California mulling whether to go along with White House shift on cancelled health plans

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Update at 4:38 p.m.:

California Insurance Commissioner Dave Jones weighed in on the issue Friday, urging insurance companies, HMOs and Covered California to go along with the administration’s rule change.

Jones has locked horns with Covered California over its rejection of previous White House shifts, particularly its refusal to go along with the president’s plan to let insurers renew non-ACA compliant individual plans scheduled for cancellation Dec. 31st.

The commissioner said Mr. Obama’s policy change "does make the catastrophic plans a choice for more families," while asserting that the president took this step "in the face of decisions like Covered California to require cancelations."

Update at 2:27 p.m.:

The lobby for California's health insurance industry criticized the Obama administration's policy move. "This 11th hour change has the potential to undermine the individual mandate, which requires most Americans to maintain more comprehensive coverage," said Patrick Johnson, President and CEO of the California Association of Health Plans. 

Johnson said the Affordable Care Act "was built as a three-legged stool - guaranteed coverage for all, an individual mandate and subsidies to help with affordability - cutting off one leg makes the stool unstable."

Update at 11:00 a.m.:

Covered California, the state-run health insurance marketplace, is deciding whether to go along with the Obama administration's decision to allow people whose individual policies were cancelled to buy catastrophic coverage instead. 

Covering California series icon 2013

"We're currently assessing the announcement and conferring with our policy department," said spokesman Oscar Hidalgo.

California has not gone along with President Obama on two other recent rule changes. Last month, Covered California rejected President Obama's call to permit the extension of individual health plans slated for cancellation because they do not comply with the Affordable Care Act. On Wednesday, the state-run marketplace said it would not go along with the White House move to extend until Jan. 10 the deadline to pay premiums on policies that take effect Jan. 1. 

California had already given consumers until Jan. 6 to pay for plans that start on Jan. 1.

US Health and Human Services Secretary Kathleen Sebelius laid out the latest policy shift in a letter to Senator Mark Warner (R-VA).  HHS' Centers for Medicare & Medicaid Services issued a memo on the shift as well.

Previously, catastrophic plans were available only to those under age 30 and those who could demonstrate specific financial hardships. Federal subsidies aren't available to help people purchase catastrophic policies. The administration now says the catastrophic option is for people who consider other available coverage unaffordable.

"If you have been notified that your individual market policy will not be renewed, you will be eligible for a hardship exemption and will be able to enroll in catastrophic coverage," said the HHS memo

Sebelius' letter to Warner called the new hardship exemption "temporary," saying the new approach stems from the administration's commitment "to ensuring the smoothest transition possible for those who need to find a new health plan" that conforms to the Affordable Care Act. 

Under the federal health law,  individual policies that do not provide ten essential health benefits must be cancelled. Some consumers who received cancellation notices said they are struggling to find an affordable ACA-compliant policy.

Those who want to purchase catastrophic coverage will still have to apply for the exemption, making it unclear whether that can happen in time for the Dec. 23 deadline.

Giving anyone with a canceled policy a hardship exemption also legally excuses them from having to pay a penalty if they are going without ACA-compliant coverage.

The new policy isn't sitting well with insurers. "This latest rule change could cause significant instability in the marketplace and lead to further confusion and disruption for consumers," said a statement from Karen Ignagni, president and CEO of America's Health Insurance Plans.

And Tim Jost, a professor at the Washington and Lee University School of Law, noted that insurers have every right to be unhappy. "Allowing individuals with cancelled policies to purchase catastrophic policies is likely to cause problems for insurers who will now have to cover older and less healthy individuals through catastrophic policies priced for younger and healthier individuals," he wrote in a blog post for the policy journal "Health Affairs." "At the same time, however, the policy will siphon off individuals who were healthy enough to find affordable coverage in the pre-ACA market and who might have purchased non-catastrophic qualified health plans in the exchange."

But Jost also wrote it's unlikely that many of those with cancelled policies will simply opt out of the market altogether. "These are people who already purchased insurance without the mandate," he points out. And without any subsidies.

The White House policy change could also stir up larger political challenges for the federal health law. "Republicans will immediately begin calling for the uninsured to get the same exemption [as those whose policies were cancelled], Ezra Klein writes in The Washington Post's Wonkblog. "What will the Obama administration say in response?" asks Klein. "Why are people who [sic] plans were canceled more deserving of help than people who couldn't afford a plan in the first place?"

Correction: On Dec. 22, 2013, a sentence describing catastrophic plans as only covering major medical issues was deleted. Under the ACA, a "catastrophic" plan, also known as a "Minimum Plan," has to provide coverage for basic services as well. The sentence regarding the ten services the ACA requires of health plans was amended to reflect that the ten services are "essential health benefits" rather than "preventive services." Some, but not all, of the ten benefits are preventive services.

With contributions by Julie Rovner

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