“Sub-Standard” Plans Get Two-Year Extension

President Obama famously said – time and time again, both before and after the ACA was signed into law – that “if you like your health plan, you can keep it.” Unfortunately, most people didn’t understand that what he really meant was that if you had a plan on March 23, 2010, you didn’t switch to a different plan, and the insurance company continued to offer it, you could stay grandfathered and avoid many of the required provisions of the health reform legislation, which of course went into effect January 1, 2014.

And because people didn’t understand how the grandfathering provision actually worked, millions of individual policyholders were both surprised and angered by the cancellation notices they received from their insurance companies back in October. These plans, which were not grandfathered, did not include many of the “essential benefits” required by the law, so the insurance companies were discontinuing their plans and moving them into the “new and improved” plans for 2014.

Bowing to all of the negative publicity, the President announced a “fix” back in November which allowed states and insurance companies, if they chose, to renew these “sub-standard,” non-compliant plans in 2014. And now, they’ve been given the green light to renew them in 2015 and 2016 as well – the administration is giving individuals the ability to hang on to these plans for two additional years.
Depending on how you look at it, this could be good news or it could be bad news.

For insurance companies – especially those that participate in the state and federal exchanges – it’s probably bad news. They’ve planned for most of these policyholders, who tend to be fairly healthy since they made it through underwriting when purchasing the coverage, to move to the new, richer-benefit, higher-premium plans in 2014, and now many of these folks won’t make the change until sometime in 2017. That, of course, could increase premiums for people with ACA-compliant coverage, something the administration admitted when making the announcement.

Of course, this extension is optional for insurance carriers. As reported in a March 5th New York Times article:

Under the transition policy announced by Mr. Obama in November, insurers “may choose to continue coverage that would otherwise be terminated or canceled.” Insurers were allowed to renew existing policies even if they did not provide the “essential health benefits” prescribed by law. In addition, the administration said, insurers could continue charging women more than men for those policies and could charge higher premiums based on a person’s health status, in violation of the new law. A White House official said Wednesday that it would allow insurers to continue existing policies with renewals as late as Oct. 1, 2016, so individuals and small businesses could have noncompliant coverage well into 2017.

The announcement is also bad news for individuals and families with grandfathered health plans, not necessarily because they’ll pay more for their current coverage but because they likely limited their renewal options in 2010, 11, 12, and 13 just so they could retain their grandfathered status. The fact that other individuals are able to hang onto their plans even though they may have switched since the law was signed does seem a bit unfair.

But for people who are ineligible for premium tax credits, either because they earn more than 400% of the Federal Poverty Level or because they have access to affordable employer-sponsored coverage, this is good news. As long as they purchased a plan before 2014 – even if it didn’t go into effect until December of last year – they can now satisfy the individual mandate requirement without paying for enhanced coverage that they may not want or need.

How does the announcement impact insurance agents?

For health insurance agents who were hoping to collect a commission while assisting these individuals and families who are having their policies cancelled, this is bad news since the cancellation has been delayed for another two years. Still, a significant number of these individuals would likely qualify for a premium tax credit if they moved to a new, ACA-compliant plan, so brokers who have a solution to help them explore their options are still in a position to pick up additional business. Just because they can continue their coverage doesn’t mean they will; for many people, it makes much more sense to purchase a compliant plan and take advantage of the financial assistance they may be eligible for.

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