013


Q&A: Explaining the Widespread Health-Plan Cancellations

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  • Cancellations

  • Health Law Rollout

  • Obama Health Law

  • Obamacare

    By Sarah E. Needleman and Timothy W. Martin

    As many as 10 million Americans are expected to have their health plans terminated by their insurers effective Jan. 1 or after. Here’s a look at who’s affected, why and options for staying covered:

    Q. Whose policies are getting canceled?

    A.Many of those receiving policy-termination letters buy their health plans directly from insurers. These include self-employed individuals and early retirees under the age of 65.

    People covered through small-group plans—which apply to employers with fewer than 50 or 100 employees, depending on the state—will also face cancellations.

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    Q. Who won’t be affected?

    A. Americans whose plans will remain intact include employees of larger companies, as well as the 30% of the U.S. population on Medicare or Medicaid. Terminated policies won’t mean anything to the 48.6 million Americans who are uninsured, either.

    Q. Why is this happening?

    A. There are a few reasons. The most widespread is that few health plans sold in the past meet the new requirements of the federal health law, known as the Affordable Care Act. Now plans must include benefits such as maternity care, preventive care and mental-health coverage. They also can’t have life-time caps, and deductibles must now top out at $6,350 for individuals and $12,700 for families.

    “It’s a new market with new rules,” said Karen M. Ignagni, president of America’s Health Insurance Plans, the industry trade group. “New policies need to be created.”

    Another reason is that some insurers have decided that certain plans or certain regions aren’t profitable. A spokesman for Cigna Corp. said that 1,500 of the insurance company’s customers are having their plans canceled “in locations where we have very little membership.”

    Continuing to offer old plans in addition to new ones would also be impractical for insurers, according to Paula Wilson, a broker in Temecula, Calif. “An insurance company would have to retool its entire [information-technology] system to comply with the law. To maintain its old policies simultaneously would be very expensive and onerous,” she said.

    Q. Are there any exceptions?

    A. Plans sold before the health law was signed in March 23, 2010 are exempted from the wide array of benefits required by the ACA. But most individual-policy and small-group plans aren’t more than 3.5 years old.

    About 300,000 Florida Blue Cross & Blue Shield’s individual-policy members have plans that aren’t grandfathered from the new health law, according to a spokesman for the insurer. These customers are receiving cancellation letters instructing them to contact Florida Blue, as the insurer calls itself, and “review their migration options,” the spokesman said.

    A health-care plan can lose its “grandfathered” status if changes are made to it. For instance, this could happen if an individual or small-group policy holder increased the deductible for their plan more than 15% at any time after March 2010.

    Q. How much will the new, compliant plans cost?

    A. Brokers say they expect plans to cost more for many Americans because of the additional benefits that plans are required to have under the law and due to other new mandates. For example, plans with high deductibles of $10,000 or more are no longer permitted, meaning bare-bones coverage with low premiums could result in some people seeing substantial increases.

    To be sure, not everyone will pay more for health care. Some older Americans who buy insurance on their own could see a decline in their health-plan premiums, since insurers are limited in how much more they can charge someone based on their age; on the flip side, some young people could end up paying more for coverage similar to what they had previously. Government subsidies could also lessen a person’s monthly costs.

    Q. What if I’m on a small-group plan?

    A. Americans covered through small-group plans—which apply to employers with fewer than 50 or 100 employees, depending on the state—will likely see their premiums increase, too. That’s because insurers will no longer be able to set premiums for such plans based on a firm’s industry or the health or gender of its staff. Insurers will still be able to take into account the age of a firm’s workers, though to a lesser extent, and whether or not those people use tobacco.

    “The insurance companies have already run these groups through their new community rating models and they have projected that rate increases will be coming these businesses way,” said Paul A. Nachtwey, a broker in Beachwood, Ohio.

    Q. What are my options?

    A. Some brokers are advising consumers and small employers to renew their existing plans early, before Jan. 1, in order to avoid having to buy a potentially costlier plan for another 12 months.

    But not all insurers allow this option. As of Jan. 1, all individual and small groups covered by EmblemHealth, an insurer in New York, will be compliant with the health law, according to David Mahder, a spokesman for the company. This means that those plans will include benefits such as prescription-drug, vision and pediatric-dental coverage, he said.

    Jared Veteto, co-owner and president of Cogitic Corp., a manufacturer of submarine parts such as valves and fasteners in Colorado Springs, Colo., said his 15-employee firm was able to renew early and expand coverage through October 2014. But he acknowledges that the move is only a temporary solution. The company will need to purchase a new small-group plan next year because its current plan doesn’t comply with the law, he said. And depending on the cost of the new plan, it’s possible the company will have to drop coverage altogether.

    “I’m mad because at the end of the day the people going to be impacted the most are the employees,” Mr. Veteto said.

    Individuals and small employers may be eligible for subsidies if they buy health plans through the new state insurance exchanges. Small firms also may be able to save by switching to self-funded plans because these aren’t based on community ratings.

    Finally, Americans can choose to forgo insurance altogether and pay a penalty. The penalty is a flat amount or a percentage of income, whichever is greater, and it phases in over three years. For 2014, the dollar penalty is $95, rising to $695 as of 2016. The 2014 income percentage is 1% of annual income above the tax-filing threshold, rising to 2.5% as of 2016.


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