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Why some insurance plans are being canceled: The facts, please

Posted by on October 30, 2013

8225598402Why are some insurance policies being canceled as the Affordable Care Act rolls out? Sarah Kliff has an excellent discussion on Wonkblog.

The cancellations have caused some consternation because President Obama said many times that people who like their insurance can keep it, which, as she points out,  ”is a weird promise to make when one of the key goals of the health-care law is to change individual market insurance coverage.”

First let’s remember that the Affordable Care Act has lots of features: expansion of Medicaid, coverage of people up to 26 on their parents’ policies, coverage of people with pre-existing conditions, a mandate that insurers spend the money they get in premiums actually paying for health care for insured people (whoa!) and a whole host of other things.

The current debate over insurance policy cancellations has to do with the nature of insurance.

Should health insurance companies be able to sell something called “insurance” that basically doesn’t cover you for anything if you get badly hurt or are really sick, and only covers you for garden-variety stuff?

This was a big part of the discussion in the Affordable Care Act: big employers like McDonalds selling to their employees something called “insurance” that gave them $2,000 a year in benefits. “Worse than nothing,” some legislators called these policies, many of them sold by the big market players like Aetna and Cigna. Getting rid of them was a big part of the A.C.A.

Another big part of the A.C.A.: making sure that insurance policies cover 10 basic baskets of coverage, including childbirth. Seems that a lot of people who had insurance policies and got pregnant didn’t realize that their policies didn’t cover childbirth. Same with prescription drugs and mental health.

Here’s Sarah Kliff: “There are lots of insurance policies, especially on the individual market, that are really bare bones. Some argue they shouldn’t even be called insurance coverage, because their coverage is too sparse to insure against financial ruin. One report from the Obama administration, issued in 2011, found that 62 percent of individual market plans don’t offer maternity care. Eighteen percent do not cover mental health benefits and 9 percent do not pay for prescription drugs.

“The health-care law requires insurance plans to cover all of those things, and then some.

“This includes spending at least 80 percent of subscriber premiums on medical care (leaving 20 percent for administration and profits), covering 10 benefit categories and providing preventive care without any co-payment.”

So plans that don’t conform to the rules under the Affordable Care Act can’t be sold any more (except for a few that were “grandfathered”).

Insurance companies and other players who have been making good business on these policies can’t do that any more — they have to conform with the ACA.

This does also mean that some people who buy insurance on the individual market — about 15 million people, or 5 percent of the population — may be seeing their policies canceled. If their policies conformed with the A.C.A., they’re not being canceled.

The other 95 percent of the population is reaping all the benefits of the A.C.A.

That includes a bunch of people who are currently paying much higher premiums on the open market. And also a bunch of people who are paying high COBRA premiums because they don’t  realize that the premium policies on the exchanges are much lower than many COBRA plans. I happen to know: I’ve looked at all these sectors of the market, and the New York exchanges are offering extremely good coverage for individuals and families, at much lower premiums, compared to what has been out there.

And let us not forget: if the insurance companies are squawking that they are being forced by the A.C.A. to actually deliver meaningful protection that is called “insurance,” that’s the business they are supposed to be in in the first place.

Also, they willingly embraced the A.C.A. because it essentially delivers to them a huge new line of business (the 50 million or so uninsured people who may or may not buy on the exchanges) subsidized by the government (in the form of income-based subsidies on the individual exchanges).

In other words, under the A.C.A., insurers are providing better coverage, with government subsidies. 

So, people: keep your eyes on the prize.

Here’s Sarah Kliff again: “The whole idea of the insurance expansion isn’t to get Americans to purchase anything called ‘insurance.’ It’s to get them to purchase a specific kind of insurance, a plan that is relatively comprehensive and helps protect against financial ruin. If Americans were going to be required to buy a product, the reasoning goes, it should be one that can actually do some good.”

ADDENDUM: Buy your cheap insurance here.

Meanwhile, insurers are figuring out ways to offer cheaper insurance policies, that don’t comply with the A.C.A., according to a story by Michelle Andrews of Kaiser Health News, posted on NPR.

“Arkansas Blue Cross and Blue Shield’s 364-day Essential Blue Freedom plans’ least expensive option would cost a 40-year-old Little Rock resident $114.04 per month, half the $231.38 premium for the least expensive bronze plan the carrier offers that meets health law requirements.” Andrews writes.

“That Essential Blue Freedom plan’s $5,000 deductible is lower than the $6,300 for the bronze plan. But the cheaper plan doesn’t cover any pre-existing medical conditions, and only people who pass medical underwriting are approved. The website alerts shoppers that the plan may be subject to a penalty.”


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