How many cancelled policies were eligible for grandfathering?

Via twitter today, I asked Kip Piper:

Some individual market plans were eligible for grandfathering, but had to remain unchanged to be grandfathered (meaning the benefits could not be changed). What proportion of the cancelled individual market plans were eligible to be grandfathered? Some such plans may have had to be cancelled, while others may have been cancelled due to changes brought about by insurance companies. And the answer seems to potentially differ by state?

Does anyone know?

cross posted at freeforall

Author: Don Taylor

Don Taylor is an Associate Professor of Public Policy at Duke University, where his teaching and research focuses on health policy, with a focus on Medicare generally, and on hospice and palliative care, specifically. He increasingly works at the intersection of health policy and the federal budget. Past research topics have included health workforce and the economics of smoking. He began blogging in June 2009 and wrote columns on health reform for the Raleigh, (N.C.) News and Observer. He blogged at The Incidental Economist from March 2011 to March 2012. He is the author of a book, Balancing the Budget is a Progressive Priority that will be published by Springer in May 2012.

34 thoughts on “How many cancelled policies were eligible for grandfathering?”

  1. One of the big problems with Obamacare is the state-by-state patchwork of implementation. I’m really sick of symbolic federalism. Some things- like drug policy- are clearly none of the federal government’s business, because they are issues where there are significant differences of opinion among localities. And some things are traditionally done at the state level, like corporate chartering, that probably should be done on a national level but the ship has sailed, so it’s fine to uphold federalism.

    But there’s no reason that a new national public welfare program should involve the states in any manner whatsoever. Social Security doesn’t use the states. Health care needs aren’t any different in Texas than they are in Oregon.

    In many states, the insurance commissioners are not going to do anything to enforce the insurance company rules set out by Obamacare, and insurance companies will do whatever they want. That’s a recipe for failure.

    1. No reason in principle, perhaps, but both insurance regulations and Medicaid are handled at the state level — so the patchwork is an inevitable byproduct of Obamacare’s attempt to take the least disruptive path toward universal coverage.

  2. I wish there were a better term than “grandfather” in this sense. It has an odious pedigree.

    1. Was the odious one the first use? I had heard it used in so many innocent ways before I heard about the big bad one. I was grand mothered into my chorus without an audition since I had been in it before they required auditions so i am fond of the term.

    2. I know that the RBC is renowned far and wide for its wonderfully learned and erudite front pagers and commentators but some of us (me, for example) are perhaps a bit less learned than others. Could you please help me out with an explanation what is odious about the term “grandfathered”? Thank you.

      1. It’s from the Jim Crow laws imposed in the late 19th century to prevent African Americans voting by imposing literacy tests, all through the American South. A person registering to vote had to pass a literacy test (and these were rarely reasonable tests of literacy), but was exempted from the requirement if his grandfather had been eligible to vote, effectively barring all the people whose grandfathers had been slaves but allowing illiterate whites to vote.

  3. As far as I know nobody has this data - and getting to a reliable answer would be very difficult (involving as it would analysis of the terms and conditions of every cancelled plan in every state, coupled with some sense for how many participants were in each plan and how many voluntarily dropped their coverage in the current period).

    That said, I would suspect that the number of plans cancelled because they are not eligible for “grandfather” status would be a very large % of all plans cancelled during the current period. Specifically:

    1) The ACA thresholds for grandfathering plans are relatively narrow. For example, a change in co-pays for visits of just $5 between 2010 and 2013 would make a plan ineligible for grandfather status. A $5 change on a $30 co-pay would represent just a 5% annualized increase in the co-pay over that period, which is below the overall rate of medical inflation over that time period. And changes to co-pays are just one of the many types of changes that can make a plan ineligible for grandfather status.

    2) If an insurer has existing customers, signed up in a pre-ACA world, then they presumably have, on balance, good risk profiles (otherwise they would not have been able to obtain insurance). For the insurer to voluntarily cancel-out large numbers of these customers in an attempt to move them to a more expensive plan, at the precise moment in time when the ACA requires that they issue policies to new customers regardless of their risk profile, would be extremely reckless. Especially given the fact that switching customers to a higher priced plan isn’t a sure-fire way to earn more profits on those customers given the fact that the ACA regulates the medical loss ratio of conforming plans. And keep in mind that nothing would have prevented these insurers from cancelling existing plans in an effort to upgrade policyholders to more expensive plans in 2012, 2011, 2010, 2009, 2008, etc.

    1. We’ve been over this. There are a lot of anecdotes (see for example the lead piece at TPM today) that appear to indicate insurers are pretty confident they can use public confusion, ignorance, and fear about the ACA to buffalo people into signing up for some really bad deals. There’s no reason to think the more-valued, healthy policyholders are often less susceptible to this tactic than are other people. The reason they can cancel the plans now is that had they done so in 2012 for no obvious reason the policyholder would resent them, and might shop around; when they blame the ACA, the policyholder doesn’t question their motive in the same way - and so when they say the policyholder’s best option is to buy some expensive new plan, a lot of policyholders will believe them.

      1. The TPM story you link to provides zero - zero - evidence that any plans eligible for grandfather status under the ACA are being cancelled. It deals solely with the practices of insurers that are cancelling plans, not with the reason why those plans are being cancelled.

        1. Your former statement may well be correct; I haven’t gone back to look. Certainly it sounds plausible.

          As to your latter statement:

          not with the reason why those plans are being cancelled.

          If this is what you think, you need to re-read it. This time, keep in mind the immortal (possibly fictionalized) words of Mark Felt: Follow The Money.

          1. If a plan is not ACA-compliant and is not eligible for “grandfather” status then it has to be shut down and the policyholders cancelled. It’s not a matter of “Following The Money” - the plan is no longer allowed to be sold. It is indisputable that some of the current wave of cancellations are driven by just this reason. The question is - how many are in that category vs. how many are driven by insurers’ volition. Again - the article linked above provides zero - zero - evidence supporting the latter.

            If one were to “Follow The Money” one would need to account for:

            1) The increased profit per customer that insurers would receive on voluntarily cancelled policyholders, keeping in mind that the ACA regulated medical loss ratios and thus any higher priced plan would, by design, need to pay out higher claims (and incur the extra administrative costs thereof) in order to be ACA-compliant.

            2) Netted out against the lost profit on any customers who cancelled their plans in the wake of a dramatic price increase given the fact that the ACA creates a market of guaranteed issue policies that those customers could.

            3) And keeping in mind that under this “strategy” the insurer would be kicking out a large number of policyholders who qualified for insurance pre-ACA.

          2. Stephen,
            When a company shuts down a policy, creates a highly similar policy, and yet strongly pushes their customer to a third, much more expensive policy, while blaming it all on the ACA, the precise reason why the first policy was cancelled is immaterial. The company’s decision to push the third and not the second policy gives the game away. For some reason, you persistently refuse to acknowledge that this may be happening.

            As to why even under new “medical loss” ratio rules the more expensive plan is the more profitable, we’ve had this argument to some degree, and there’s still more to be had. Even if we assume nothing remotely sketchy regarding the medical spending, the company will happily find ways to spend more of the policyholders’ premiums if it means more profit. Keep in mind one simple mechanism for this: the pricier plans have lower deductibles and copays, meaning that for policyholders without major medical problems the pricier policies will generate “medical losses” much faster from modest annual medical expenses than will the cheaper plans - potentially dozens of times faster. And generating “medical losses” means money in the bank!

            But wait: remember when I said “if we assume nothing remotely sketchy regarding the medical spending”? We’d be fools to do that. There’s the overtly corrupt, where through kickbacks or vertical integration the insurer or the insurer’s owner pockets some of the money spent on medical care. And there’s the need to negotiate prices with doctors and hospitals: an insurer could easily pencil out a deal to sign up 20 patients with a doctor at 60% of list price and another 20 at 100% of list price. It all works out the same for the doctor, the patients with the pricier plan are unwittingly cross-subsidizing those with the cheaper plan, and the insurer has a great way to generate “medical losses”!

    2. Difficult, perhaps, but not as difficult as you might think.

      This is precisely the sort of thing that survey methods are most useful for. The most difficult step would be assembling the universe. I’m quite sure insurers would balk at the idea of providing CMMS a list of all the policies they have canceled between (say) 1 Aug and 31 Oct 2013. Providing such a list would be a trivial act on their part (copy an already extant set of computer files).

      1. Well yes, if someone with the authority (either “hard” authority or “soft” authority were to collect the data then the question could be answered. But outsiders, journalists, scholars, etc. have no such authority, and its unclear what legal justification the CMMS would have for making such an ask (and no - “we think you guys are making us look bad” is not a legal justification to ask for this data).

  4. Anthem blue cross did a lot of tinkering with the Tonik plans in CA right before 2010. My premium increased 40% over its 2007 level, my deductible went from 5000 to 5900. It is now grandfathered. Any health plan that wanted to keep its customers would have done the same so the data to look at is 2009-2010. It was not that big a deal for them to then comply with no changes. I of course had little choice at the time to go anywhere else.

    I am moving to blue shield though. Paying 2/3 more for gold instead of bronze - plus covering spouse. Choice and regulation is great!

  5. I suspect a lot of the issue here was a concerted attempt, as any profit-making institution like an insurance company is wont to do, to up-sell policy holders to more expensive — and profitable plans. It’s easier to put the pressure on the decision by blaming the ACA than it would have been last year, as was already mentioned.

    The most obvious way of avoiding this mess was to simply have Americans buy healthcare, instead of insurance, through a national healthcare plan.

    1. Nah, the most obvious way of avoiding this mess was to not have lied about Americans being able to keep their policies if they liked them, and not passing the ACA.

      1. and not passing the ACA, but rather adopting a single-payer system and shutting down the insurance model of health-care financing for good and all.

        1. You got it Herschel. I see no general social purpose in subsidizing insurance companies. Medicare is the most efficient of all our healthcare delivery systems, with its admin and overhead costs a fraction of private sector costs. Simply extending iot to everyone would have done the trick. It’s tested and trusted and Made in America.

          Might need a new website, though.

          Same thing with fixing Social Security. Simply apply the Social Security tax to all income, instead of the cutoff that starts at around ~$110k currently and benefits rich people. Since all the rest of us are working to raise their incomes almost exclusively now, why shouldn’t they bear their fair share of everyone’s retirement? Problem solved.

          It’s amazing how easy many policy solutions are when you rip the ideological blinders off your eyes.

      2. Good point, Brett. After all, when the for-profit health insurance industry was left to its own devices, they never, ever cancelled anyone’s policy if that person wanted to continue with the plan.

        1. I don’t recall an insurance company ever promising me I could keep my policy if I liked it. I do recall a lying SOB of a President telling me that, even though he knew his law would guarantee that almost nobody could.

          2. It did not happen to you but it did happen to enough people that this practice was one of the problems that Obamacare was enacted to prevent. The insurance company practice of rescission happened when people who had paid their premiums and were assured that they had coverage for the duration of the enrollment period had their coverage rescinded after they became expensive to cover. The companies abused the concept of nondisclosure of pre-existing conditions in an arbitrary fashion, and in a manner which can fairly be designated as lying. Nondisclosure of conditions not related to cancer were used to deny payment of services for cancer, for example.

            We all have to be careful of inference from a sample size of n=1. “It never happened to me; therefore it never happened to anyone.” “It happened to one guy; therefore it happened to everybody. ” Conservatives do not have a monopoly on this style of inference, but it should be challenged wherever it occurs.

          3. It’s amazing how angry Brett gets with figments of his own imagination.

            But then I get the feeling that that’s the entire reason he dreams these things up anyway.

          4. Denial ain’t just a river in Egypt.

            The ACA criteria for grandfathering are remarkably narrow, your policy costs can’t change by even as much as the rate of medical inflation, or you lose it.

            So the only people who will successfully grandfather in are the folks who happened to have policies which were enormously over-priced, so that the companies don’t have to adjust the premium, deductible, or co-pay for many years in order to avoid losing money.

            At this point, even CBS news is reporting that the President is a liar, and you’re denying it?

          5. The president didn’t lie. He merely misspoke. He intended to say, “You can keep your policy if we like it.

          6. CBS may have based that “liar” designation on a story it ran on its morning program in which Jan Crawford interviewed a Florida woman named Dianne Barrette, who had been notified by Blue Cross that her $54 a month coverage was being cancelled and that she would have to purchase a $591 a month plan because of Obamacare. CBS did not do what journalists once did; it did not do any digging to find out anything more than what it was being spoon-fed.

            Ms. Barrette had a plan which was the equivalent of having a car with no engine; if she got sick, her hospitalization would not have been covered. Nancy Metcalf over at Consumer Reports did exercise a bit of due diligence and found out that Blue Cross was not informing her of her options. Ms. Metcalf found a plan which would cost Ms. Barrette $165 per month and would actually insure her if she developed a serious illness, whereas the Blue Cross plan would have left her bankrupt.

            Perhaps we are supposed to think that “even the liberal CBS” is calling Pres. Obama a liar. But for this story the “liberal CBS” was acting as a courier for conservative talking points, not as investigative journalists.

            It is too bad. Large news organizations once had considerable resources, with bureau chiefs and resources needed for finding out the story behind the story. Now they are acting more like stenographers for various points of view. This degeneration of news coverage would take us far from the topic of this thread. But it should be noted.

            There are lies, damned lies, and anecdotes. We will need data before any rational assessment of Obamacare is even possible. Data require time and competent analysis (generally some statistics are required). As of today, we have only anecdotes. They will do nicely for emotional reactions, but not for any other purposes. That should be doubly noted.

  6. The Swiss ban profit-making in the standard compulsory package of medical insurance. I suppose the companies get a fixed fee for administration. The companies do it because the non-profit package gives them a foot in the door for selling profitable top-up medical insurance (guarantee of a single room in hospital, fancy dentistry, etc) and other insurance products. Besides, the managers are Swiss too, not zombie Klingons.

    1. Some countries with universal coverage have private insurance companies (I think Germany may be one), but these companies are not publically traded. This may be an important factor in the affordability of insurance in Europe and the US. If a company is traded on the NYSE, Wall Street analysts will look for some measure of assurance that the company can expect earnings growth in the near and long term. Similar considerations apply to the rest of the medical-industrial complex. In order to remain viable, firms need to show promise of earnings growth by increased volume, increased price, or both.

      Does anyone know more about the role of public trading of firms here and abroad as drivers of cost increases? I bet that one or more RBC contributors can supply an informed comment.

      1. I couldn’t find a list of Swiss medical insurers, but the biggest player, Helsana, is owned by two non-profit foundations.

    1. The story suggests that the plaintiffs are not suing for damages, but rather to be allowed to switch their coverage back into plans with “grandfather” status that they switched out of in 2011 (translation - we would prefer to be enrolled in a plan we had in the past over one of the plans available through the state exchange).

      The plaintiffs allege that they were mislead by their insurer, but do not provide any information about what this misleading behavior entailed. In any event the judgment they seek is, in effect, to allowed to circumvent a clear directive of the ACA (namely - that to retain non-conforming coverage a policyholder would have had to have been enrolled prior to 2010 and the plan in question would have had to have no “material” changes (e.g. a $5 change in the co-pay) since that time).

      I’m not sure that a judge can rule for a plaintiff against a defendant in a manner that compels the defendant to violate the law. If the plaintiffs were seeking damages that would be one thing (and they may be - but the article doesn’t mention that despite having quotes from both the plaintiffs and their lawyer about the aims of the suit). But if the plaintiffs are to be taken at their word then their beef isn’t primarily with their insurer, it’s with the ACA itself.

      The article also contains this gem:

      “In California, the cancellations in the individual market were prompted by a requirement from Covered California, the state’s new insurance exchange. The state didn’t want to give insurance companies the opportunity to hold on to the healthiest patients for up to a year, keeping them out of the larger risk pool that would influence future rates. Covered California said a Jan. 1 changeover was best for consumers in the long run despite the initial disruption.”

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