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The facts about health plan cancellations

Why your insurer may be cancelling your individual health insurance policy and what you can do to replace the plan with something better

In the past few weeks, many holders of individual health insurance policies have been receiving letters from their insurance company stating that their policy has been CANCELLED! Is it because of the Affordable Care Act (or “Obamacare”)? Yes, in fact, it is. And here is why and what to do about it.

If you were lucky enough to have had an individual health insurance policy in the past few years, you were either paying a large premium with a significant deductible (because you had been sick or were older) or a lower premium for a policy that probably didn’t cover much more than a hospital gown. Nevertheless, if you didn’t use it very much, you probably were reasonably satisfied.

To be told that your policy is being cancelled and you have to choose a new one can be very unsettling.  To make it worse, there are a lot of stories floating around about people whose policies are being cancelled and may have to pay a lot more for a similar policy.  There are also a few stories floating around about the exact opposite – people whose old policies were cancelled but are finding they can get a better plan at a better price elsewhere.

Policies didn’t meet standards

We do know that about 5 percent of the population or somewhere between 7 and 12 million people who had individual policies will have to switch to an ACA-compliant plan and may receive cancellation letter – several million in California alone. In the midst of the hyperbole and hysteria from across the entire political spectrum about these cancellations, this quote from Fox News about this month’s cancellations may surprise you:

The fact is if you are one of the estimated 2 million Americans whose health insurance plans may have been cancelled this month, you should not be blaming President Obama or the Affordable Care Act. You should be blaming your insurance company because they have not been providing you with coverage that meets the minimum basic standards for health care.

The Affordable Care Act (ACA), passed as law in 2010 and upheld by the U.S. Supreme Court in 2012, requires that insurance companies make a number of changes to their practices – they must stop denying people coverage because of pre-existing conditions; they must pay rebates to members if the insurance company spend more than 20 percent of the member’s premium on marketing and executive salaries; they must allow you to keep your adult children on your plan until they turn 26; and they must stop limiting what they will pay for lifetime coverage or charging women double what they charge men.These are all changes that most consumers welcome.

Improved coverage ahead

But the law also requires that existing policies that do not include the essential benefits embedded in the law must now include those benefits (e.g. prescription drugs, rehabilitation after injury, mental health and substance abuse, hospitalization, maternity, etc.). In order to bring the old policies into compliance, companies are cancelling old policies.

You may not want to pay for all these new benefits. However, allowing people to pick and choose what they want to pay for doesn’t work in the health insurance market.

In most of these categories other than maternity care, you cannot predict what you might need and when you might need it. If your policy does not cover hospitalization (or more than a day or two), you can easily fall into medical bankruptcy. You may not take any prescription drugs this year, but who knows about next?

In order to spread the costs of care across as large a group as possible, most economists and policymakers believe that comprehensive coverage is better than bare-bones coverage (or “junk insurance” as it is often called). After all, if you land in the hospital and can’t pay your bill, someone else is going to have to pay it.

The replacement offer

So what is a person with a cancelled policy supposed to believe? Probably not only the letter the insurance company sends you.

A recent letter from Anthem Blue Cross to individual policyholders stated up front, “We can no longer offer you your current plan … you need to choose a new benefit plan.” (Many subscribers might just panic when they see that.)

The choices Anthem offered in the letter were 1) to select a different Anthem plan, 2) select an Anthem plan through the state exchange or 3)  (in the middle of the letter’s second page) “If you don’t take any action by December 15th, we will move you to a new suggested Anthem plan of our choosing on January 1, 2014.”

My point? Just because Anthem points you to Anthem options, they’re not necessarily the most cost-effective.  (You won’t know for sure until you do some research).

Cancelled? What you can do next

If you have an individual insurance policy for yourself or your family and have received a cancellation notice, what should you do?

First of all, don’t fall for the insurance company’s automatic “replacement” plan. You might be able to find something better through your state-based marketplace or “exchange.” Your insurer cannot offer you a subsidy for the new plan; the only place you can get financial assistance buying a new plan is by going to your state exchange directly or if your state is one of those who refused to build their own exchange, you can buy a new plan from the federal exchange. (Yes, that one – the one under construction.)

There are four ways you can buy insurance that way – by phone, by mail, by talking to an agent or “navigator” in your community, and eventually by going online.)

Second, take the time to call your insurance company (and stay on hold) and ask them questions about what policies are available and how they might be different from what is offered on the exchange. If you are buying a policy for your child (because your employer does not cover dependents), be sure you understand that you must buy dental as well as medical insurance if you buy directly from the insurance company. If you buy that coverage through the exchange, dental coverage for children is optional.

Third, if you have a doctor whom you want to continue seeing, check to be sure that doctor is in the plan you are selecting. You can find that out by calling the doctor’s office or looking at the insurance company’s provider list online. Not all physicians are accepting plans sold through the exchanges.

Stay focused, be patient, and take notes of every conversation you have. In the end, remember that you cannot be denied coverage ever again, and there are limits to what you will have to pay no matter how sick you get.

The reason for the Affordable Care Act was to fix an insurance market that has been broken for a long time. Despite the inconvenience and the aggravation you may be experiencing now, you will end up with better coverage and better benefits.

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