National Consumers League

Cancelled policies, mandatory insurance, oh my! What consumers need to know about health care insurance

92_ayannaHealth care Marketplace exchanges went into effect on January 1. Since open enrollment began in October, 6 million+ people have enrolled for new coverage under the law. Enrollment is still ongoing, and if you sign up by January 15, coverage will be effective on February 1. Despite the good news, media attention to "Obamacare" has been mostly negative because of roll-out glitches with the site and health plan "cancellation letters."

It is estimated that 4.7 million people have received cancellation notices, stating that their 2013 health insurance policies have been cancelled effective January 2014 because of Affordable Care Act (ACA) guidelines, according to a House Energy and Commerce Committee report. About half of those who received cancellation letters are now able to renew their prior coverage. As for the other half, the government estimates that roughly 10,000 will not have access to affordable coverage under ACA and will have to buy unsubsidized insurance on their own. The remainder, however, will be insured through expanded Medicaid, state or federal health exchanges, expanded age limits on parents’ plans for young adults under 26, or in purchasing a catastrophic coverage plan.

What hasn’t been covered in the media is the reason behind cancelling health insurance policies. These policies were cancelled because they do not meet minimum standards set up by the ACA for health insurance coverage. For example, prior to the ACA, it was legal for health insurance companies to exclude certain individuals from purchasing health insurance policies based on their preexisting conditions. Under the ACA, practices such as this are no longer legal. Additionally, all insurance policies must include certain “essential health benefits,” as defined by the Secretary of Health and Human Services. An example of an essential health benefit that is mandatory under the ACA is the complete coverage of all childhood and adult vaccinations. If an insurance policy does not meet the ACA’s minimum requirements, it must be modified so that it complies with the ACA or it must be cancelled.

The Confusion— On multiple occasions, President Obama asserted that, under the ACA, all Americans would be allowed to keep their insurance policies, if they were happy with them. However, the ACA states that if you are signing up for or renewing an insurance policy that does not meet minimum standards, it either must be modified to meet these standards or must be cancelled. Unfortunately, President Obama’s statement was not broad enough, and did not take these minimum standards into account.

The Fix— Health insurance companies may now continue to provide plans that do not meet ACA guidelines for an additional year. This is left up to the discretion of the state and if a policy remains valid, insurance companies have the right to keep or discontinue these policies. If a health insurance company renews a policy that does not meet ACA minimum standards, it is required to specifically inform customers about how these plans do not meet ACA requirements and of alternative ways of getting health insurance, such as through the Health Insurance Marketplace where customers might be eligible for lower cost plans.

There are still a number of options for consumers to get coverage, in the event of a cancelled or modified policy. It is strongly recommended that if your policy has been cancelled you shop around for other health insurance policy options before choosing any particular policy. There have been reports of cancellation letters that urge customers to sign up for “comparable” policies at the same health insurance company that are often significantly more expensive. The smart thing to do is to look at your options before signing up for any policy.

If your insurance company cancels your plan, your options include:

  • Buy one of the plans that the company offers in its place. It must allow you to buy any of its other plans available to you.
  • Buy a new plan in the Marketplace. You may qualify for lower costs on monthly premiums and out of pocket costs based on your income. Visit the Health Insurance Marketplace. Use this online resource to find out if you qualify for lower cost private health insurance plans or inclusion within Medicaid or the Children’s Health Insurance Program (CHIP).  If you are not qualified for these, the Health Insurance Marketplace is still a place to get insurance at a standard price.
  • Shop around for health insurance policies outside of the Health Insurance Marketplace.  This can be a good option if you don’t qualify for lower costs based on your income.
  • Buy a catastrophic plan. If your plan has been cancelled and you can’t afford a Marketplace plan to replace it, you can apply for a hardship exemption. This will allow you to buy a catastrophic plan. A catastrophic plan has lower premiums than a comprehensive plan but only provides coverage if you need a lot of care. This plan typically requires paying all your medical costs up to a certain point, which is usually several thousand dollars.