QuickTake: Health Insurance Policy Cancellations Were Uncommon in 2014
Lisa Clemans-Cope and Nathaniel Anderson
March 12, 2015
Under the Affordable Care Act’s (ACA) provisions that took effect in 2014, most nongroup health insurance plans and small-employer group plans were required to offer a minimum set of benefits and services, including coverage for prescription drugs, maternity care, and mental health services. These plans were also required to comply with new consumer protection regulations, such as prohibiting preexisting condition exclusions and premiums based on health status or sex. Most of these ACA requirements do not apply to large-employer group plans, self-insured health plans, or grandfathered health plans (i.e., plans that were created before the ACA was enacted).1
Our estimates from the December 2013 Health Reform Monitoring Survey (HRMS) show that almost one in five (18.6 percent) of those with nongroup health insurance (i.e., directly purchased coverage in the individual market) report that their plan would no longer be offered to them in 2014 because it did not comply with the ACA’s new coverage requirements.2 We estimate that these findings translated to approximately 2.6 million people reporting policy cancellations caused by noncompliance in 2013. Cancellations in the small-group market were not widely reported in 2013, possibly because (1) some employers renewed their coverage early to delay compliance with the ACA’s reforms for up to one year and (2) many small-group plans already met the ACA’s requirements.3,4 Media reports predicted an increase in small-group plan cancellations in fall 2014.5
In response to consumer complaints about canceled plans, in mid-November 2013 the US Department of Health and Human Services announced a new transitional policy permitting states to let insurers continue noncompliant plans in 2014.6 In March 2014, the US Department of Health and Human Services announced an additional extension through 2017, after which all nongrandfathered, noncompliant plans must be terminated.7 In all, 40 states have allowed some continuation of noncompliant plans in the nongroup or small-group markets.8
Recent evidence suggests a small number of canceled nongroup policies in 2014.9 And though many states permitted continuation of noncompliant plans, cancellations were predicted in the small-group market in 2014 as small employers and insurers discover business or consumer reasons to shift enrollment to compliant plans.10 Yet evidence of significant numbers of small-group cancellations in 2014 has not yet surfaced. Thus, the extent of policy cancellations in 2014 caused by noncompliance with the ACA is largely unknown, making the extent of the disruption hard to assess.
To address this data gap, this QuickTake uses data from the December 2014 HRMS to assess how many adults ages 18 to 64 reported that they received a letter that their insurance would be canceled, and we assess the reasons for these cancellations. Our analysis includes those with nongroup insurance or employer-sponsored insurance (ESI) at the time of the survey. Although the cancellation issue primarily affects small-group insurance, the sample sizes for this analysis do not allow us to distinguish between small- and large-group employer insurance.
We find that as of December 2014, the vast majority of those with nongroup coverage (91.8 percent; 95 percent CI [89.7, 94.0]) reported they either did not receive a letter about their health plan and any changes that will happen in 2015 or received a letter but it was not a cancellation notice (data not shown). Of those with nongroup coverage, 5.6 percent (95 percent CI [4.2, 7.1]) reported receiving a letter saying that their plan was canceled for 2015 either because it did not meet new coverage requirements or for an unknown reason (figure 1). This estimate includes 2.2 percent (95 percent CI [1.0, 3.5]) of adults with nongroup coverage who reported that their plan was canceled for 2015 because it did not meet new coverage requirements and another 3.4 percent (95 percent CI [2.1, 4.7]) who received a letter saying that their plan was canceled but they did not know why.11
Nearly all (98.1 percent; 95 percent CI [97.6, 98.5]) of those with ESI reported that they did not receive a letter about changes to their plan in 2015 or received a letter but it was not a cancellation notice (data not shown). Of those with ESI coverage only, 0.6 percent (95 percent CI [0.4, 0.8]) reported receiving a letter saying that their plan was canceled for 2015 because it did not meet new coverage requirements or for an unknown reason. This estimate includes 0.3 percent (95 percent CI [0.1, 0.5]) of adults with ESI who reported that they received a letter saying that their plan was canceled for 2015 because it didn't meet new coverage requirements, and another 0.3 percent (95 percent CI [0.1, 0.5]) who received a letter saying that their plan was canceled, but the respondent did not know why.12
To put these findings in context, we estimate the number receiving cancellations for each health insurance type by applying the share of adults reporting that their plans were canceled because of noncompliance with the ACA to nationally representative counts of nongroup and ESI coverage.
Nationally representative estimates suggest that approximately 17.6 million people were enrolled in the nongroup market in the third quarter of 2014.13> Using this as a rough estimate of nongroup enrollment in December 2014, our findings imply that roughly 0.4 million people in the nongroup market reported that their plan was canceled for 2015 due to noncompliance with the ACA (not including those whose plan was canceled for unknown reasons).
Nationally representative estimates from the 2013 American Community Survey reflect coverage at the time of the interview in 2013, and recent findings based on 2014 HRMS data provide evidence that ESI coverage held steady through 2014 (Blavin et al. 2014). The American Community Survey data estimate that approximately 168.1 million people were enrolled in ESI in 2013.14 Using this as an estimate of December 2014 ESI enrollment, our findings imply that roughly 0.5 million people with ESI reported that their plan was canceled for 2015 because of noncompliance with the ACA’s mandates.
These estimates suggest that policy cancellations caused by noncompliance with the ACA were uncommon in 2014 in both the nongroup and ESI markets, and the number and rate of cancellations in the nongroup market in 2014 was far smaller than in 2013. The nongroup market has historically been characterized by high volatility: an analysis of pre-ACA nongroup coverage patterns from 2008–11 shows that only 42 percent of nongroup enrollees retained their coverage after 12 months (Sommers 2014). It may still be the case that insurers chose to cancel policies for business reasons, such as low enrollment, so some cancellations are to be expected for reasons other than ACA compliance. The nongroup cancellations caused by unknown reasons may be explained by such business decisions.
In addition to the number of adults receiving cancellations appearing quite small, confusion leading to coverage gaps following cancellation letters in 2014 was likely lessened by several factors. In 2014, unlike in 2013, insurers canceling policies were required to inform consumers about coverage options in the Marketplace, the possibility of receiving premium and cost-sharing subsidies for a Marketplace plan,15 and the existence of special enrollment periods available if policies were canceled outside of the Marketplace open enrollment period. Presumably, such information would help consumers transition to new, compliant coverage. In addition, with the state and federal Marketplaces up and running more smoothly in 2014 than in 2013, consumers whose plans had been canceled were able to shop more easily among plans that include the ACA’s consumer protections, required minimum benefits, and premium and cost-sharing subsidies when eligible. The number of enrollees still in noncompliant plans is unknown, though the number could be substantial because estimates suggest that before 2014, more than half of enrollees in the nongroup market had plans that would not meet the ACA’s minimum coverage standards (Gabel et al. 2012). However, we expect that though cancellations of noncompliant plans may continue through 2017, disruption should be limited because consumers are now likely to have access to information about coverage options and coverage through their state or federal Marketplace.
Methods: To obtain these estimates, we drew on the following series of questions. We first asked respondents, “Did you receive a letter about your current health insurance plan and any changes that will happen in 2015?” Those who answered “yes” were then asked, “Which of the following describes the purpose of the letter(s) you received?” Responses included To inform you that your policy is canceled or will no longer be offered”; “To inform you that you will automatically be enrolled in your current health insurance plan or a similar plan” (this response option was only available for those who reported enrolling through the Marketplace); “To inform you about options and deadlines for enrolling in a new health insurance plan for 2015”; “To inform you about changes in your health insurance plan, such as the premium you pay, the benefits that will be covered, or the out-of-pocket costs (deductible, co-payments, or coinsurance) you will pay for health care in 2015”; “To inform you about changes to your premium tax credit and other savings you had in 2014” (this response option was only available for those who reported enrolling through the Marketplace); and “Other (please specify).” Those who indicated that they received a letter about plan cancellation were asked, “Is your policy being canceled because it does not meet coverage requirements under the health care law?” This series of questions is different from those used in our estimates of policy cancellations from December 2013 HRMS, so the estimates are not directly comparable.
Blavin, Fredric, Adele Shartzer, Sharon K. Long, and John Holahan. 2015. “An Early Look at Changes in Employer-Sponsored Insurance under the Affordable Care Act.” Health Affairs 34 (1): 170–77.
Blumberg, Linda J. 2010. How Will the Patient Protection and Affordable Care Act Affect Small, Medium, and Large Businesses? Washington, DC: Urban Institute.
Gabel, Jon R., Ryan Lore, Roland D. McDevitt, Jeremy D. Pickreign, Heidi Whitmore, Michael Slover, and Ethan Levy-Forsythe. 2012. “More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be Sold through Exchanges as of 2014.” Health Affairs 31 (6): 1339–48.
Office of the Assistant Secretary for Planning and Evaluation. 2014. How Many Individuals Might Have Marketplace Coverage after the 2015 Open Enrollment Period? Washington, DC: US Department of Health and Human Services. http://aspe.hhs.gov/health/reports/2014/Targets/ib_Targets.pdf.
Sommers, Benjamin D. 2014. “Insurance Cancellations in Context: Stability of Coverage in the Nongroup Market Prior to Health Reform.” Health Affairs 33 (5): 887–94.
About the Series
This QuickTake is part of a series drawing on the HRMS, a quarterly survey of the nonelderly population that explores the value of cutting-edge Internet-based survey methods to monitor the ACA before data from federal government surveys are available. Funding for the core HRMS is provided by the Robert Wood Johnson Foundation and the Urban Institute.
For more information on the HRMS and for other QuickTakes in this series, visit www.urban.org/hrms.
1 Rating reforms, essential benefits minimums, and some other requirements that apply to the small-group and nongroup markets do not apply to the large-group market. But prohibitions against preexisting-condition exclusions and some other requirements do apply to the large-group market. See Blumberg (2010).
2 Lisa Clemans-Cope and Nathaniel Anderson, “How Many Nongroup Policies Were Canceled? Estimates from December 2013?” Health Affairs Blog, March 3, 2014.
3 Monahan, Christine, and Sabrina Corlette, “The Affordable Care Act’s Early Renewal Loophole: What’s at Stake and What States Are Doing to Close It.” CHIR blog, August 22, 2013.
4 In fact, 44 states (plus the District of Columbia) chose an existing small-group plan as the benchmark for meeting the ACA’s minimum standards. See “Essential Health Benefit (EHB) Benchmark Plans, as of January 3, 2013,” Kaiser Family Foundation, accessed February 27, 2015.
5 Ariana Eunjung Cha, “Second Wave of Health-Insurance Disruption Affects Small Businesses,” Washington Post, January 11, 2014.
6 Gary Cohen, Director, Center for Consumer Information and Insurance Oversight, “Letter to State Insurance Commissioners,” November 14, 2013.
7 Gary Cohen, Director, Center for Consumer Information and Insurance Oversight “Insurance Standards Bulletin Series – Extension of Transitional Policy through October 1, 2016,” March 5, 2014.
8 Kevin Lucia, Sabrina Corlette, and Ashley Williams, “The Extended "Fix" for Canceled Health Insurance Policies: Latest State Action,” Commonwealth Fund Blog, November 21, 2014.
9 About 30,000 enrollees in a plan in Indiana, 18,000 enrollees in a plan in Colorado, and other reports of smaller numbers of cancellations. See Kevin Lucia, Sabrina Corlette, and Ashley Williams, “Some Health Insurers Canceling Noncompliant Policies, But Consumers Are More Informed of Coverage Options,” Commonwealth Fund Blog, February 2, 2015; Julie Appleby, “Insurers Poised to Cancel Health Plans That Don’t Comply with Affordable Care Act,” Washington Post, October 2, 2014.
10 Sabrina Corlette, “Plan Cancellations Redux: Finally, an End to Pre-Existing Condition Discrimination?” CHIR blog, September 29, 2014.
11 The remainder of those with nongroup insurance reported that they (1) received a letter saying that their plan was canceled but not because it didn't meet new coverage requirements (1.4 percent), (2) received a letter about changes to their current plan but did not report the reason for the letter (0.4 percent), or (3) did not report if they received a letter about their health plan and changes (0.7 percent).
12 The remainder of those with ESI reported that they (1) received a letter saying that their plan was canceled but not because it didn't meet new coverage requirements (0.6 percent), (2) received a letter about changes to their current plan but did not report the reason for the letter (0.2 percent), or (3) did not report if they received a letter about their health plan and changes (0.5 percent).
13 “Health Insurance Enrollment and Marketplace Estimates: December 2014 Insights,” Mark Farrah Associates, December 18, 2014, accessed March 2, 2015. This estimate is within the range of a US Department of Health and Human Services estimate of nongroup coverage in October 2014, which estimated that there were 6.7 million nongroup Marketplace enrollees (excluding dental plans) and 8 to 12 million nongroup off-Marketplace enrollees, totaling a range of 14.7 to 18.7 million enrollees(Office of the Assistant Secretary for Planning and Evaluation 2014).
14 “American FactFinder: Health Insurance Coverage Status, 2013 American Community Survey 1-Year Estimates,” US Census Bureau, accessed March 2, 2015.
15 In analysis of the nongroup cancellations in 2013, we estimate that over half were likely to be eligible for subsidies in the Marketplace. Lisa Clemans-Cope and Nathaniel Anderson, “How Many Nongroup Policies Were Canceled? Estimates from December 2013,” Health Affairs Blog, March 3, 2014.