Kaiser Permanente's decision to cancel the insurance policies of lifelong Democrats Lee Hammack and JoEllen Brothers generated a flood of interest yesterday. The couple, supporters of President Obama, may have to spend twice as much next year for a health insurance plan that has fewer benefits than the plan they have.
Kaiser explained to them, and to me, that their plan didn't meet the requirements of the Affordable Care Act and therefore had to be canceled. But how could it be, many readers wondered, that the seemingly inferior plan offered for next year met the requirements of the act while the richer one they currently have does not?
I spent hours yesterday trying to figure that out and in the process came upon a related dispute between California's insurance commissioner and the state's new health insurance marketplace over these cancellations.
Here's what I learned:
First, President Obama's now-infamous pledge that those who liked their health plan could keep it applied only to people enrolled in those plans as of the day the Affordable Care Act was signed into law, March 23, 2010. That became known as the "grandfather" clause.
Hammack, a San Francisco architect, and Brothers have been members of Kaiser Permanente since 1995, but they've only been enrolled in this particular plan since January 2011. So they do not qualify for the grandfather protection. (Even if they did, Politifact has labeled the pledge "pants on fire.")
Next, and more importantly, the benefits their plan offered didn't fully comply with the Affordable Care Act.
It did not cover dependents in the manner set out by the law, and it did not cover pediatric dental and vision services, as well as "habilitative services," which includes speech, occupational therapy and physical therapy.
"We did not cover these services in 2013," Kaiser spokesman Chris Stenrud wrote in an email. "Pediatric dental and vision obviously do not apply to this couple, but it is one benefit package, regardless of age."
These seemed like pretty minor points. Is this really enough to tank this plan? I asked Ken Wood, senior adviser for products, marketing and health plan relations for Covered California, the state's health insurance marketplace.
"Any tiny point tanks the plan," he told me last night. "If it was just the pediatric dental, that alone would say it's a noncompliant plan."
There was a bigger issue, too. The plan was medically underwritten, meaning that it carefully chose members based on their health status. The Affordable Care Act eliminates such screening and requires that insurers take all comers. "Because their current insurance pool is comprised of healthier people who use fewer medical services, the premium level needed to pay for those services is also less," Stenrud wrote.
Put another way, Hammack and Brothers are casualties of an insurance system in transition. Until now, insurance companies could pick and choose which consumers to accept and reject. People were forced to pay different amounts based on their age and health status.
The new system created by the Affordable Care Act does not allow plans to turn away people with pre-existing conditions or charge them more. As a result, sick people previously denied coverage and healthy people who currently have insurance will pay the same.
That makes health care more affordable for many, but less affordable for some.
But there was something else at play. Stenrud noted that Kaiser's contract with Covered California requires that insurers doing business on the exchange cancel existing contracts at the end of this year -- rather than renew them -- if they don't meet the requirements of the act.
"We shared Covered California's view that most consumers would benefit from lower premiums and greater stability in the exchange if we all agreed to forgo early renewals in the individual market," Stenrud wrote.
For more explanation of what's going on, I called the California Department of Insurance. The agency earlier this week forced Blue Shield of California to extend the canceled health policies of 115,000 members for three months because the insurer did not give them proper notice.
Janice Rocco, the department's deputy commissioner for health policy and reform, said she anticipates that by year's end, between 900,000 and 1 million Californians will see their individual health insurance policies canceled.
But it didn't have to be this way, she said.
It's not the act, but the arrangement between insurers and Covered California that mandated the cancellations right now.
While the Affordable Care Act aims to improve the quality of insurance plans offered, she said, it does not require that insurers cancel all of their contracts at the end of this year. In other states, she noted, consumers are able to keep their policies until they expire in 2014, giving more time to make thoughtful choices.
Insurers, including Kaiser and Blue Shield, wanted the California Legislature to require that all existing individual contracts expire at the end of this year, Rocco said. That could give them a marketing edge because of their size and the short window to make choices, she said. But her department opposed it, and lawmakers didn't go along.
The insurers were more successful with Covered California, which adopted the requirement, Rocco said.
"People who did the right thing, played by the rules, were responsible and had health insurance coverage are being forced out of their policies on December 31 by most of the health insurers in this state. This is not required by state or federal law," Rocco said.
"People without insurance today will have until March 31 to choose which product is best for them," she said, noting the end of the 2014 open enrollment period.
Covered California defended its requirement.
"It has always been one of our stated goals to try to start on a level playing field in 2014 and start out the new year with a single risk pool," meaning a melding of young and old, sick and healthy, said Anne Gonzales, a spokeswoman for the exchange.
Gonzales acknowledged that there will be winners and losers in this transition. "There are going to be people out there that are going to find that their premiums are about the same, some are going to have them go up, some are going to have them go down," Gonzales said.
Of the 900,000 or so people whose policies are being canceled in California, she said, about 310,000 will qualify for financial assistance, in the form of premium subsidies, which will lower the cost of coverage. The rest will not.
"The flip side is 32 million people [in California] will be keeping their plans, and 4 million people will get plans that they couldn't afford to buy before this reform," she said.
Wood said the situation facing Hammack and Brothers is "unique in my experience" and that the rate they have been paying is more akin to rates for people in their 20s. Hammack is 60; Brothers, 59.
Together, they pay $550 a month now and could pay up to $1,300 a month after Jan. 1. "At their respective ages, a more typical rate would be $550 each," Wood said.
Hammack told me that he doesn't know what he's going to do. He makes slightly more than 400 percent of the federal poverty level — $62,000 for a couple — which means he isn't eligible for premium subsidies. But he's considering reducing his income below that level, which would reduce his premiums substantially.
Wood says that's smart. If Hammack is able to get his income at or below $62,000, he stands to save $10,740, Wood told me in an email.
"Just as people think about the tax consequences of home ownership and retirement savings, I think health care will now become another area where the middle class will need to think about the tax implications of purchasing individual health insurance," he said.
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