The Truth About Those Canceled Health Plans

The Truth About Those Canceled Health Plans

There's been a lot of talk lately about people getting letters from their health insurance carriers canceling their policies because of Obamacare. What's really going on here?

Wait, Obama killed my health insurance? Oh %$@*, I'm uninsured now!

Not quite. First off, this affects a pretty small sliver of the U.S. population: the people who buy health insurance directly, rather than the 80 percent who get it from their jobs or a government program like Medicare or Medicaid, or the 15 percent who have no health insurance at all.

Estimates vary, but the Census Bureau says this figure is about 4 percent of Americans, which comes to about 11 million people. A lot of those folks are finding out that the health insurance plans they have this year aren't going to be sold anymore. How many? Hard to say, with reports ranging from a few hundred thousand to millions. (And their coverage isn't changing today; it's changing next year.)

I'm one of those people! Why would Obama make health insurance companies cancel my plan? Seems mean.

The fact is, some health insurance on the market today is just lousy. That's a big reason why even people who have insurance can go bankrupt when their medical bills start piling up.

Health insurance you bought for yourself before might have been (or seemed) perfectly okay, but there's a good chance it had big holes in it -- the kind people tend to only find out about when they incur expensive doctor and hospital bills. And if you have a pre-existing condition, or you're older, or you're a woman, you have been paying more for that insurance.

But not all the insurance plans being canceled are lousy. Some people really do like their plans, and they're losing them because of relatively small differences in new Affordable Care Act rules.

The law standardizes health insurance plans by mandating that they cover a basic set of benefits, including hospitalizations, prescription drugs and maternity care, that many insurance products on today's market don't. Obamacare also limits total annual out-of-pocket expenses to $6,350 for a single person, in order to protect people against going broke when they get sick.

This disruption is happening despite President Obama saying over and over and over again, "If you like your plan, you can keep your plan." That's obviously not true for everybody, and could never have been true under a law that shakes up the insurance market by getting rid of insurance with lesser benefits and weaker financial protections.

Does that mean you should be jumping for joy if you got one of those letters from your health insurance company? No. But these changes were made for a reason. And conservative health care reform proposals would also lead to lots and lots of people losing the plans they have now.

So why would Obamacare create this crazy law that forces health insurance companies to cancel policies for the first time ever?

This is small consolation if you've gotten one of those nasty letters from your insurance company, but plans getting dropped is nothing new. Neither are big rate hikes.

For one thing, health insurance companies never before needed a reason to discontinue unprofitable plans, kick people off, change benefits or raise prices -- those things happen every year, even to people with really good job-based health benefits.

On the individual health insurance market, plans typically are sold with one-year contracts. After that, the insurance companies could practically do whatever they wanted (though they had to offer you an alternative, like they're doing now). According to a 2004 study, only 17 percent of consumers in this market kept the same plan for two years or more (h/t the Washington Post). This is going to happen next year, and the year after that, ad infinitum.

On the bright side, Obamacare regulations guarantee that even if one particular health plan disappears, there will be others -- and probably more than were sold in your local market before. And the standardized benefit packages mean you'll have a good idea of what you're buying.

Whatever. My insurance company says my premiums are going up like 10,000 percent! What the heck?

There are a whole bunch of reasons why a health plan might cost more under Obamacare than before, starting with the more generous benefits and stronger financial protections. But there's more to it than just that.

A big part of what's going on here is that people on the individual market before Obamacare were benefitting from the fact that health insurers could exclude sick people (or charge them sky-high rates) and even dump them when they became ill or injured. This kept companies' medical expenses low, which meant their healthy customers could pay less. That's a sweetheart deal -- until the inevitable day when you, the healthy person, become a sick person.

Plus, women could be charged more than men, and older people could be charged five times (or even more) the prices quoted for younger people.

Under the new system, these costs get spread around more. This is basically how employer-sponsored health benefits have always worked.

I've still got this letter on my kitchen table and I need health insurance next year. Just what am I supposed to do now?

Usually, these health insurance letters also tell customers which of the company's new products they can buy instead. These plans often come with higher prices -- sometimes a lot higher. But you don't have to buy these plans.

The most important thing to do is shop around. Your current health insurance company isn't necessarily offering you the best deal. And some of the horror stories we've been seeing in the news turn out not to be quite true. The bottom line is that some people will pay more and some will pay less.

Obamacare's health insurance exchanges include every qualified health plan sold in your local area and the prices vary a lot, so before signing off on that big rate increase or deciding to go uninsured, find out what you can get instead.

Another thing your health insurance company probably isn't telling you is that you may be able to get help paying for your insurance through Obamacare's tax credits, which are available to anyone who earns up to four times the federal poverty level, or about $46,000 for a single person this year.

Okay, but the Obamacare website is broken and I can't use it. Now what?

This is where it gets even more frustrating., the federal portal for the health insurance exchanges in more than 30 states, doesn't work right a full month into the six-month enrollment period, and just six weeks before the deadline to buy insurance that will be in place on New Year's Day. The Obama administration now promises the website will be working smoothly by the end of the month. Keep your fingers crossed.

You're in better shape if you live in the District of Columbia or one of the 14 states that built their own health insurance exchanges. They've had technical problems of their own but are generally working better than the federal website.

If the websites are making it impossible for you to shop around, there are some alternatives, though they're not great. If you want to apply for tax credits, you can do that over the phone, on paper, or in person with local workers who are trained to help.

That's not a great way to actually shop for insurance, though. Outside the official health insurance exchanges, you can still go directly from insurance company to insurance company, call up a local insurance agent, or use an online broker like eHealthInsurance. Just know that none of these methods will present you with the full array of options in your state, and that if you want tax credits, you still have to go through the federal system.

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