Transition Policy for Canceled Health Plans

Posted May 05, 2014

The Affordable Care Act (ACA) includes several key reforms that create new coverage standards for health insurance policies, beginning in 2014. Late in 2013, millions of Americans received notices informing them that their plans would be canceled because they did not comply with the ACA’s reforms. President Obama received criticism that these cancelations went against his assurances that if consumers had a plan that they liked, they could keep it.

Responding to pressure from consumers and Congress, on November 14, 2013, President Obama announced a transition relief policy for 2014 for non-grandfathered coverage in the small group and individual health insurance markets. If permitted by their states, the transition policy gives health insurance issuers the option of renewing current policies for current enrollees without adopting all of the ACA’s market reforms for 2014.

On March 5, 2014, the Department of Health and Human Services (HHS) extended the transition relief policy for two years to policy years beginning on or before October 1, 2016. Thus, individuals and small businesses may be able to keep their non-ACA compliant coverage into 2017, depending on the plan or policy year.

Also, on December 19, 2013, HHS announced two new options for individuals whose policies have been canceled.

Transition Relief Policy

Under the original transition policy for 2014, health insurance issuers may continue coverage that would otherwise be canceled due to the ACA’s reforms, and affected individuals and small business may re-enroll in the coverage. Health insurance coverage in the individual or small group market that is renewed for a policy year starting between January 1, 2014, and October 1, 2014 (and associated group health plans of small businesses), will not be considered to be out of compliance with specified ACA reforms if certain conditions are met.

To qualify for the transition relief, issuers must send a notice to all individuals and small businesses that received a cancelation notice with respect to the coverage (or to all individuals and small businesses that would otherwise receive a cancelation notice with respect to the coverage).

The transition relief only applies with respect to individuals and small businesses with coverage that was in effect on October 1, 2013. It does not apply with respect to individuals and small businesses that obtain new coverage after October 1, 2013. All new plans must comply with the full set of ACA reforms. In addition, the transition relief is not available to grandfathered plans because these plans are not subject to most of the ACA’s market reforms.

Availability in Certain States

This one-year reprieve may not be available to all consumers. Because the insurance market is primarily regulated at the state level, state governors or insurance commissioners will have to allow for the transition relief. Also, health insurance issuers are not required to follow the transition relief and renew plans. Some issuers have expressed concern that the change could disrupt the new risk pool under the federal and state Exchanges.

Two-year Extension

On March 5, 2014, HHS extended the transition policy for two years, to policy years beginning on or before October 1, 2016. Under the transition relief extension, at the option of the states, issuers that have issued or will issue a policy under the transitional relief in 2014 may renew these policies at any time through October 1, 2016, and affected individuals and small businesses may choose to re-enroll in the coverage through October 1, 2016.

Policies that are renewed under the extended transition relief will not be considered to be out of compliance with specified ACA reforms. Also, like the original transition relief, issuers that renew coverage under the extended transition relief must, for each policy year, provide a notice to affected individuals and small businesses.

According to HHS, the extension will ensure that consumers have multiple health insurance coverage options, and that states continue to have flexibility in their markets. Also, some commentators have suggested that the extension was issued to avoid a new round of policy cancelations that would occur shortly before the November 2014 elections.

Transition relief also applies to large employers that currently purchase insurance in the large group market but that, as of January 1, 2016, will be redefined by the ACA as small employers purchasing insurance in the small group market. At the option of the states and health insurance issuers, these large employers may renew their current policies through policy years beginning on or before October 1, 2016, without their policies being considered to be out of compliance with the specified ACA reforms that apply to the small group market, but not to the large group market.

HHS will consider the impact of the extension and assess whether an additional one-year extension is appropriate.

Specified ACA Reforms

The specified ACA reforms subject to the transition relief are the following reforms that took effect for plan years starting on or after January 1, 2014:

  • Modified community premium rating standards;
  • Guaranteed availability/renewability of coverage;
  • Prohibition of pre-existing condition exclusions or other discrimination based on health status, except with respect to group coverage;
  • Nondiscrimination in health care;
  • Coverage for clinical trial participants; and
  • Coverage of the essential health benefits package.

Notice Requirement

To qualify for the transition relief, health insurance issuers must send a notice to all individuals and small businesses that received a cancelation or termination notice with respect to the coverage (or to all individuals and small businesses that would otherwise receive a cancelation or termination notice with respect to the coverage).

The notice to individuals and small businesses must inform consumers of their options and the protections that are available in other plans. Specifically, the notice must provide the following information:

  • Any changes in the options that are available to them;
  • Which of the specified ACA reforms would not be reflected in any coverage that continues;
  • Their potential right to enroll in a qualified health plan offered through an Exchange and possibly qualify for financial assistance;
  • How to access such coverage through an Exchange; and
  • Their right to enroll in health insurance coverage outside of an Exchange that complies with the specified market reforms.

Where individuals or small businesses have already received a cancelation or termination notice, the issuer must send this notice as soon as reasonably possible. Where individuals or small business would otherwise receive a cancelation or termination notice, the issuer must send this notice by the time that it would otherwise send the cancelation or termination notice.

On November 21, 2013, HHS issued guidance that included standard notices that are required to be used in order to satisfy the notice requirement. HHS also issued FAQs regarding use of the standard notices. HHS’ guidance includes:

  • A notice that must be sent to policyholders that have already been sent a cancelation notice for the existing coverage; and
  • A notice that must be sent to policyholders that have not previously been sent a cancelation notice for the existing coverage.

The appropriate notice must be sent to the policyholder separately from any other plan materials or correspondence.

Health insurance issuers are not permitted to modify or customize the standard notices in any way. However, states may develop their own notices that are more consumer protective and more informative than HHS’ standard notices. The state notices must be reviewed and approved by HHS before they are sent out by health insurance issuers.

HHS’ guidance also includes standard language that satisfies the requirement when health insurance issuers proceed with the cancelation of the coverage in either the small group or individual health insurance markets. The use of this language will be considered to satisfy the requirement to notify policyholders of the discontinuation of their policies if it is prominently displayed in all cancelation notices sent between November 21, 2013, and December 31, 2014.

State Decisions

Because the insurance market is primarily regulated at the state level, state governors or insurance commissioners have to allow for the transition relief in their state. HHS’s guidance on the transition relief extension outlines the following different options for how states may adopt the transition relief.

  • States that did not adopt the original transition relief and that regulate issuers whose 2013 policies renew anytime between March 5, 2014, and December 31, 2014, including any policies that they allowed to be renewed early in late 2013, may choose to implement the transitional policy for any remaining portion of the 2014 policy year (that is, the transition policy could apply to early renewals from late 2013).
  • States can elect to extend the transitional policy for a shorter period than through October 1, 2016, but may not extend it to policy years beginning after October 1, 2016.
  • States may choose to adopt both the original transitional policy as well as the extended transitional policy through October 1, 2016, or adopt one but not the other, in the following manner:
    • For both the individual and the small group markets;
    • For the individual market only; or
    • For the small group market only.
  • States may choose to adopt the transitional relief policy only for large employers that currently purchase insurance in the large group market but that, for policy years beginning on or after January 1, 2016, will be redefined as small employers purchasing insurance in the small group market.

A number of states decided against permitting insurers to use the original transition policy, including California, Connecticut, Washington, Minnesota, New York, Indiana, Vermont and Rhode Island. However, several states have agreed to allow insurers to extend canceled policies for another year, including Oregon, North Dakota, Hawaii, Wisconsin, Ohio, Kentucky, Tennessee, Maryland, Virginia, North Carolina, South Carolina and Florida. Some states, such as Maryland, are allowing renewals with specific provisions.

California’s Decision

On November 21, 2013, the Covered California Board of Directors unanimously voted to uphold its December 31, 2013, deadline for health insurance companies to discontinue plans that don’t meet basic standards. The board cited that extending the deadline offers no benefit to the consumer and may create confusion about accessing affordable health care coverage through Covered California. According to the Board, this decision also confirms their commitment to transitioning Californians into plans that are compliant with the ACA’s reforms, protecting consumers from double deductibles and stabilizing the risk pool to control costs for consumers beginning in 2014.

The Board also urged Covered California staff to implement helpful tools for consumers currently enrolled in affected plans to better understand their options. In addition, Covered California implemented the following five key strategies to aid enrollment and help affected consumers:

  • Extending the deadline for enrollment for coverage taking effect on January 1, 2014, from December 15, 2013, to December 23, 2013, and extending the deadline for payments due from December 26, 2013, to January 5, 2014.
  • Establishing a telephone hotline for consumers to resolve enrollment questions, available at 855-857-0445.
  • Sending information directly to nearly 1.13 million affected individuals that provides clear options for coverage. The information will be sent from Covered California and the individual’s current insurance provider.
  • Collecting and reporting data, on a regular basis, showing the impacts of conversion for individuals.
  • Engaging consumers in their communities through the thousands of Certified Insurance Agents, Certified Enrollment Counselors and Certified Educators now deployed statewide.

According to Covered California Executive Director Peter V. Lee, “These new strategies will provide consumers a better enrollment experience, more flexibility in the selection of a plan and, most importantly, increased knowledge with which to make the best health coverage choice possible.”

Options for Individuals Whose Policies Have Been Canceled

Although the transition policy enables insurers to renew existing plans that do not comply with the ACA, many states are choosing not to adopt the transition policy, and many individuals were finding other coverage options to be more expensive than their canceled plans or policies. In response to this issue, on December 19, 2013, HHS announced two new options for individuals whose policies have been canceled.

Individuals that have been notified that their individual market policy will not be renewed:

  • Will be eligible for a hardship exemption from the individual mandate; and
  • May enroll in catastrophic coverage, if it is available in the individual’s area.

On March 5, 2014, HHS extended this hardship exemption until October 1, 2016, for individuals whose coverage is canceled because it does not comply with the ACA and who meet the requirements for the exemption.

Hardship Exemption

The hardship exemption is intended for individuals who have suffered a hardship with respect to the capability to obtain coverage under a qualified health plan. A hardship exemption is available for a month or months in which:

  • An applicant experienced financial or domestic circumstances, including an unexpected natural or human-caused event, that caused a significant, unexpected increase in essential expenses;
  • The expense of purchasing minimum essential coverage would have caused the applicant to experience serious deprivation of food, shelter, clothing or other necessities; or
  • The applicant has experienced other factors similar to those described above that prevented him or her from obtaining minimum essential coverage.

HHS has enumerated several situations that will always be treated as constituting a hardship. HHS has also implemented additional hardship exemptions to address specific situations, including for individuals who enroll in coverage through an Exchange during the initial open enrollment period.

Catastrophic Coverage Options

An individual whose health plan has been cancelled will be eligible for catastrophic coverage if:

  • The plan options available in the Exchange in the individual’s area are more expensive than his or her canceled health insurance policy; and
  • Catastrophic coverage is available in the individual’s area.

In order to purchase catastrophic coverage, individuals must complete a hardship exemption form and indicate that:

  • The individual’s current health insurance policy is being canceled; and
  • The individual considers other available policies to be unaffordable.

The individual will then need to submit the hardship exemption form, along with supporting documentation indicating that his or her previous policy was canceled, to an issuer offering catastrophic coverage in his or her area. For example, an individual can submit a cancelation letter or some other proof of cancelation. If he or she is applying for catastrophic coverage from the same issuer that canceled his or her previous policy, the issuer may be able to confirm the cancelation based on its internal records.

The issuer will send these items to HHS’ Centers for Medicare & Medicaid Services (CMS), and CMS will verify that the individual was eligible for this hardship exemption. If an individual is not able to submit supporting documentation at the time he or she submits the exemption form, CMS will inform the individual that the application is incomplete and cannot be processed until supporting documentation of the previous policy’s cancelation is submitted.

Individuals who need assistance in order to pursue these options may call the call center at: 1-866-837-0677.

Other Available Options

HHS notes that a number of options are already available to consumers whose individual market health insurance policies have been canceled. For example, individuals can:

  • Purchase any of their health insurance issuer’s individual market policies available to them in 2014;
  • Shop for coverage through an Exchange (depending on the individual’s income and other factors, he or she may be eligible to receive a premium tax credit or cost-sharing reductions for Exchange coverage. Individuals may also be eligible for Medicaid); or
  • Shop for policies outside the Exchange.

This Legislative Brief is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.