What's next for cancelled health insurance plans?

By Flora Tartakovsky

(MoneyWatch) Although it's been more than two weeks since the President opened the door for cancelled health insurance policies to be reinstated for the next year, consumers and insurers are still scratching their heads as to what this will mean for them and whether it is even feasible to backpedal at such a late date. 

The announcement shifted the heavy lifting and decisions from the administration to insurers and the state insurance commissions that regulate them.  As a result, outcomes and individuals choices will likely vary tremendously depending on where you live because each state is now determining whether banned insurance policies should be allowed to remain in place through 2014.

To date, 14 states have said that they will not permit canceled policies to be reinstated. The Covered California Board, which announced its decision late last week, said that "extending the deadline offers no benefit to the consumer and may create confusion about accessing affordable health care coverage.'' Another 16 states are allowing insurers to resurrect policies.  The remaining states are still weighing their options, leaving millions of consumers in limbo.

"Changing the rules after health plans have already met the requirements of the law could destabilize the market," Karen Ignagni, the CEO of America's Health Insurance Plans, said in a statement. 

If enough individuals are allowed to keep their old health insurance policies, that will mean financial losses for insurers, according to Professor Tim Jost, a health law expert at Washington and Lee University Law School.  

"Insurers set prices for the 2014 market in advance, with the understanding that younger, healthier individuals who do not need subsidies and will not need expensive health services, would get new policies because of the law's requirements.  These individuals would likely pay higher premiums and help subsidize the sick and poor," says Jost. That balance is now at risk because the younger, healthier crowd will stick with skimpier, cheaper policies that have been reissued, seeing no need to purchase more comprehensive plans for this next year. Insurers worry they will then be stuck with a largely unprofitable population on the exchanges.

If insurers lose money in 2014, they will be partially reimbursed by the federal government through risk corridors designed to make up for their losses, at the expense of the American taxpayer. Republican Senator Marco Rubio, R-Fla., has expressed outrage over this "bailout" of the insurance companies.  On November 19, he introduced a bill that would abolish the risk corridors.

Regardless of whether the bill gains any traction, insurers could try to make up for their losses by charging higher premiums in 2015. This, right when there will be an influx of individuals whose one year reprieve will expire. It could leave a bitter taste for consumers who will still lose policies that they were promised they could keep and end up with a case of sticker shock when shopping on the exchanges. 

With all the confusion and variations that have already surfaced, it is critical for affected consumers to monitor the situation in their state. They can do this by calling their insurance companies for updates, and contacting their state insurance commissions and insurance brokers.  

According to the administration, a majority of users turning to the federally run exchange websites will be able to successfully shop, compare prices and purchase insurance by the end of November.  But given the botched initial rollout and all the fixes that need to be made, there is widespread skepticism over just how functional the website will be. The deadline for signing up for health insurance for coverage that takes effect January 1 has been extended by one week, to December 23.

If all this sounds dizzyingly complicated, it is. One of the goals of the Affordable Care Act was to create a measure of uniformity in this country, eliminating disparities in health care coverage across state lines. So far, as some states allow individuals to reinstate their old policies and others don't, that's not the case.  At least for next year, expect to see a hodgepodge of health care networks as the transition of our health care system continues.

Flora Tartakovsky is an associate producer at CBS News and an adjunct professor at Fordham Law School, where she teaches about health care policy and the law.  Follow her on twitter@floratartakovsk.