Are All Those Insurance Company Cancellation Letters Too Good to Check?

| Tue Oct. 29, 2013 7:06 PM EDT

Paul Waldman recounts yet another story of someone allegedly getting screwed by Obamacare. This time the victim is Deborah Cavallaro, profiled yesterday on the NBC Nightly News:

We learn in this story that her insurer is cancelling her current plan, which costs $293 a month, because it doesn't comply with the new law. They've offered her a new plan at $484 a month. That sounds like it sucks!....But wait. Maybe she's not a victim after all. How does the $484 plan her current insurer is offering compare to the other ones she could get? Did she or the reporter go to the California exchange and try to figure that out? Apparently, they didn't. But I did.

It took less than 60 seconds. Let's assume that Deborah has a high enough income that she isn't eligible for subsidies. I put in that I was 45 years old and got nine different choices for a Bronze plan, which in all likelihood most closely resembles what Deborah has now. The average monthly cost was $258, or $35 a month less than what Deborah's paying now for her bare-bones plan....She can get a Silver plan, with more generous coverage, for $316, only $23 more than she's paying now. Congratulations, Deborah!

In a follow-up post, Waldman makes the right point about this:

I want to talk about the thing that spawns some of these phony Obamacare victim stories: the letters that insurers are sending to people in the individual market....There's something fishy going on here, not just from the reporters, but from the insurance companies. It's time somebody did a detailed investigation of these letters to find out just what they're telling their customers.

....If the woman I discussed from that NBC story is any indication, what the insurance company is offering is something much more expensive, even though they might have something cheaper available. They may be taking the opportunity to try to shunt people into higher-priced plans. It's as though you get a letter from your car dealer saying, "That 2010 Toyota Corolla you're leasing has been recalled. We can supply you with a Toyota Avalon for twice the price." They're not telling you that you can also get a 2013 Toyota Corolla for something like what you're paying now.

I'm not sure that's what's happening, and it may be happening only with some insurers but not others. But with hundreds of thousands of these letters going out and frightening people into thinking they have no choice but to sign up for a much more expensive plan, it's definitely something someone should look into. Like, say, giant news organizations with lots of money and resources.

It's true that there are some people who are going to end up paying more for coverage under Obamacare than they're paying now. But Waldman is right: there's something very fishy about these letters. Over the past three years, insurance companies have swapped their plans around so fast and so often that virtually no one today has a plan more than a couple of years old—something that seems an awful lot like a deliberate effort to evade Obamacare's original intent that most individual policies would be grandfathered and therefore remain available to existing customers who wanted to keep them.1 Now, having engineered a situation where most current policies aren't grandfathered, millions of people are getting letters canceling their existing plans and being told that the replacement is far more expensive.

I'm not sure what's going on here, but there's at least one lesson in this for the press: never take these letters at face value. If you find someone who's going to end up paying more thanks to Obamacare, fair enough. Run with the story.2 But first, you'd better perform the due diligence to find out what a comparable plan really costs. That means getting income and coverage details from the subject of your story and then doing a detailed search of the local exchange to find out what's on offer. We're not seeing enough of that.

1Plans in existence before March 23, 2010, are grandfathered, which makes them exempt from most of the new requirements of Obamacare. However, if your insurance company switched you into a "better" plan after that date, it's not grandfathered and can be canceled at any time.

2Of course, it would be nice if you also ran some stories about people who are benefiting from Obamacare, especially since they probably outnumber the other folks by 100:1 or so.

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