This week, the Obama administration extended for two years its transitional policy allowing many Americans whose insurance policies were canceled for not meeting the minimum standards of the Affordable Care Act to keep their health plans. In November 2013, the administration wrote a letter to state insurance commissioners encouraging, but not requiring, them to allow noncompliant insurance policies that were canceled, or slated for cancellation, to be renewed for 2014. Non-compliant plans may offer less comprehensive coverage, put people at risk for unaffordable medical bills, or charge premiums based on health status. The proposal left open the possibility that this transitional period might be extended. On Wednesday, the administration extended the policy, allowing renewals of existing policies in the individual and small-group insurance markets through October 2016. While the extension carries some risks for the nation’s newly regulated insurance markets, its ultimate effects are likely to be small.
Small Number Likely to Keep Substandard Plans
While only the nation’s insurers know how many people have renewed health plans that are not compliant with the Affordable Care Act, the number is likely small. This is partly because the administration left it to each state’s insurance commissioner to decide whether to allow their residents to renew existing substandard plans. Research by Georgetown’s Center for Health Insurance Reforms last year reported that several states had already allowed carriers to renew existing policies prior to the policy change. But the group has since reported that 21 states and the District of Columbia decided not to allow plans to extend policies, or have limited the ability of health plans to do so. In addition, most people who are eligible for premium and cost-sharing subsidies will likely switch to plans that meet the standards because they’ll be paying the same or less out-of-pocket for better coverage.
RAND estimates that, under this policy, about 500,000 fewer people would be enrolled in plans that are compliant with the law.
Small Effect on Premiums
Under the Affordable Care Act, health insurers set premiums based on the pool of people in nongrandfathered plans in the entire individual market or small-group market in a state, both inside and outside the marketplaces. People who reenroll in substandard plans that existed prior to the new market regulations that went into effect this year will not be included in that broad, new pool, however, because they were priced under a different set of regulations, for example, on the basis of health.
If the people who keep their substandard plans are healthier than average (which is likely since they were all underwritten based on health for pre-2014 coverage), their removal from the pool of people with policies that meet the law’s benefit standards will lower that pool’s average health status, and could lead to higher premiums next year. Some actuaries of major health plans who participated in a recent meeting sponsored by The Commonwealth Fund did view the administration’s policy as potentially moving healthy people out of those pools and increasing uncertainty about the health composition of those risk pools in 2014. But others expected the decision to have a limited effect, given that only 28 states are allowing the practice. RAND estimates that the administration’s policy might increase 2015 premiums by 1 percent.
Risk-Sharing Programs Will Limit Premiums Increases
The law’s transitional risk corridor and reinsurance programs, about which new rules also were released on Wednesday, will further limit the degree of upward pressure on 2015 premiums resulting from a less-healthy risk pool than anticipated. The reinsurance program is a substantial source of funding for insurers who experience high claims costs in the individual market in the first three years of the law’s rollout. According to some health plans and actuaries, it had a significant effect on premiums in 2014, keeping them as much as 10 percent to 15 percent lower than they would have been without the program. That will continue in 2015, though the amount of compensation under the reinsurance program will be lower, per the new rule.
The risk corridor program, designed to narrow losses and gains for insurers selling plans in the new insurance marketplaces in the first three years of the rollout, will also help limit premium increases in 2015 resulting from this change. Health plans that experience larger-than-expected claims receive federal payments above a certain threshold; those that experience smaller-than-expected claims must make a payment. The new rule requires the program to be federal-budget neutral.
The administration’s policy goes against Congress’s intent that the Affordable Care Act both increase consumer protections for insurance and move people into larger pools of shared risk that will help maintain lower premiums for everyone over time. While some Americans will find comfort in the option to keep their substandard policies, the Affordable Care Act’s biggest benefits—including lower out-of-pocket costs and subsidized coverage—will go to those millions of eligible people who are signing up for the law’s new protections.