WASHINGTON — The Obama administration will allow a two-year extension for people whose individual health insurance policies don’t comply with requirements of the new health care law, helping to defuse a politically difficult election-year issue for Democrats.
A government official familiar with the policy said Wednesday that the administration has decided to extend for another two years a transition plan that the White House announced last fall. The extension would be valid for policies issued up to Oct. 1, 2016. The official was not authorized to discuss the change on the record and spoke only on condition of anonymity.
The cancellation of at least 4.7 million individual policies was one of the most politically damaging issues in the transition to a new insurance system under President Barack Obama’s health care law. A wave of cancellations hit last fall, around the time that the new HealthCare.gov website was overwhelmed with technical problems that kept many consumers for signing up for coverage.
It’s not clear how many people would actually be affected by the latest change. About half the states have allowed insurance companies to extend cancelled policies for a year under the original White House transition plan. The policies usually provided less financial protection and narrower benefits than the coverage required under the law. Nonetheless, the skimpier insurance was acceptable to many consumers because it generally cost less.
“It’s not likely to affect a large number of people but it certainly avoids difficult anecdotes about people having their policies canceled,” said Larry Levitt of the nonpartisan Kaiser Family Foundation, an expert on insurance markets. “I think it’s a small and dwindling number of people who are affected.”
It’s also not known if policyholders will find any financial relief if they are allowed to stay with their extended policies. Insurers in several states where extensions were allowed for 2014 have said they planned to hike the cost of those plans.
The insurance cancellations undercut the president’s well-known promise that if people liked their plan they would be able to keep it under his health care law.
The law did include a complicated scheme called “grandfathering” to try to deliver on Obama’s pledge. It was intended to shield policies in force at the time of the law’s 2010 enactment from many new requirements, provided the policies themselves changed little. But insurers considered it impractical. And many of the canceled individual policies would not have been eligible for relief anyway, since they were purchased after the law’s passage.
At first the White House went into damage-control mode, arguing that many of the canceled plans were “junk” insurance and consumers would be better off with the broader coverage available through the health care law’s new insurance markets.
But soon Obama was forced to reverse course, urging insurers and state regulators to allow policyholders to keep their existing plans for an additional year.
The Associated Press reported last month that the administration was considering another extension.
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