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Administrative Fix for Recent Cancellations of Health Policies
On November 14, 2013, President Obama announced an "administrative fix" to the growing number of health insurance policy terminations announced for those individuals and companies in the small group market who had purchased their own health insurance policies. Some experts estimate that as many as 5 million persons have recently received notices from their insurers that the health policies under which they were covered in 2013 were being cancelled for the policy years commencing in 2014. In many instances, these notices were accompanied by an offer from the insurer to provide them with an alternative and more expansive (as required by the ACA) coverage beginning in 2014. The new policy is often at a greater premium cost and subject to higher deductibles and co-pays. The receipt of these cancellation notices has created an uproar that has been heard all the way to Washington, D.C. The following Q&A further explains the President's "fix":
1. Q: What exactly did President Obama do?
A: In a prepared statement issued by President Obama on November 14, 2013, the President announced that his administration was going to issue a written directive to all health insurance carriers that they would be permitted to renew coverage for individuals and small businesses that had policies in effect as of October 1, 2013 for an additional year beginning between January 1, 2014 and October 1, 2014 without having to conform to the new health insurance requirements under the ACA set to take effect January 1, 2014. The directive went on to provide, however, that the ability of insurers to take advantage of this new directive was dependent on (1) their obtaining approval from the relevant state insurance commissioners, (2) their voluntary decision to reissue any policies for which cancellation notices had already been sent out, and (3) the insurers providing certain written notices to those who had their policies cancelled.
2. Q: How was this directive implemented?
A: By a letter dated November 14, 2013 from Gary Cohen, Director of the Consumer Information and Insurance Oversight Agency within the U.S. Department of Health and Human Services, addressed to the various States' Insurance Commissioners.
3. Q: What are the 2014 ACA requirements from which these affected policies are exempted until 2015?
A: Some of the more significant requirements excepted include:
The requirement that individual and small group rates vary only based on age (with a maximum 3-to-1 ratio), geographic area, and family size;
The prohibition of discrimination against individuals and their dependents on the basis of health status (except with respect to group coverage);
The prohibition of discrimination against providers practicing within their scope of practice or against employees for exercising their rights under the ACA;
The requirement that insurers accept every individual and employer that applies for coverage;
The requirement that insurers guarantee renewal of coverage;
The prohibition against exclusions of preexisting conditions with respect to adults (except with respect to group coverage); and
The requirement of coverage of the "essential health benefits" and limits on cost-sharing (as defined in the ACA).
4. Q: What sorts of written notices must be provided by the insurers under the "fix"?
A: Any insurer that wants to offer renewals under the President's "fix" is required to send a notice to all individuals or employers who have either received or were scheduled to receive a cancellation notice from the insurer informing them of the following:
Changes in the health insurance coverage options available to them;
Which specific 2014 ACA reforms will not be reflected in their coverage if they continue with their existing policies;
Their potential right to enroll in a Qualified Health Plan through the State/Federal Exchanges set up under the ACA in lieu to continuing under their existing policies;
How to access the State/Federal exchange that applies to their state of residence; and
Their right to purchase health insurance coverage outside of the State/Federal Exchanges that conforms to the 2014 ACA requirements.
5. Q: Is there any indication that those insurers which have sent these cancellation notices will take advantage of this "fix"?
A: It is too early to tell. Some insurers may take advantage of the opportunity so that they can pick up a healthier-than-average risk pool for 2014, since it seems fairly safe to assume that those who will renew will be healthier than the average person since most of those who are less healthy will probably want to seek coverage under the Exchanges. On the other hand, those insurers that have already sent out cancellation notices may be reluctant to seek approval of the renewals from state insurance commissioners, not to mention the administrative expense of retracting the cancellation and sending out the required notices to such cancelled policy holders.
For more information regarding this topic, please contact your local UHY LLP professional.