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Health Policy Canceled? What We Know and Don’t Know

Hundreds of thousands of individual policyholders, at minimum, will have to find new plans as insurers respond to new coverage requirements under Obamacare. But is that necessarily bad?

Every day, we’re seeing reports that consumers across the country will be dropped by their health insurance companies on Jan. 1 or another date in 2014. But two central questions remain:

First, just how many people will be affected?

Second, and more importantly, is this a good or bad thing?

We don’t yet know the answer to either question, although the answer to the first question is surely a big number. Here’s where things stand:

A minimum of several hundred thousand people with individual health insurance policies (those not provided by their employers) have received letters notifying them that their coverage will be terminated on Jan. 1 — or at some date after that — because their plans don’t meet the requirements of the Affordable Care Act.

The issue has been percolating for several weeks, initially being overshadowed by the rocky rollout of the Healthcare.gov federal health insurance marketplace. But this week, in part because of a prominent NBC News report, the issue has gained traction. Republican lawmakers and the act’s opponents have given it more attention than the website’s continuing woes.

The story is full of nuance, and that’s what makes it easy to misunderstand.

What is definitely true is that many people are receiving notices saying that they will have to find new insurance coverage on Jan. 1 or a later date. That directly contradicts what President Obama said repeatedly: that those who liked their plans could keep them. (The Washington Post has said Obama’s statements deserve four pinnochios because they were not true.)

How many people are affected?

According to the NBC News report:

Four sources deeply involved in the Affordable Care Act tell NBC News that 50 to 75 percent of the 14 million consumers who buy their insurance individually can expect to receive a "cancellation" letter or the equivalent over the next year because their existing policies don’t meet the standards mandated by the new health care law. One expert predicts that number could reach as high as 80 percent.

Sarah Kliff at the Washington Post writes:

It’s hard to put an exact number on this, given that insurance plans are the ones who decide whether or not to continue offering an insurance product. Experts have estimated that somewhere between half and three-quarters of those who currently buy their own policies will not have the option to renew coverage, which works out to around 7 to 12 million people.

Kaiser Health News, among the first to report on the issue, has been more conservative:

Health plans are sending hundreds of thousands of cancellation letters to people who buy their own coverage, frustrating some consumers who want to keep what they have and forcing others to buy more costly policies.

Yesterday, Kaiser posted more:

No one knows how many of the estimated 14 million people who buy their own insurance are getting such notices, but the numbers are substantial. Some insurers report discontinuing 20 percent of their individual business, while other insurers have notified up to 80 percent of policyholders that they will have to change plans.

Even when we do know a firm number, a more fundamental question is: Are these cancellations in consumers’ best interests?

In short, there are winners and there are losers — just as there have been in many other areas of the Affordable Care Act (more on that in a subsequent post).

Some of the people being terminated form their plans will end up paying more for new coverage; some will pay less.

Some will qualify for government subsidies to lower the cost of their insurance even further, and some won’t.

In many if not all cases, they will receive a richer set of benefits. But many consumers may not have wanted them — or needed them (maternity care, for example).

Equally clear is that the new marketplace taking shape will not allow insurance companies to discriminate based on individuals’ pre-existing conditions; nor can insurers charge older people far higher rates than the young.

And just because somebody receives a cancellation notice and believes his or her insurance costs will go up doesn’t mean that’s right. Michael Hiltzik at the Los Angeles Times has done a good piece raising questions about the veracity of some of the stories being reported.

It’s easy to see this issue through a partisan lens, and that is happening. But then there are cases like Paul Levy’s.

Levy is a smart guy, the former president and CEO of Beth Israel Deaconess Medical Center in Boston, and he has a pretty good understanding of how the health-care system operates.

Last weekend, he wrote a post on his blog (“Didn’t they promise lower costs?”) about being dropped by his insurance company and being forced to spend considerably more money for insurance. He had purchased his policy after March 2010, so he wasn’t somebody covered by the president’s “keep your plan” pledge.

To summarize, for $600 more per month, my co-pay for almost everything goes up. My share of an inpatient admission or outpatient surgery goes up 233%; a CT or MRI goes up 500%; and ED visits are double the cost.

Now, I do get the benefit of an out-of-pocket maximum of $3,000. But I will pay $7,200 extra for that protection. To break even, I would have had to spend $10,200 in out-of-pocket items under the Massachusetts plan.

I know I could downgrade to a lower level of insurance and reduce my monthly premiums, but then other items would also change in price and availability. This is the plan that best meets our needs.

A professor of management and operations at Northwestern University’s Kellogg School of Management followed up with Levy and suggested a different plan that could save him some money. But Levy still concluded he’ll be in worse shape than he is now. Here’s a graphic he made comparing his current plan with the plan he will purchase.

Levy writes:

My premium has gone up $220 per month (or 15%), and I will likely spend another $1000 covering the deductibles. My total percentage increase depends on how much additional care I need past my deductibles.

President Obama addressed the issue yesterday during a visit to Boston and made a pretty bold statement: “There are a number of Americans — fewer than 5 percent of Americans — who’ve got cut-rate plans that don’t offer real financial protection in the event of a serious illness or an accident. ...A lot of people thought they were buying coverage, and it turned out not to be so good.”

Levy’s plan doesn’t appear to fit the president’s characterization. (Another example of sweeping generalizations dispensing with nuance.)

While Levy sees value in the act’s goals, he wrote Tuesday that he wishes the administration was more forthright about what is actually happening and less defensive — for instance, parsing the words of the president’s pledge.

I have been listening to actuaries for many months who made it clear that the new plans would have to be more expensive to cover the law’s guaranteed issue and other insurance requirements. Those requirements are extremely desirable in providing insurability and financial security to millions of Americans and are, in fact, key attributes of the ACA. If the costs and benefits of these requirements had been addressed honestly by the administration, perhaps it would not feel the need to parse the President’s promise as finely as his spokesperson did today.

I am covered through my employer, coverage for which renews in March.  The comparable plans we are being offered through the exchange (luckily my non-profit employer has fewer than 50 employees, so we have more options) are at least 20% more expensive, and many of them have deductibles that therefore make them more expensive.  Also, some of the comparable plans have a tier 3 drug copay of 50% rather than an actual dollar amount.  For me, an asthmatic whose inhalers are perpetually tier 3, or a colleague whose spouse has MS with expensive tier 3 prescriptions, the out of pocket costs are frightening.

We were told time and time again that nothing would change for us.  This was simply not true.

I’d just like to second the observation that not everyone who is being canceled has a substandard, inadequate plan. 

My canceled Blue Cross policy provides full coverage, including prescriptions, once I pay my $5k deductible, with very high annual payout limits.

I have had the plan for about six years.  I think I’m being canceled because I increased the deductible a couple of years ago to get a very attractive monthly premium.  Blue Cross advertised this option at the time.

Now I am wondering if the company’s post-ACA pricing strategy was to induce existing customers to make changes that would preclude continuation of certain policies after 2013.  Exhibit A: Blue Cross is going to pull in 89% more in premiums for the new plan they’re recommending to me—and real coverage is practically the same since I have no children at home, and already had free preventive care under state law.

Well, keep in mind that the ACA had the full approval of the health insurance companies.  Is anyone *really* surprised?

Not sure what else was missed but Levy’s old plan had no out of pocket maximums, while the new one did.  That’s a fairly important difference, arguably more important than almost anything else.

President zero needs to man up and do what is right.  Support Ron Johnson’s bill and allow everyone who wants to keep their insurance plan. 

It is what an honest person/president would do.

I keep hearing about the PEOPLE WHO LIKE THEIR INSURANCE PLAN.  WHO ARE THESE PEOPLE? WHERE ARE THEY?
THEY MUST WORK AT THE INSURANCE COMPANY!
DO YOU know any? I don’t, most people HATE their insurance plan, if they even “get” any medical coverage!?!
TOO MUCH GRAFT AND CORRUPTION! DARK MONEY!

SINGLE PAYER! 
INSURANCE COMPANIES NEED TO DIE! OBVIOUSLY! 
ENOUGH DEATH SQUADS FOR THEIR PROFIT MARGEN!

I keep hearing about the PEOPLE WHO LIKE THEIR INSURANCE PLAN.  WHO ARE THESE PEOPLE? WHERE ARE THEY?
THEY MUST WORK AT THE INSURANCE COMPANY!
DO YOU know any? I don’t, most people HATE their insurance plan, if they even “get” any medical coverage!?!
TOO MUCH GRAFT AND CORRUPTION! DARK MONEY!

SINGLE PAYER! 
INSURANCE COMPANIES NEED TO DIE! OBVIOUSLY! 
ENOUGH! DEATH SQUADS FOR THEIR PROFIT MARGIN!

Am I ever glad I am a WWII veteran.  I can avoid Obamacare in favor of VA.

Yes, I know the intention of the law is to help more people with medical problems, but the law also increases givernment intrusion in our lives.  More and more we become subjects rather that citizens.

Our situation exactly. We’re glad this is getting some press. We’re Obama & ACA partisans, contribute to OFA, manned the phones for Barack last year. But we’re disappointed, even more so that this isn’t getting honest acknowledgement from its authors, for whom we’ve worked so hard. (Please - no more comments to the effect of “you deserve it”.)

Howard Katzman

Oct. 31, 2013, 11:27 p.m.

Lou Vignates says “Am I ever glad I am a WWII veteran. I can avoid Obamacare in favor of VA.
.. but the law also increases givernment [sic] intrusion in our lives.”

Lou, you do realize that the VA is also part of government? Taking advantage of VA benefits does not keep you beyond the reach of government intrusion in your life.

Charles Ornstein

Oct. 31, 2013, 11:40 p.m.

Thanks for your comments. I would be interested in hearing from you all directly about your situation. Drop me a line at .(JavaScript must be enabled to view this email address). Thanks.

How could you not mention that is out of pocket max went from unlimited to $2,000. That could end up costing him millions. Shakes my confidence in Propublica that they miss the obvious. Come on. Doesn’t take many mistakes like that to lose your credibility.

Be interesting to know which insurance corporations are doing the dropping, the total numbers dropped, what that represents as a percentage of their total insured pool, the average age of those dropped, whether the dropped had preexisting conditions or a history of using their benefits at a rate that differs in some way from those who were not dropped, whether any individuals with the same policies simply had their coverage boosted into compliance and if so what the cost details of those modified plans are, and how all of the above compares across all insurance corporations/providers.

(Oh, and I do hope no Senators again show up for work tanked in apparent celebration.)

@“david thom” who 31 minutes ago wrote

How could you not mention that is out of pocket max went from unlimited to $2,000. That could end up costing him millions. Shakes my confidence in Propublica that they miss the obvious. Come on. Doesn’t take many mistakes like that to lose your credibility.

ummm…david, out of pocket maximum doesn’t mean what you seem to think it means…“out of pocket maximum” means

Total dollar amount an insured will be required to pay for covered medical services during a specified period, such as one year. The out-of-pocket maximum may also be called the stop-loss limit or catastrophic expense limit.

It is the original plan that has no maximum…no “stop-loss” (which makes me suspect there is something in the original plan that would chew up the insured’s assets).

I gather you’ve not had health insurance before?

Frederick W Gundlach

Nov. 1, 2013, 10:03 a.m.

The article is missing any discussion of the Affordable Care Act premium credit (under IRC Section 36B), and the possibility of out of pocket (OOP) caps.  Both of these are relevant if the individual (or couple) make under 400% federal poverty level (FPL).

90% of America makes under 400% FPL.

The big winners, of course, are insurance companies.  For the possible short-term burden of covering the critically ill, they get the entire country as perpetual customers, can charge pretty much whatever they want going forward, and get to shake loose people who accidentally got good deals like Levy by claiming they somehow don’t meet ACA guidelines.

Republicans can dislike it because they dislike Obama or because they think it’s socialism or whatever, but this is the biggest windfall to a parasitical industry in human history.

However, on that note, I do want to make something clear:  There can’t be more than a dozen people who have ever said “I like my insurance plan.”  I don’t know who let Obama say anything about people who like their existing plans, since it’s only a step above talking about the options for leprechauns.

The ACA was not designed for CEOs and other people with high income.  It IS designed for middle and low income people which do NOT, or can not, buy their own health insurance and are previously uncovered.

What Ed Redondo said, to which I would add

The ACA became necessary because CEOs and other people with high income have worked diligently to divert income from middle and low income Americans to themselves by destroying jobs, eliminating health care benefits, suppressing wages and salaries, increasing the cost of health insurance, and increasing the cost of health care.

Ronnie Reagan thought he’d be remembered for hitting a big lick on the Soviet Union, but me…I’ll remember him for “voodoo economics”, which unleashed unbridled greed by making how much you can keep a function of how much you can get away with taking.  Taking<i>, not “earning” - which is why the big loot comes from “rent seeking” behavior.

rent seeking

<i>n public choice theory, rent-seeking is an attempt to obtain economic rent, by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth. ...

It used to be that - in those cases where morality, ethics, and Christianity and other religious teachings weren’t enough to make the individual restrain their greed - a progressive taxation system ensured that unbridled individual greed rewarded the United States of America (from our military to our public infrastructure) and the American people with a progressively larger percentage of the greedy individual’s income.

Since most truly greedy Americans do not like the American people or their government, they’d restrain their greed just to “spite” America…and if they still couldn’t restrain themselves, then no matter; our society, economy, and military would benefit from the recycling of their gluttonous gains through our government.

No more…they’ve become parasites without any symbiotic benefit for America and our people at all.  Parasites…the kind that consume their host and only leave their host after its approaching or actual death - their self-interest, that is - drives them out.

lolll…we should probably pay attention if and when such begin buying homes and land in other nations…in, say, Peru.

Jonathan M Lloyd

Nov. 2, 2013, 11:56 a.m.

My family coverage with my employer has again gone up. I went on the NY gov’t website and my only options were bronze plans. Not sure that counts as true options.

@Jonathon M Lloyd:

What do you mean by your “only options were bronze plans”?  The NY website wouldn’t give you any other plans even if you were willing to pay more?

That seems a little odd in that the very existence of a “bronze” plan suggests the existence of more expensive “silver”, “gold” and, perhaps, “Bloomberg” plans…

Jonathan M Lloyd

Nov. 3, 2013, 8:31 a.m.

@ibsteve2u The only options presented to me were described on the site as “bronze plans.” I did not see any other plans presented. I don’t know why. I thought I would have a choice between levels of coverage. Maybe I’m doing something wrong but I don’t see how.

So the most educated health care consumers, the ones who did their homework, assessed plans that fit their needs and budgets before the healthcare rollout, are the ones now being forced into plans created to protect the interests of the least educated health care consumers, in a one size fits all fashion.

Are we punishing the responsible to protect the irresponsible?

Joseph Fleischman

Nov. 5, 2013, 3:36 p.m.

It’s the wrong question Charlie.  The real question is why have the insurance companies raised prices through the roof.

Obamacare didn’t force the insurance companies to raise our costs, they did that on their own, as they always have. There is a provision in Obamacare that requires insurance companies to justify any such raises beyond a certain percentage from year to year. But truly, we don’t need insurance companies to bankroll healthcare, we can do that ourselves through our government—it’s called single-payer.  Let’s get rid of them.

This article is part of an ongoing investigation:
Obamacare and You

Obamacare and You

The Rollout of the Affordable Care Act has been marred by glitches and political opposition.

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