Some Californians with individual health insurance plans set to expire at the end of the year have been given a three-month reprieve, delaying potential financial and logistical setbacks for customers worried about rising premiums and access to preferred physicians.
Those with individual plans issued by Blue Shield of California Life & Health Insurance Co. will be allowed to temporarily retain their coverage even if they purchased it before the March 2010 passage of the federal health care law – the cutoff for “grandfathered” policies.
The postponement applies to 113,000 of the roughly 900,000 state residents receiving cancellation notices.
Nearly 600,000 residents who buy their own health insurance are bracing to pay more for new plans in large part because of the federal health care overhaul. Blue Shield had given a three-month notice to 119,000 subscribers that their policies would be withdrawn from the market and replaced with new compliant coverage.
Insurance Commissioner Dave Jones suggested the cancellations required a six-month warning and threatened legal action if policyholders weren’t given time. He noted that nothing in state or federal law required health insurers to cancel plans by Dec. 31. Ending existing coverage at the end of the year was an agreement between the insurers and the state’s exchange, called Covered California.
In criticizing the pact, Jones urged consumers to explore all of their options such as new plans offered in the state exchange, which he supports.
“They may conclude that what makes sense for them is to stay in their existing policy for three more months at the lower rate and at the broader coverage with the doctors and hospitals they selected,” he said. “I think people should have the ability to make these sorts of choices.”
Cancellation notices have enraged customers nationwide and caused headaches for President Barack Obama, who last week was forced to walk back repeated assertions that Americans who were satisfied with their health plans could keep them.
If all of Blue Shield’s policyholders remained in their plans, they would save $28.6 million through the end of March.
Blue Shield was able to accommodate Jones’ demand because the insurance plans in question are regulated by the Department of Insurance. New plans offered via Covered California are regulated by the Department of Managed Health Care and bound by the model contract between the exchange and insurers.
Media representatives for Covered California did not return messages seeking comment.
Blue Shield is mailing letters to 80,000 households informing them of the change and letting them know that they would have to request an extension of their current plans, spokesman Stephen Shivinsky said. The cutoff to inform the company of a decision is Dec. 6.
Still, Blue Shield is warning customers that an extension is not without complications. Significant risks include having to pay a deductible twice in one year; missing tax credits and cost-sharing subsidies for plans that meet new requirements of the federal health care overhaul and are purchased via the exchange; and needing to enroll in a new plan by March 15, 2014, to avoid a gap in coverage after March 31.
“We are providing a lot of cautions to our subscribers if they choose to extend their coverage,” Shivinsky said.
Blue Shield estimates that younger, healthier customers are more likely to extend their current policies and delay their entry into the state exchange. Without that group, average medical costs for people in the marketplace would be higher and could lead to increased premiums for everyone in 2015.
Jones said he doesn’t believe other insurance companies would delay their deadlines.
“I don’t think, short of other legal violations, that the health insurers will give people more time,” he said.
Part of the reason is the dynamic playing out between his office and Blue Shield. Earlier this year, the company filed with the insurance department to sell new policies in the individual market next year. Jones said his department rejected the policy forms and provider networks and found the rates unreasonable.
Blue Shield then informed Jones of its plans to take advantage of what he described as a “loophole,” which allows all of its new policies in the individual and small-group markets to be sold only by the Blue Shield company regulated by the Department of Managed Health Care.
State law does not authorize the insurance commissioner to regulate health insurance and HMO rates.
“We need to change that,” Jones added.
Consumer Watchdog, an organization behind a ballot measure to regulate health insurance rates, urged insurers and the state exchange to follow Blue Shield.
Others suggested staying the course and working to continue enrolling people in more comprehensive plans before the end of the year.
“Covered California is enrolling people in new coverage, the website is working,” Patrick Johnston, president of the California Association of Health Plans, said in a written statement. “Health plans, brokers and enrollers are helping people transition from old policies to new ones.”
“We want to encourage people to participate in the exchange, not discourage enrollment and increase confusion about when 2013 policies need to be phased out. A short extension at this late date only muddles the process and poses potential negative cost impacts for customers.”