There are several reasons why health plans are closing under the Affordable Care Act. Individual state regulatory issues, federal mandates and competitive pressures have made it easier for health insurance companies to close plans rather than try and bring them up to ACA standards.
Obama was right
At the time that the ACA was signed into law, President Obama was technically correct in stating that if you liked your current plan you can keep it. The ACA grandfathered existing health plans from having to comply with many of the benefits that plans issued after March of 2010 had to comply with. This meant they were exempt from some of plan elements necessary to meet minimum standards under the new regulations. While most grandfathered small group plans have continued to be offered, many individual and family plans (IFPs) have fallen to circumstances that neither the congress nor the President could have foreseen.
State regulations help close health plans
A problem that has plagued most attempts to make all health plans uniform across the nation is the fact that each state, not the federal government, regulates their own insurance industry. Consequently, some states have allowed health plans to be issued that could barely be considered credible health insurance because of limitations on coverage and caps on services or dollar limits.
Easier to re-invent the wheel
Many of these skimpy coverage or super high deductible plans had very low rates which made them attractive to cost conscience consumers who needed few health care services. It would have been a daunting task to completely overhaul these bare minimum plans to comply with new ACA mandates. Health insurance companies figured it was easier to scrap the plans and start all over than try to include all the benefits within the existing framework of the policy. This even includes health plans issued after March 2010.
Aetna Closes California Health Plans
United Healthcare leaves California
Anthem Blue Cross to close California plans
Health Net closes California Farm Bureau Plans
Covered California mandate health plan cancellations in their contract
Who wants to fight for a rate increase of 50%?
One factor that the consumer never sees is the regulatory approval necessary to get either an older plan updated or the request for a rate increase. The California Insurance Commissioner has no authority to deny a rate increase sought by a carrier, but Commissioner Jones can certainly make a stink if they think the rate is too high. Only 22 states actually have a rate review process. Some plans would never be granted the necessary rate increases to remain solvent in the market.
I don’t want to die on the rate increase hill
Health insurance companies were faced with the prospect of asking for huge rate increases for older plans to cover the costs of the new benefits. No carrier wants to fight the bad public relations nightmare of having to justify a 50% + rate increase on an older plan they are over-hauling to meet minimum ACA standards. From the health insurance company perspective, it was easier to discontinue the older plans, design new plans with appropriate rates, and then migrate existing members to the new offerings. In this sense, it was easier to place the blame for the plan closures at the feet of the Affordable Care Act than to admit that their health plans sucked in the first place.
I loved you when you bought me
Not all health insurance carriers were committed to their markets. Companies such as Aetna and United HealthCare pulled out of the California individual and family market all together. As of December 31, 2013, all their IFPs are discontinued. Obamacare didn’t force these companies to abandon their members. They sent notices of plan closures because they chose not to compete.
Master policy holders no longer work
Health Net had to close plans because of their partnership with the California Farm Bureau Federation (CFBF) would no longer work under the ACA rules. CFBF was the master policy holder for thousands of their members who purchased health insurance through Health Net branded with the Farm Bureau logo. (This is similar to United Health Care teaming up with AARP to market Medicare Advantage plans) Health Net had no option but to close the plans the Farm Bureau members had purchased.
19 pricing regions
Other carriers, along with Health Net, have had to close plans in areas of California where they won’t be selling insurance through Covered California. The state is broken up into 19 pricing regions and the carriers had to select which regions they were going to offer health plans. The agreement between Covered California and the carriers states that they won’t offer plans outside the exchange that they don’t offer inside the exchange. Virtually every insurance carrier in California has had to close plans to comply with the Covered California agreement. They couldn’t maintain plans that they didn’t offer through the state exchange.
They are awfully quiet out there
The insurance companies know more about the variety of reasons for plan closures than they are telling the public. The CEO’s of major health plans should be brought before congress an asked about the real reasons they are closing plans. The ACA has precipitated the closure of many plans. But we also know that the regulatory headaches of getting rate increases and upgrading poor plan designs to meet the ACA is also playing a part in plan closures. So far, all of the insurance companies are standing on the sidelines, twiddling their thumbs, enjoying the new business and revenue the ACA is driving their way while Secretary Sebelius is getting grilled on the hot seat by congressmen who would rather pontificate than actually listen to the facts.