Millions of Americans are losing their health-insurance plans this year, mostly as a result of Obamacare. The rationale: The plans being canceled were subpar and, thanks to the law, their beneficiaries will be able to get better plans. The fact that the price of the new insurance is often higher is discounted because it’s supposedly better coverage. As many have pointed out before, this argument isn’t very comforting to the many people who don’t want a more comprehensive insurance plan (let alone the paternalistic nature of it all).
But more important, a lot of plans that are being canceled aren’t subpar at all. They are perfectly good, solid plans. In fact, in some cases, customers are now forced to buy lower-quality plans than the ones they had. Why? Writing over at Real Clear Markets, my colleague Robert Graboyes and InsureBlog’s Patrick Paule explain that Obamacare has a weird, even surreal, grading system for the plans, which leads to great plans being shut out of the exchanges. They explain:
It is in the realm of actuarial value (AV) requirements where the law demands pointless standardization. AV measures the extent to which a policy covers the average enrollee’s medical expenses. On average, for example, a plan with an AV of 63 percent covers 63 percent of enrollees’ medical costs.
All ACA-compliant plans must fit within four “metallic” bands. A platinum plan covers around 90 percent of an enrollee’s costs, with a 2 percent tolerance in either direction. Thus, a platinum plan covers between 88 and 92 percent of costs. A less expensive gold plan covers between 78 and 82 percent of expenses. A silver plan’s AV falls between 68 and 72 percent. Finally, bronze plans cover between 58 and 62 percent.
A plan offered in 2013 can have any AV, but come January 1, 2014, all plans must fall within those four narrow metallic bands. Therefore, a plan that covers 59 percent of medical expenses is okay, because it’s within the bronze band. But a plan that covers 96 percent of expenses is unacceptable because its coverage is too generous; it is, by official rhetoric, subpar, substandard, bad insurance.
The system, they explain, is like a school who would fail a student who gets a 98 percent, because the school grading system says that “88 to 92 is an A, 78 to 82 is a B, 68 to 72 is a C, 58 to 62 is a D, and everything else is an F.”
One of the insight from their piece is that unfortunately we are only at the beginning of the cancellation cycle, and that it will affect more than 5 percent of the American people.
If you think this is a problem just for the 5 percent of Americans (15 million plus) who get their insurance through the individual market, think again. Tens of millions of Americans who get their insurance through small-business plans are likely to experience similar waves of cancelations when their policies come up for renewal in late 2014 and in 2015. In 2016, the small-business rules will expand to include employers with up to 99 employees, meaning that all told, 40 to 50 million individuals (plus millions of family members) could be vulnerable.
And if you think this is a one-time problem, think again one more time. Let’s say in late 2014, you lose your small business plan because its AV is 73-too high for silver and too low for gold. You switch to a compliant silver plan with an AV of 69. Before your plan comes up for renewal in 2015, however, many things beyond your control will change-ACA regulations will change the allowable deductibles and out-of-pocket maximums, and prices of medical goods and services will change, as they always do. So in 2015, your insurer does the calculation and finds that your year-old plan now has an AV of 67. The insurer will have little choice other than to cancel your new plan, and you’ll have to hunt around for yet another one-and maybe a new doctor and hospital, too. As far as we can tell from the newly issued regulations, cancellation letters may become an annual event for tens of millions of people. If you like your policy, you can keep your policy-till next year. Period.
The whole thing is here. Also, if you want to read more about why you can’t keep your current plan read this excellent post by Paule. Here’s another example of a high-quality plan that will be canceled under Obamacare.