Many Americans buying insurance coverage for 2014 may never get the chance to claim new federal tax credits to subsidize the cost of health insurance, due to an odd wrinkle in the signup process.
The problem will impact individuals who currently receive insurance on the individual market, but only if they fail to take action in the coming months. Hundreds of thousands—if not millions—of people who purchase coverage independently are now receiving letters from insurers canceling policies that do not comply with new Affordable Care Act (ACA) regulations. In cancelling such plans, some insurers are telling customers they will be automatically enrolled in alternative ACA-compliant coverage unless they object.
This could be a major snag in the ACA’s plan to subsidize insurance purchased on the individual market. New tax credits, available to individuals earning less than 400 percent of the federal poverty level, or about $46,000 per year, can only be accessed through new ACA insurance marketplaces. Those who purchase coverage outside the exchanges cannot claim subsidies, even if they qualify for them, according to the Centers for Medicare and Medicaid Services, the agency overseeing implementation of the ACA. Automatic enrollment directly through an insurer would avoid the exchanges, and the subsidies, entirely.
Blue Shield of California sent letters to more than 100,000 customers this fall, canceling current policies and offering to enroll customers in alternate coverage. “It’s automatic,” says Steve Shivinsky, a spokesman for the insurer. “We map them into a comparable plan and if they take no action then they are automatically covered in the plan we’re recommending.” Such automatic enrollment would bypass the subsidy program.
The second page of the Blue Shield of California cancellation letter, a sample of which the insurer provided to TIME, informs consumers that they may have access to subsidies if they sign up for new coverage through the state’s exchange, Covered California. Customers who think their incomes may qualify them for subsidies are asked to call Blue Shield of California directly so trained enrollment specialists can help them sign up for coverage through the exchange.
Kaiser Permanente, another California insurer, sent a similar cancellation letter to some 160,000 customers this fall. The first page of Kaiser’s letter, also provided to TIME, includes a line in bolded font that says, “Everything is taken care of. There’s nothing you need to do.” Like Blue Shield, Kaiser also allows customers to sign up for new plans through Covered California with the help of enrollment specialists over the phone.
But whether consumers will take the extra steps necessary to seek out new coverage, and access subsidies along the way, is still an open question. Lizelda Lopez, a spokeswoman for the California exchange, says about one-third of the 900,000 Californians whose insurance plans are likely to be be terminated this year qualify for subsidies. “If those individuals get those letters, what they want them to know is that they should come to Covered California,” says Lopez. While the California insurers offer to help customers sign up through the state exchange, consumers have to request this directly. And routing customers through the exchanges independently means they will encounter plans for sale from competing insurers.
“There are lots of other products available,” says Shvinsky. “If we just tell them to go to Covered California web site, they can pick whatever plan they want.”
The ACA subsidies are technically tax credits, but consumers can’t apply for them later when they file their income tax returns. The subsidies are only available when consumers purchase coverage through the exchanges, according to CMS. “As far as retroactive premium tax credits for a plan outside the exchange, you can’t do that under the statute,” says Timothy S. Jost, a professor at Washington and Lee University and an expert on provisions of the new law.
New plans offered to consumers in place of canceled policies in the individual insurance market are often more expensive because they cover more benefits with less out of pocket spending to comply with the ACA. These higher prices may motivate some consumers to turn down offers of automatic enrollment in favor of shopping in an ACA exchange. This scenario, however, depends on consumers being able to use the new exchanges, where enrollment is intended to happen primarily online.
Healthcare.gov, an exchange web site being run by the federal government and managing enrollment for more than 30 states, has been hobbled by computer problems since its Oct. 1 launch and may not be fully operational until the end of November, long after many consumers will have received termination letters from their insurers.