A little-known loophole in President Obama’s landmark legislation enables health insurers to extend existing policies for nearly all of 2014.
A new fight is brewing over health insurance companies letting millions of Americans renew their current coverage for another year — and thereby avoid changes under the federal healthcare law.
That may offer a short-term benefit for certain consumers and shield some of those individual policyholders from potentially steep rate increases. But critics say this maneuver could undermine government efforts to remake the insurance market next year and keep premiums affordable overall.
At issue is a little-known loophole in President Obama’s landmark legislation that enables health insurers to extend existing policies for nearly all of 2014. This runs contrary to the widespread belief that all health insurance must immediately comply with new federal rules starting Jan. 1, when most provisions of the law take effect.
“Insurers are onto this, and the big question is how many will try to game the system,” said Timothy Stoltzfus Jost, a law professor and health policy expert at Washington and Lee University.
Some of the nation’s biggest health insurers are looking to take advantage of this delay, and Arkansas officials are encouraging companies to do this by resetting customers’ renewal dates for the end of December. There’s also concern that some insurers and agents could rush to sell more individual policies before year-end so they could be extended in 2014.
Some policy experts are expressing concern about this practice for fear that insurers will focus on renewing younger and healthier policyholders and hold them out of the broader insurance pool next year. Their absence could leave a sicker and older population in new government insurance exchanges, driving up medical costs and premiums there.
“This could undermine the Affordable Care Act, and it opens the door for exacerbating potential rate shock in the exchanges,” said Christine Monahan, a senior analyst at Georgetown University’s Health Policy Institute. “The health insurers can cherry-pick some healthy people and it raises prices for everyone else.”
This issue could affect some of the 15 million people nationwide who purchase their own coverage and millions more of the uninsured who are expected to join government exchanges next year. It would not pertain to the 150 million Americans who get health benefits through their employers.
Many health insurers are still mulling over their options on how to handle these individual renewals.
“Some carriers will require everyone to switch plans Jan. 1, and other carriers will allow customers to stay on their existing plan as long as possible,” said Bob Hurley, senior vice president of carrier relations at online site eHealthInsurance. “We are trying to nail this down with the carriers. I think it would be better for consumers to have that choice to carry their policy forward.”
The nation’s largest health insurer, UnitedHealth Group Inc. of Minnetonka, Minn., said, “We are currently looking at the best way to serve our customers’ best interests while continuing to comply with the Affordable Care Act going into 2014.”
WellPoint Inc., the Indianapolis insurance giant that runs Blue Cross plans in California and 13 other states, said its renewal practices will vary by state. In California, the company said its Anthem Blue Cross unit may allow individual policyholders to renew through March 31.
Kaiser Permanente, a major nonprofit health plan based in Oakland, said it doesn’t plan to renew policies beyond Jan. 1 in California and most of the other states where it sells coverage.
Richard Kern and his wife, a retired couple in Los Angeles, say they would welcome the flexibility to keep their individual policy from Aetna Inc. for another year amid so much uncertainty over next year’s rates.
“We don’t even know what the prices and alternatives are under Obamacare,” Kern said. “We are waiting for the other shoe to drop.”
If an insurer offers this option, it would then be up to consumers to decide whether they want to renew an existing policy into 2014. The length of any renewal may depend on what month their annual plan year begins.
Many lower-income people will qualify for federal premium subsidies, which will be available only when purchasing new coverage available in state- or federal-run insurance exchanges. It would make financial sense to take advantage of that government aid. Individuals earning less than $46,000 or families below $94,000 annually would be eligible for subsidies.
However, many people who are middle income or above could face significantly higher premiums next year with no subsidies. Those premium increases are tied to federal requirements that insurers accept all applicants regardless of their medical condition and the inclusion of more comprehensive benefits.
Renewing an older policy could mean forgoing some of those richer benefits and new limits on out-of-pocket medical expenses.
Last week, California officials estimated that premiums may rise 30% on average for about 1.3 million existing policyholders primarily because of those changes in the federal law. Insurers have warned that some customers could see their premiums double depending on their age and other factors.
Citing that threat of higher rates, Arkansas officials issued a bulletin to insurers last month describing how they could extend individual policies until Dec. 30, 2013, and then renew them for another year.
These health plans “would not be required to comply with the [Affordable Care Act] market reforms until 12/31/2014,” according to the Arkansas bulletin.
“For those folks who don’t qualify for subsidies, this is a consumer-friendly thing because the premium rates for 2014 will be substantially higher,” said Dan Honey, deputy commissioner of compliance for the Arkansas Insurance Department. “You will be exposed to rate shock.”
Other states may oppose that approach, further underscoring the uneven implementation of the federal healthcare law across the country. Oregon Insurance Commissioner Louis Savage said these renewals could be problematic and his office issued a rule barring any extension beyond March 31, 2014.
“We want to get as many people as possible into the exchange,” Savage said. “I think having renewals go deep into 2014 is counterproductive to the goals of the federal healthcare law.”
In California, state lawmakers are working on legislation that could address this renewal issue and other details about how individual policies comply with the federal overhaul.
These questions over renewals are separate from “grandfathered” health policies that existed before the federal law passed in March 2010. Those plans don’t have to meet all the requirements of the healthcare law as long as insurers or employers don’t make significant changes to them.