By Sabrina Corlette and Kevin Lucia
There’s been a lot of breathless journalism lately – with each day’s events apparently a referendum on the success – or failure – of the Affordable Care Act. One of the latest story lines involves people with individual health insurance policies receiving policy cancellations from their insurance companies.
What’s Really Happening?
Having an insurance company discontinue an insurance policy is not anything new. And actually, the term “policy cancellation” is a misnomer. Generally, an individual health insurance policy is sold via a 12-month contract between the insurer and the consumer. At the end of that contract period, the insurer has the option to discontinue or change that policy – nothing in federal law changes that. Current policyholders are not having their current policy cancelled – rather, the insurance company is exercising its option to discontinue the policy at the end of the contract year.
The Health Insurance Portability and Accountability Act (HIPAA), a federal law passed in 1996, provides that individual policies are “guaranteed renewable” at the end of the 12-month contract, but in most states insurers are allowed to increase premiums, increase cost-sharing, and/or reduce the scope of benefits covered. And, more often than not, insurance companies have done one or all of these things to policyholders. It is part of the reason individual health insurance is often called “swiss cheese” coverage compared to employer-based plans – because it’s full of holes. Under HIPAA, an insurer could also decide to discontinue a policy, but if it did so, the law said it must provide the policyholder with at least 90 days notice, must offer the policyholder another new policy as an alternative, and has to treat its policyholders the same, regardless of their health status.
Consumers who receive one of these notices may be alarmed, particularly if their insurer does not provide clear, unbiased information about what they are doing and where the consumer can go to obtain new coverage. And it’s possible some insurers may be improperly targeting their sicker enrollees for these policy “cancellations.” As we have written about before, insurers have been offering enrollees the opportunity to “early renew” their policies on terms most appealing to their healthiest customers. This means it may well be sicker ones who are being directed to new coverage options on the health insurance marketplaces.
Individual Market Policies are Being Replaced with Better Coverage
Under the ACA, beginning January 1, 2014, insurers must renew their policyholders into policies that cover a minimum set of essential health benefits and provide a minimum level of protection from catastrophic out-of-pocket costs. They are also no longer allowed to increase premiums based on a policyholder’s health status. As a result, many insurers are discontinuing old policies that do not comply with these new consumer protection standards. And the underlying federal law has not changed. If they discontinue a policy, they must provide policyholders with 90 days notice and they must offer them the option to enroll in an alternative policy. But, for the first time, most consumers have a new option – they can shop for a plan on their state’s health insurance marketplace.
For most people shopping on the marketplace, the policies available there will be a better value than anything they have been able to buy on the individual market. First, they will no longer have to worry that if they get sick, their insurer will jack up their premium – that’s prohibited under the ACA. Second, many will be eligible for premium tax credits to make their plan more affordable. And, as noted above, all the plans will meet minimum standards for benefits and cost-sharing – no more swiss cheese coverage.
State and Federal Regulators Should Make Sure Consumers Get the Right Information – and Act to Stop Any Illegal Cherry Picking
State insurance departments have the primary responsibility to ensure that insurance companies are not targeting sicker enrollees for cancellations. They can also provide guidance to insurers about the kinds of notices consumers are getting. These notices should be clear and not misleading, and they should help the consumer understand that they are guaranteed the right to buy another one of the insurer’s policies, that new policies under the ACA will be more comprehensive, and that they may be eligible for premium tax credits to make their coverage more affordable.
At the federal level, the Center for Consumer Information and Insurance Oversight (CCIIO) has issued a model notice for individual health insurance market products. The CCIIO guidance reminds insurers that discouraging enrollment of people with significant health needs is illegal, and provides model language that insurers can use to inform people of their new coverage options. While insurers are not required to use CCIIO’s language, state regulators could use this model language to shape their own requirements for the insurance companies that they regulate.
Editor’s Note: Since this blog was published, the Department of Health and Human Services (HHS) posted a blog that helps explain the policy cancellation issue. The HHS blog is available here.