State regulators, insurers struggle over whether to renew existing health plans

Health insurers in Oregon learned last week that they will be allowed to renew health plans for 2014 that don't meet the requirements of the Patient Protection and Affordable Care Act. But plans could be renewed only if insurers agreed to offer them at the same premiums as this year. Carriers faced a deadline of last Friday to decide whether to proceed with renewals.

Insurers in North Carolina also were given the green light by state regulators to renew noncompliant plans. Blue Cross and Blue Shield of North Carolina, the state's largest insurer, promptly announced it would allow customers to keep those policies through 2014. But premiums will soar 16% to 26%.

The different scenarios in Oregon and North Carolina highlight the complexities of responding to the announcement by President Barack Obama this month that health plans in the individual and small-group markets that do not comply with the ACA could be renewed for current subscribers for 2014. Renewing customers would not be eligible for a federal premium subsidy. Obama passed the burden for deciding whether to allow renewals to state regulators and insurers. That has left them scrambling to decide how to proceed, with little time left before those plans expire at the end of the year.

“Reversing these canceled policies is no joke,” said John Gorman, a Washington-based consultant who advises insurers. He noted that insurance commissioners must decide whether to allow renewals. Then insurers have to underwrite and re-price the plans, and reconfigure systems to process the enrollments and claims. He doubted many insurers would choose to do so. “I don't think there will be much uptake, either from plans or subscribers.”

Obama was reacting to a political uproar after hundreds of thousands of people with plans that didn't comply with the requirements of the ACA received cancellations from insurers. Individual-market customers represent a small fraction of the overall U.S. insurance market—roughly 6%. But the cancellations contradicted Obama's promise that people could keep their health plan if they liked it.

Insurers reacted sourly, warning that renewing noncompliant policies could drive up premiums in 2015 and destabilize the risk pool. So far, only a few have said they would renew those plans.

Responding to the anxiety among insurers, the Obama administration late last week pushed back the start of open enrollment on the exchanges for 2015 by one month, to Nov. 15, to give insurers more time to analyze the pool of exchange enrollees and set rates for 2015.

But Mark Pauly, a professor of healthcare management at the University of Pennsylvania, argued that insurers' fears about renewing noncompliant plans are overblown given that the change affects such a small segment of the overall market. If renewing customers pull out of the exchanges, “it's not going to bump up the average risk all that much,” he said. “There's not enormous numbers.”

Meanwhile, regulators in about 15 states still had not decided at deadline. As of Friday, states including California and New York, had decided that they would not allow renewals, while a number of states, including Illinois and Texas, had decided that they would.

California's insurance exchange board made the decision not to allow renewals after reporting a surge in enrollment, to nearly 80,000. It said allowing renewals of noncompliant plans would undermine the exchange market's growing success.

“It's going to be a mixed bag,” said Robert Laszewksi, an Alexandria, Va.-based consultant who works with insurers.

Blue Cross and Blue Shield plans in at least four states—Florida, Kansas, Maryland and North Carolina—will allow subscribers to renew. But the major publicly traded insurance companies—which generally are less active in the insurance exchanges—haven't been as forthcoming about plans. Of these, WellPoint has the greatest exposure in the exchanges, selling plans in all 14 states where it does business. WellPoint did not respond to a request for comment.

Blue Cross and Blue Shield of Kansas expects to mail letters this week to about 10,000 individual customers who previously received cancellation notices. That's roughly a third of the insurance company's total individual subscriber pool. The only cost increase for those customers who want to retain their current plans will be a modest adjustment to reflect the fact that they will be a year older. If enrollees take no action, they will be kept in their current plan.

“We are now circling back to all those individual folks,” said Mary Beth Chambers, a spokeswoman for the company. “This is a huge undertaking for our systems folks.”

While the situation remains fluid, most insurance experts say the universe of customers who ultimately will have the option of keeping their current noncompliant coverage will be small.

And experts note that customers who will have the option to renew their existing plan may find that they would pay less for more comprehensive coverage by choosing a plan on their state- or federally operated exchange, provided the exchange is functioning effectively. A study released Thursday by Families USA, a group that supports the ACA, found that 71% of customers in the individual market would be eligible for a federal premium subsidy through the exchanges. That leaves only about 1.5 million Americans who would have to pay the full cost of coverage.

“I believe that this concern has been blown significantly out of perspective,” said Ron Pollack, executive director of Families USA.

Follow Paul Demko on Twitter: @MHpdemko