Health Plan Cancellations Are Coming, but for Relatively Few

People are starting to get letters telling them their health insurance plans have been canceled because of the Affordable Care Act. Because the letters will go out just before the midterm congressional elections, they are likely to get a lot of attention. There have been several stories this past week. But the people affected will represent only a small fraction of the population with health insurance.

The cancellations are occurring at the state level, and some insurance regulators don't require any reporting, so a precise head count is difficult. But it appears that as many as several hundred thousand people will find their plans canceled this year. That sounds like a lot of people, but to put it in context: The total number of Americans with health insurance is more than 276 million, according to a recent government survey. The individual insurance market contains about 20 million people, according to estimates from the Kaiser Family Foundation that will be published later this month.

Plan cancellations were a big story last fall, when several million Americans were told that their insurance plans were not compliant with rules established by the Affordable Care Act. The law says that all insurance plans need to cover a minimum set of health benefits and cover a minimum percentage of expected medical bills - tests that many of the older plans couldn't pass. The plan cancellations were particularly problematic because they coincided with insurance marketplace websites that didn't work, leaving many people without a way to sign up for new insurance options even if they wanted to.

For many of those people, especially those earning high incomes, the new options were more expensive than the plans that were discontinued. But that is not true for everyone. In the new marketplaces, middle-class customers are eligible for tax credits that help them pay for their policies. A survey from the Kaiser Family Foundation this spring found that about 39 percent of people who switched from canceled plans to marketplace plans paid higher rates, though that number does not include people whose plan cancellations caused them to become uninsured.

This year is different for two reasons. One is that the number of cancellations is so much smaller. The other is that, in many cases, the law does not require companies issuing the plans to cancel them.

'The scale and dynamics at play are much different this time around,' said Claire Krusing, a spokeswoman for America's Health Insurance Plans, an industry group, in an email. 'Discontinuations may be a reflection of state-by-state decisions or a range of dynamics in different markets.'

Last year, the Obama administration opted to postpone enforcement of regulations governing the existing plans, allowing state regulators and individual insurance companies to decide whether to cancel them right away or extend them for up to three years. Some states decided to cancel all the plans last year anyway. Ultimately, it appears that just under two million people had to leave noncompliant plans in 2014, according to an analysis of survey data done by Jon Gabel, a senior fellow at the University of Chicago's research organization NORC.

Of the places that still offer such plans, seven states and the District of Columbia are requiring insurance companies to drop noncompliant plans before the start of 2015, according to a policy summary complied by America's Health Insurance Plans.

Decisions to cancel plans in other states are coming from the insurers offering them, not because of an immediate legal deadline. The companies are simply choosing to stop offering particular products, something they often did even before the passage of the Affordable Care Act. That's what's happening in Kentucky, for example, where the Senate minority leader, Mitch McConnell - a Republican opposed to the health law and up for re-election - has circulated a news release about reports of cancellations ('October Surprise' is the headline).

In a statement, Ben Wakana, a spokesman for the Department of Health and Human Services, noted that consumers whose plans are canceled now have the option to shop for new coverage in state marketplaces. 'As was the case before the Affordable Care Act, private insurance companies operate in a free market: They may choose to discontinue, change and replace plans so long as they let their enrollees know their options,' he said.

The plan cancellations are part of the design of the health law. The Affordable Care Act set out to reshape the individual insurance market to make plans more comprehensive and fair, with prices less variable by customers' ages and health status. Switching to the new regulatory system meant that some existing products would have to go. That process clearly puts some purchasers of the old policies at a disadvantage, particularly young, healthy and high-income people, who are most likely to face premium increases in the marketplaces.

But historical evidence suggests that the number of people at risk of losing their coverage because of the changes will dwindle substantially over time. Some people in noncompliant plans may choose to switch to the new marketplaces to get a better deal. Others may leave the market because they aged into the Medicare program or got a new job that came with coverage. A study of the individual market before the Affordable Care Act passed found that more than half of the people enrolled in individual market plans in 2011 had left them by 2012.