Impacts on the Individual Market
The market for individual insurance is significantly different than that for group coverage. This affects estimates of the proportion of plans that will remain grandfathered until 2014. As mentioned previously, the individual market is a residual market for those who need insurance but do not have group coverage available and do not qualify for public coverage.
For many, the market is transitional, providing a bridge between other types of coverage. One study found a high percentage of individual insurance policies began and ended with employer-sponsored coverage. More importantly, coverage on particular policies tends to be for short periods of time.
Reliable data are scant, but a variety of studies indicate that between 40 percent and 67 percent of policies are in effect for less than one year. Although data on changes in benefit packages comparable to that for the group market is not readily available, the high turnover rates described here would dominate benefit changes as the chief source of changes in grandfather status.
While a substantial fraction of individual policies are in force for less than one year, a small group of individuals maintain their policies over longer time periods. One study found that 17 percent of individuals maintained their policies for more than two years, while another found that nearly 30 percent maintained policies for more than three years.
Using these turnover estimates, a reasonable range for the percentage of individual policies that would terminate, and therefore relinquish their grandfather status, is 40 percent to 67 percent. These estimates assume that the policies that terminate are replaced by new individual policies, and that these new policies are not, by definition, grandfathered.
In addition, the coverage that some individuals maintain for long periods might lose its grandfather status because the cost-sharing parameters in policies change by more than the limits specified in these interim final regulations.
The frequency of this outcome cannot be gauged due to lack of data, but as a result of it, the Departments estimate that the percentage of individual market policies losing grandfather status in a given year exceeds the 40 percent to 67 percent range that is estimated based on the fraction of individual policies that turn over from one year to the next.