The reasons why some existing health insurance plans are being cancelled through Obamacare

By Robert A. Vella

Conservatives are in an uproar over the cancellation of some existing health insurance plans because of Obamacare.  They are reiterating their charge that President Obama “lied” when he repeatedly said people would be able to keep their existing health insurance.  Is this true?  In a narrow superficial sense, yes this is true.  But like most things, the complete truth cannot be assessed without a thorough examination of the underlying facts.

The plans being cancelled are referred to in the industry as “junk” health insurance and are primarily in the individual (non-employer) market.  They have abnormally low premiums because the policies were written to severely limit insured benefits and to exclude coverages that would impact the insurers’ financial liability.  In other words, it is health insurance in name only.  The Affordable Care Act set minimum standards for benefits and coverage much higher than these junk plans.  Indeed, this was the whole point of health care reform – to establish a base level of quality care and to reduce aggregate costs by expanding the number of insured individuals.

Let’s unpack this further.  From:  Obama administration knew millions could not keep their health insurance

Four sources deeply involved in the Affordable Care Act tell NBC News that 50 to 75 percent of the 14 million consumers who buy their insurance individually can expect to receive a “cancellation” letter or the equivalent over the next year because their existing policies don’t meet the standards mandated by the new health care law. One expert predicts that number could reach as high as 80 percent. And all say that many of those forced to buy pricier new policies will experience “sticker shock.”

None of this should come as a shock to the Obama administration. The law states that policies in effect as of March 23, 2010 will be “grandfathered,” meaning consumers can keep those policies even though they don’t meet requirements of the new health care law. But the Department of Health and Human Services then wrote regulations that narrowed that provision, by saying that if any part of a policy was significantly changed since that date — the deductible, co-pay, or benefits, for example — the policy would not be grandfathered.

So, if insurers hadn’t modified those plans they wouldn’t have been cancelled.  Hmm…

Now, let’s get back to President Obama’s “lie.”

Buried in Obamacare regulations from July 2010 is an estimate that because of normal turnover in the individual insurance market, “40 to 67 percent” of customers will not be able to keep their policy. And because many policies will have been changed since the key date, “the percentage of individual market policies losing grandfather status in a given year exceeds the 40 to 67 percent range.”

That means the administration knew that more than 40 to 67 percent of those in the individual market would not be able to keep their plans, even if they liked them.

Yet President Obama, who had promised in 2009, “if you like your health plan, you will be able to keep your health plan,” was still saying in 2012, “If [you] already have health insurance, you will keep your health insurance.”

Were the President’s statements lies, half-truths, or just the usual political rhetoric designed to conceal inconvenient facts?  You decide, but I believe it was the latter.

What remediable options are available to those individuals who had their health insurance policies cancelled?  First, they should shop for available plans through their state exchanges (or the national exchange if their state opted not to setup its own);  and secondly, see what subsides they qualify for to offset potentially higher premiums.  Anyone choosing not to explore these options, and instead relying on their previous insurer to offer them a replacement plan, is well… not exercising wise financial judgment.

The White House does not dispute that many in the individual market will lose their current coverage, but argues they will be offered better coverage in its place, and that many will get tax subsidies that would offset any increased costs.

“One of the main goals of the law is to ensure that people have insurance they can rely on – that doesn’t discriminate or charge more based on pre-existing conditions.  The consumers who are getting notices are in plans that do not provide all these protections – but in the vast majority of cases, those same insurers will automatically shift their enrollees to a plan that provides new consumer protections and, for nearly half of individual market enrollees, discounts through premium tax credits,” said White House spokesperson Jessica Santillo.

Oh, and here’s a final note to those people who would rather pay the individual mandate fee (scheduled to begin next year) than to purchase a new health insurance policy.  The ACA law specifically prevents the IRS from taking measures to actually collect those fees.  From:  Lawrence O’Donnell says the IRS cannot pursue ‘either civil or criminal remedies’ for people who don’t purchase health insurance

“No one ever really has to pay the fine in the individual mandate,” O’Donnell said, “because the IRS has been specifically forbidden, in writing, in law, in the Affordable Care Act, from ever actually pursuing either civil or criminal remedies to collect those fines from anyone. The individual mandate is the only provision in the tax code that was written deliberately to be essentially unenforceable.”

Don’t believe him? On air, O’Donnell pointed to page 131 of the law, which more or less states exactly what he said about IRS enforcement, or lack thereof, of the mandate. (He actually read the key sections aloud.)

In 2014, uninsured taxpayers will pay a pro-rated fine of either 1 percent of annual income or $95, whichever is greater. It goes up each year, and there are more costs for uninsured dependents. There are some exemptions for religious beliefs, prisoners, Indian tribes, certain low incomes and undocumented immigrants.

The final bill President Barack Obama signed into law in 2010 included two requirements that essentially yanked out the agency’s teeth in enforcing the mandate penalty. The IRS cannot pursue criminal charges against someone who does not pay the penalty and is supposed to. The agency also cannot file a notice of lien or seize property.

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Our ruling

Experts said O’Donnell’s point is pretty accurate: The IRS cannot use its most effective collection weapons — the threat of jail time or seizing of property — for the individual mandate penalty. But the law did not take away its power to pursue lawsuits against delinquent taxpayers, though experts say it isn’t likely given the small size of the penalty and current difficulty of filing suit outside of tax court. Plus, for taxpayers who overpay their income taxes and don’t pay the fine, the IRS could extract the penalty from a taxpayer’s refund. We rate the claim Mostly True.