Last fall, news reports focused on consumer discontent over “cancellation” notices of health insurance policies that did not meet the new minimum standards under the Affordable Care Act (ACA), but it’s difficult to determine exactly how many consumers were affected. Starting in 2014, most non-group health insurance plans and small employer group plans must offer a minimum set of benefits and consumer protections—for example, plans must not exclude coverage of pre-existing conditions and must offer minimal coverage of certain health benefits such as prescription drugs.
Prior to reform, the nongroup health insurance market suffered from a number of shortcomings, such as benefit exclusions, denials of coverage, premiums that varied greatly by health status, benefit limits, high cost sharing, and lack of information on plan benefits and design prior to purchase. The new minimum benefit standards and consumer protections work together with additional insurance market provisions that took effect in 2010, expansions of Medicaid eligibility, and income-based subsidies in the new health insurance Marketplaces. Together, these new reforms expanded coverage options for millions of people, and raised minimum benefits and consumer protections for millions more.
Among nongroup plans offered in 2013 that were not compliant with ACA standards, some were amended, some were cancelled, and some were granted “grandfathered” status and are not required to comply with the new rules if enrollees were holding the policy continuously before and since the passage of the ACA and insurers did not substantially change benefits or costs. Some insurers, however, chose to cancel policies that would otherwise have been legally grandfathered for business reasons, such as low enrollment or an enrollee group with high average cost, leading to unsustainable premiums. In fact, the non-group market has historically been highly volatile, with just 17 percent retaining coverage for more than two years.
Some of the distress over policy cancellations was related to the fact that healthcare.gov and some of the state-based Marketplaces were not working well enough to ensure that people whose policies were cancelled could easily enroll in an alternative. In response to consumer complaints and associated media coverage, new transitional federal guidance was announced in November 2013, allowing renewals of plans cancelled due to noncompliance. More than half of states used this guidance to do so.
The new policy development made estimating the share of enrollees affected by the cancellations even more difficult, and comprehensive estimates have not been available. The Associated Press reported that millions of cancellation notices for existing nongroup market plans had been sent in 32 states and the District of Columbia, but this estimate has several major limitations.
First, the methodology used to collect and verify the data was not specified, nor were the methods used to determine whether a state was included or excluded from the estimate. The Washington State Insurance Commissioner recently criticized as “inaccurate” the statement that 290,000 people in the state had their individual policies canceled.
Second, the number of cancellations reported may include cancellations of both comprehensive health insurance and limited benefit plans. However, limited benefit plans, such as “cancer only” plans, are not an alternative to comprehensive health insurance and should not be included in the estimate.
Thus, the extent of policy cancellations due to non-ACA-compliance is largely unknown, and the extent of the disruption is hard to assess, even as the Obama administration considers allowing individuals to keep non-ACA-compliant plans for up to three years.
To address this gap, in December 2013, the Health Reform Monitoring Survey (HRMS) asked a sample of adults (age 18–64) the following question: “Did you receive a notice in the past few months from a health insurance company saying that your policy is cancelled or will no longer be offered at the end of 2013?” These survey data are self-reports and thus likely measured with some error. (For information on HRMS methodology, including sample design and response rates, please see HRMS FAQs.)
The findings from HRMS show that nearly one in five (18.6 percent) of those with nongroup health insurance at the time of the survey report the plan they had in 2013 will no longer be offered to them because it did not meet new coverage requirements. Estimates from the NHIS indicate that approximately 14 million people had non-group coverage at a point in time. Identifying the number of people enrolled in non-group insurance is challenging. Estimates in Abraham et al. (2013) ranged from 9.55 million in the Medical Expenditure Panel Survey to 25.3 million in the American Community Survey. We use the NHIS estimate since it corresponds with more recent estimates based on new NAIC enrollment data reported in the Supplemental Health Care Exhibit (SHCE).
Using this estimate, our findings imply that roughly 2.6 million people would have reported that their plan would no longer be offered due to noncompliance with the ACA. Another 6 percent reported that their plan was cancelled for other reasons, and 75.4 percent reported that they did not receive a notice of cancellation (figure 1).
Many whose non-group policy was cancelled appear to be eligible for Marketplace subsidies or Medicaid. In December 2013, the Centers for Medicare and Medicaid Services issued guidance for expanding coverage options for those with cancelled policies, indicating that they can apply for a hardship exemption from any applicable individual mandate penalties and can qualify for the purchase of catastrophic coverage though their state Marketplace. However, those who are eligible to enroll in either Medicaid or coverage in a silver-level plan with premium and cost-sharing subsidies could potentially pay significantly more if they enroll in the new catastrophic plan option.
While our sample size of those with non-group health insurance who report that their plan was cancelled due to ACA compliance is small (N=123), we estimate that over half of this population is likely to be eligible for coverage assistance, mostly through Marketplace subsidies. Consistent with these findings, other work by Urban Institute researchers estimated that slightly more than half of adults with pre-reform nongroup coverage would be eligible for Marketplace subsidies or Medicaid.
Yet making the best enrollment choice may be difficult for consumers. HRMS findings show that many people are not aware of the new state Marketplaces, few know whether their state is expanding Medicaid, and many lack the confidence to enroll, make choices, and pay their premiums.
While the cancellation storm appears to have passed and enrollment in the states’ Marketplaces and Medicaid appear to be gaining steam, media reports suggest that the majority of cancellations related to small group insurance will be sent this fall, before the next open-enrollment period. However, disruption should be more limited since, prior to the ACA, federal and several state laws had already addressed many of the historical problems in small group markets. In addition, almost all states (44, plus the District of Columbia) chose a benchmark plan for the state’s small group Marketplace from one of the three largest existing small group plans. Thus, by definition, a large share of enrollees in small group coverage in 2013 were already in plans that met the minimum standards.
Ultimately, some level of disruption is inherent to any reform that addresses the historical risk segmentation in health insurance markets. So although future cancellations are likely, the ACA provides new opportunities to enroll in coverage that includes a minimum set of benefits and expanded consumer protections, regardless of how a person’s circumstances might change over the course of their lives.