Reform Update: Fate of noncompliant health plans falls to state regulators

(Story updated at 8:15 a.m. ET, Nov. 21.)

President Barack Obama's decision last week to allow individual and small-group health plans that don't meet the mandates of the healthcare reform law to be renewed for 2014 is spurring widely disparate responses from state insurance regulators across the country. The onus is on those regulators to decide whether to allow noncompliant plans to continue serving current subscribers through 2014.

A delegation of the National Association of Insurance Commissioners met at the White House Wednesday with Obama, HHS Secretary Kathleen Sebelius and other officials to address their concerns about president's fix for a wave of insurance cancellations in the individual market.

"Since the passage of ACA, state regulators have been working to ensure that plans are compliant with the new rule," Jim Donelon, president of the NAIC and the state insurance commissioner in Louisiana, said after the meeting. The delegation, according to a statement, told the administration that setting different rules for different policies could disrupt the overall market.

"These proposed changes are creating a level of uncertainty that we must work together to alleviate,” Donelon said The bipartisan delegation also included insurance commissioners from Connecticut and North Carolina.

Regulators in more than a dozen states, disproportionately Southern states that have not embraced the Patient Protection and Affordable Care Act, have agreed to allow such policies to be renewed for 2014. Those states include Texas, Florida and Ohio. By contrast, at least eight states, including some of the most aggressive in promoting the ACA, are refusing to renew noncompliant policies in 2014. Among them are New York, Maryland, Minnesota and Massachusetts.

The California insurance commissioner wants renewals to be allowed, but it will be up to the board of the state insurance exchange to decide.

In Minnesota, Democratic Gov. Mark Dayton initially expressed support for allowing individuals to keep their current plans that are being canceled. But the Minnesota Council of Health Plans raised objections in a letter to the state's top insurance regulator on Monday. “Thousands have purchased new coverage and others are prepared to do so by the Dec. 15 federal and state deadline,” wrote Julie Brunner, the council's executive director. “Going backward on such a very tight timeline will create uncertainty, confusion and disruption when people seek care.”

In the face of that opposition, Dayton decided that Minnesota will not allow renewals.

Other states still have not decided whether they will allow noncompliant policies to continue. Just over a month remains before those current plans expire. Subscribers in renewed plans that don't meet Obamacare requirements will not be eligible for federal premium subsidies. Experts say many of these canceled subscribers would qualify for these income-based subsidies and thus save money by buying a qualified plan through the insurance exchanges. It's estimated that several million Americans with individual-market policies have received cancellation notices.

But even if regulators allow renewals of canceled plans, it still will be up to insurers to decide whether they want to continue offering the individual and small-group plans affected by the policy change. So far, few insurers have indicated that they will do so.

Blue Cross and Blue Shield of Kansas is one exception. The company announced Tuesday that it will allow existing plans to be renewed for 2014 even if they don't meet the ACA requirements. That decision will affect roughly 10,000 individuals who have already received cancellation notices, said spokeswoman Mary Beth Chambers. That's about 35% of the insurer's existing noncompliant individual plans. The rest were already grandfathered in because they were in existence at the time the law was enacted in 2010 and haven't been changed substantially.

Blue Cross and Blue Shield of Kansas plans to send out notices to affected members within the next week. If those customers take no action, they will be re-enrolled for 2014. According to Chambers, the only adjustment in premium will be a minor increase to account for the subscriber being one year older. “We really don't have the time to go out and re-rate these plans,” Chambers said. “Usually, the rating process takes several months.”

Mark Pauly, a professor of healthcare management at the University of Pennsylvania, said insurers opting to renew policies will have to do so without any detailed actuarial information about which customers ultimately will choose to renew their plans. That could cause the firms to raise rates for the existing plans in 2014 to protect against financial losses.

He said many insurers probably will choose not to renew noncompliant plans. “If I were an insurer who didn't care about public relations, I wouldn't bite this bullet at all,” he said. “I would pass on this one.”

On Tuesday, the CMS announced that individuals in the 36 states served by the federal insurance exchange can enroll directly with insurance companies and still be eligible for federal subsidies. Up to this point, insurers have been able to only sign up people who are willing to forgo receiving a federal premium tax credit they might be eligible for. To receive the subsidy, people previously had to go through the federal HealthCare.gov website. The CMS said that as of Tuesday, the HealthCare.gov repair team had enabled direct enrollment, though it was unclear if any insurers were using the system yet.

The White House Council of Economic Advisers reported Wednesday that healthcare spending is growing at the slowest rate on record. According to the most recent projections, real per capita healthcare spending has grown at an estimated average annual rate of only 1.3% over the three years since 2010. This is the lowest rate on record for any three-year period and less than one-third the long-term historical average stretching back to 1965. This slower growth in spending is reflected in Medicare, Medicaid and private insurance.

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