Health Insurance Cancellation Reform – Prohibition on Rescissions for Non-Payment in the Individual and Family Market.
Below is a proposed solution to the problem of health insurance cancellations for non-payment. If your health plan has been dropped due to non-payment, please share your story here.
- The problem: Despite the fact that the ACA has done a lot to crack down on frivolous cancellations, a considerable number of individuals and families are dropped from health plans each year due to non-payment. Many of these are dropped due to simple billing errors rather than a refusal to pay or lack of money. Health insurance companies benefit by getting to take the cash and run, avoiding having to pay claims or take on risk for the latter part of a customer’s contract (this is especially true for high deductible plans). Insurers often refuse to reinstate plans due to technical loopholes, forcing a person to deal with external appeals. This leaves many without coverage and with a hefty individual mandate fee each year. In some worst cases, the result is death or bankruptcy.
- The solution: Build on the ACA’s rescission reforms by requiring annual contracts for all major medical health plans (12-month continuous enrollment). This means no plan is dropped until the end of December each year unless the customer opts out. We eliminate all plan drops for non-payment, and eliminate the corresponding loopholes being exploited by insurers. Plans should look more like car insurance, homeowners insurance, or even a phone contract, and less like month-to-month plans, especially now that we can only purchase coverage during open enrollment!
- An additional solution: At the very least insurers should offer 1 , 3, 6, and 12 month contracts. This solution pairs well with the other one, and while it truly only favors those with money in the bank, it at least gives hardworking families with the money to pay in advance an option. This solution is also obviously easier to implement.
That is the gist, below is a clear presentation of the problem and solution in essay form.
TIP: Credit where credit is due. The ACA eliminated most types of rescissions with strong and bold cancellation curbing reform. Many people don’t understand their new and important appeal rights, and this leads to even more dropped plans. Our solution takes things to the next level by going after one of the worst practices in health insurance: Dropping coverage for non-payment.
TIP: Learn more about Mitigating the Effects of Churning Under the Affordable Care Act: Lessons from Medicaid from the Common Wealth Fund. This paper suggests our new/old idea of 12-month continuous enrollment. Expanding Medicaid helps those with low incomes, but nothing helps those with higher incomes or those in non-expansion states when it comes to plan drops.
The Problem – Why Dropping Health Plans Due to Non-Payment is an Intolerable Injustice
It happens to millions every year, they enroll in a health plan, then life happens and they don’t pay the bill on time, now they have no health insurance and a fee for not having coverage.
This is often simply a result of miscommunication, and not the result of purposeful non-payment. The VISA card’s expiration date changed, or the insurers policy changed and you missed the one and only letter they sent, the new rule says you can’t use a business card so the insurer dropped you, etc.
In my own experince, you are lucky if you get any correspondence from the insurer outside a notification of cancellation.
It couldn’t be more clear that the insurer actually wants the cancellation, not because they are bad people, or “because of ObamaCare”, but because it is legal and statically favorable. Its simple economics.
What is the point of dropping the unsuspecting family with money in the bank to pay their premium mid-year? Points aside, the result is the exploiting of consumers to strengthen the bottom lines of for-profit companies, artificially keeping costs low and profits high, by taking advantage of the laws of probability and the law itself.
Think about it, you take on ten million contracts, you know the average rate of non-payment is 5%, this means you can assume a fraction of 5% will pay in and get nothing out. That fraction will almost all owe the fee, and the insurer will take the extra money as profit. That means countless extra dollars for the government and insurers, and an intolerable burden on tax payers, the middle class, and frankly just the unlucky (only a small fraction of the 0.01% could ever afford the full-cost for a catastrophic accident at about $50,000 – $100,000 plus lost wages, to give a very rough estimate).
That is a dirty deal, it sticks it to everyone except the insurer. In the prior system this was justifiable, a person could buy another health plan. Today we are barred from buying a plan due to non-payment outside of open enrollment.
Now that tax payers are obligated to obtain coverage on the private market under the ACA, we need contracts that protect consumers from unintentional plan rescission due to non-payment.
I could go on and tell you the stories I read each day from real people who have had their health and finances jeopardized (like this one, or these), or I could tell you the multiple stories in my family from the Washington Insurance Exchange switch over last year, or I could further explain the math behind insurers dropping plans mid-year and shifting their burden onto tax payers, but instead of i’ll simply offer a common sense solution.
How to Reform Health Insurance Contracts to Eliminate Plan Drops for Non-Payment
- Since health plans are mandatory under the ACA here in 2016, I propose that all contacts be 12 month duration and are opt-out only once signed.
- If a person doesn’t pay within 30 days they can still receive care (as is the law now).
- At 60 days or more and they must pay before getting anything other than catastrophic care (similar to how marketplace plans currently work).
- The big change is: a plan NEVER cancels until the person opts out. So even 7 months later they can still get catastrophic care, people owe missed payments as part of the overarching fee.
- If the customer gets to the plans end without paying their premiums, premiums for all months of missed payment are owed to the insurer, or the plan in considered cancelled for the purposes of the mandate, and the fee is owed (incentives consumers not to stiff the insurer and avoids this glaring potential loopholes for consumers).
This doesn’t take away an insurer’s right to collect, but it does shift responsibility to the insurer. The insurer must now actually bother to call, text, email, mail, or otherwise contact their customer instead of just doing the bare minimum while waiting for the plan to drop. Insurers will instead be incentivized to push for the opt-out or to collect payment, instead of being incentivized to drop plans.
Two problems I foresee that need addressing:
- Problem: The idea that people will not pay and only pay if they need catastrophic coverage.
- Solution: If someone doesn’t pay and doesn’t need care, that has a net zero effect (plus the insurer got that “free” first month premium). Meanwhile, if the customer needs care, they owe the money in retrospect anyway. So that has a net zero effect as well. This can be limited by insurers imposing small fees for account recovery and by having a clear line of communication with the customer.
- Problem: Prices will increase
- Solution: Artificially keeping premiums low by dropping unsuspecting hard working families who can’t get coverage until next open enrollment is unjust. If that is where profits are coming from, then the profits are unjust and the system is unjust. Reform is needed to ensure justice. Better insurers get reinsurance payments or prices go up then to ration care via unethical loopholes.
The Bottom Line
We have all agreed, through the law, that health insurance is required or a fee imposed. Thus, no rational person would choose to allow their plan to lapse, thus all contracts sold should be assumed to be yearly (same way life insurance, car insurance, home insurance, and every other insurance type works).
It is the insurers duty to ensure they get payment, if they take on the contract they take on risk. Enough is enough, tax payers shouldn’t have to absorb the insurer’s risk or be punished because of some theoretical person who will sign up and not pay until they need care. Under this solution they still owe the money in retrospect, so no one gets a free ride. Those who truly won’t pay for any month of the year still owe the per-month fee based on income just like they do today.
What to Do if Nothing Happens
If for-profit insurers won’t play be these rules, then I strongly suggest the public options President Obama has talked about include annual contracts.
I also strongly urge any states filing a sec. 1332 to include annual contracts.
Stories From Readers:
Below I will collect stories from readers. When I hear a touching “I got dropped because the insurers error, we have money, and now my family is without coverage and owes the fee” story (which I get often) I will add it to this list. The more everyone shares, the more this article will have an effect.
“It’s BS. I missed payments via debit card mishap. Now I can’t get insurance. I explained THEIR ERROR in billing. Yet I have a penalty and no insurance. I can’t buy insurance outside Obamacare until November despite being willing to pay for anything. I did the right thing. I work and pay taxes and I can barely live I can’t even keep $6000 deductible insurance. If I made $10k less a year I’d have no deductible a 20$ month fee. If I sat at home all day and didn’t work I’d have medical coverage. I choose to work and if I get anything serious I will be out to dry. This is not for the people. It’s for insurance companies and government to profit.”
TIP: Share your story here.