Just hours after President Barack Obama announced a one-year reprieve for canceled insurance plans, industry executives warned it would cost taxpayers and consumers while state officials split on their support for it.
With only weeks until policies are due to lapse in 2014, there was skepticism the cancellations could be undone. Insurers said the move may threaten the viability of the new Obamacare exchanges by creating a parallel market operating under different rules.
“The complexity of trying to un-cancel millions of canceled individual policies with only six weeks left in the year is staggering,” said Carl McDonald, a health-care analyst at New York-based Citigroup Inc. “We suspect many insurers will choose not to avail themselves of this ‘opportunity.’”
The strategy Obama announced yesterday at a White House briefing imposes no penalty on insurers who choose not to extend coverage. It shifts the debate to the states, where the companies and the regulators who oversee them will have to decide whether to scrap changes made over three years to prepare for the opening of the new marketplaces created by the Patient Protection and Affordable Care Act of 2010 to offer benefits to millions of Americans without health coverage.
How Do the Health Exchanges Fit In?
The president said insurers can extend policies that were in force in 2013 for as long as a year, if state officials approve. The plans won’t be eligible for U.S. subsidies under the health law, and insurers can’t sell these policies to new customers. From 1 million and 5 million policyholders may be affected, Matthew Borsch, a Goldman Sachs Group Inc. insurance analyst, said in a note to clients.
“I completely get how upsetting this can be for a lot of Americans, particularly after they heard assurances from me,” Obama said. “This fix won’t solve every problem for every person, but it’s going to help a lot of people.”
Obama’s extension affects only a small slice of insured Americans, those with individual health plans rather than coverage through a company’s group plan or a government program such as Medicaid and Medicare.
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Mike Kreidler, Washington state’s insurance commissioner, said yesterday he wouldn’t approve any extensions, while California commissioner Dave Jones said he didn’t have authority under state or U.S. law to stop cancellations.
“In the interest of keeping the consumer protections we have enacted and ensuring that we keep health insurance costs down for all consumers, we are staying the course,” Kreidler said yesterday in a statement.
Jones asked California’s insurance exchange, Covered California, to release health plans from a requirement that they cancel existing individual policies. He urged insurers in the state to reinstate policies.
“There’s no question it will be challenging for the health insurers,” he said at a San Francisco news conference.
There may not be enough time to change course, said Jim Donelon, president of the National Association of Insurance Commissioners.
“In many states, cancellation notices have already gone out to policyholders and rates and plans have already been approved for 2014,” Donelon, who is an insurance commissioner in Louisiana, said in a statement.
Fallout from Obama’s decision will vary, said Brenda Gleason, president of M2 Health Care Consulting in Washington, D.C. In large states with high numbers of uninsured residents, such as Texas, companies may extend policies and still win many new customers through Obamacare. In smaller states, continuing individual policies may leave few customers for plans sold through the exchanges that opened Oct. 1, she said.
“Any model that health plans built is now in question,” Gleason said in a telephone interview. “They’ll have to reassess once insurance commissioners around the country decide what they’re going to do.”
Aetna Inc (AET:US)., the third-biggest U.S. health insurer, will require “cooperation and expedited approval from state regulators,” Cynthia Michener, a company spokeswoman, said in an e-mail. The Hartford, Connecticut-based company will need approvals to “secure appropriate rates so we can get these plans back in the market.”
Florida’s Blue Cross and Blue Shield, that state’s largest insurer, said after Obama’s announcement that it would extend policies. The company had previously said individual plans covering 300,000 people would be discontinued.
Insurance executives had little warning of the change ahead of time and were “reeling,” said Robert Laszewski, an industry consultant in Alexandria, Virginia. Insurers now must decide whether to deal with the “logistical nightmare” of withdrawing cancellations or face being “the goat that took away everyone’s insurance,” he said.
The uncertainty left in doubt whether Obama would defuse the political crisis hatched from the cancellations. Republicans and some Democrats in Congress, meanwhile, said they would still seek a legislative fix.
In six states whose insurance commissioners have declined to enforce the Affordable Care Act -- Arizona, Alabama, Missouri, Oklahoma, Texas and Wyoming -- insurers can decide on their own whether to extend existing plans.
Under the policy announced by Obama, plans with renewal dates as late as Oct. 1, 2014, can be extended for as long as a year. That means some people may be able to stay on existing plans well into 2015. The move would free them from paying the health law’s penalty for those who don’t obtain coverage, equal to as much as 1 percent of a person’s taxable income.
Existing individual policies were being canceled because they didn’t meet new requirements of the health law. Among other changes, the law bars insurers from denying coverage or charging more based on a customer’s medical conditions. It bans annual or lifetime caps on benefits and requires plans to cover items ranging from prescription drugs to mental health visits.
The proposal may rattle the new health insurance exchanges if it allows healthier customers to stay out of the markets.
Allowing large numbers of policyholders to extend their current plans means the pool of customers who buy on the exchanges may be sicker than expected, the American Academy of Actuaries said in a statement. That could prompt insurers to raise premiums even higher than they otherwise would have next year, and increase the cost of subsidies for the federal government, said Cori Uccello, the academy’s senior health fellow, in a statement.
If “fewer younger and healthier people choose to purchase coverage in the exchange, premiums will increase and there will be fewer choices for consumers,” said Karen Ignagni, president of America’s Health Insurance Plans, the industry’s Washington-based trade group.
In a letter to insurance commissioners yesterday, the Obama administration said a health-law provision intended to reduce the risk of unexpectedly high medical claims for insurers “should help ameliorate unanticipated changes.” The program, known as a risk corridor and funded by the industry, may be modified to “provide additional assistance,” the letter said.
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