If you like it, you can keep it: Insurance exemptions, premiums and the ACA

On the heels of the disappointing and politically disastrous rollout of the open enrollment period for the Affordable Care Act's (ACA) heath insurance marketplaces in October 2013, the media reported that perhaps as many as 4.7 million Americans would receive cancellation notices from their "nongroup" or individual health insurance plans because they lacked basic coverage standards under the ACA

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This action sparked a firestorm of additional public criticism surrounding the potential loss of coverage for millions and threatened the credibility of President Obama who had promised Americans that "if you like your health plan, you can keep it." In fairly swift reaction, the president issued a directive on Nov. 14, 2013 encouraging state insurance commissioners to delay for one year the enforcement of new ACA rules governing plans beginning Oct. 1, 2013, and approximately half of the states complied. Similarly, on March 5, 2014, after the marketplaces were deemed more functional but fearing a second-generation public backlash during the 2014 midterm election season, the Obama administration announced the possible continuation of non-compliant ACA health insurance plans through October 2016. This announcement was met with sharp criticism from Republicans and the health insurance industry alike, the former alleging it to be a blatantly political move to alleviate a growing anti-ObamaCare sentiment, and the latter asserting the coverage requirement delay would carve out healthier individuals, disrupt the formation of the nascent risk pools in the marketplaces and lead to higher premiums in 2015.

As it turns out, politics aside, folks in nongroup plans rarely keep their coverage for more than a year or two. A January 2014 Kaiser Family Foundation Data Note reported that over a two-year period (2010 to 2011), about a third of those enrolled in nongroup plans exited within six months. A similar review in Health Affairs looked at the stability of nongroup coverage during a three-year period before the ACA took effect. The findings are instructive. First of all, fewer than half (43 percent) of the enrollees at the onset of the study period retained that coverage after a year. Secondly, eight out of 10 of the people experiencing coverage changes acquired other insurance within a year, most commonly moving from nongroup to employer-sponsored coverage. Insurance turnover was particularly high among young adults aged 19 to 35, with only 21 percent retaining nongroup coverage for two years. This is not surprising, as the nongroup market often fills in around the edges of employer-sponsored and government-sponsored health coverage, and young workers move around. The study illustrates the volatility in the nongroup market before the ACA and suggests that any ACA-related cancellations may be minimal, mirroring normal disruptions that are consistent with previous trends. This is underscored by the fact that the nongroup market serves less than 5 percent of the nonelderly population.

Right now the national focus is on the 2015 insurance rates and the effect of the ACA, with Republicans blaming rising insurance premiums on the healthcare law and Democrats insisting the law has kept coverage more affordable. In the end, the 2015 insurance rates may reflect geography more than ideology: more than half a dozen states have revealed potential increases ranging from zero to more than 25 percent, a spread similar to the increases in individual insurance premiums prior to the ACA. A just-released Commonwealth Fund Issue Brief reports that nongroup insurance premiums increased 10 percent or more on average from 2008 to 2010, with large state variations of 3 percent to 21 percent. These numbers provide a benchmark from which to compare 2015 insurance rates and may temper the indictment of the ACA as the leading factor in rising premiums.

Ensuring stable risk pools and predicting premiums are difficult insurance tasks that depend on many factors, including the health of the enrollees and their utilization of services, the size of provider networks and their reimbursement rates, and the level of competition among insurance companies in any given geographic market. The ACA attempted to mitigate potential threats to market stability through targeted mechanisms like minimum medical loss ratios and reinsurance strategies. However, it is unclear whether the ACA on its own can fundamentally eliminate all the vagaries of insurance markets, particularly in the nongroup segment, which is rife with enrollment disruptions, the potential for adverse selection and other uncertainties that make insurance companies very nervous.

Engelhard is the director of the Health Policy Program at the University of Virginia School of Medicine's Department of Public Health Sciences.