California Sees Rising Policy Cancellations Due to Premium Hikes and Expired Subsidies

According to data from Covered California, about 374,000 policyholders discontinued their coverage in the first quarter due to premium increases and the end of certain federal subsidies. This accounts for 19% of those who renewed through the state marketplace, marking a noticeable rise from past cancellation rates of 13% to 15%.

Jessica Altman, executive director of Covered California, highlighted that the lapse of temporarily enhanced federal subsidies is a major driver behind this trend, leading to higher costs for many middle-class residents. "We expect coverage losses to increase through the year," Altman stated. As of February, enrollment dropped 7% from the previous year to 1.8 million, with figures lagging due to a grace period policy allowing consumers up to three months to resume payments before losing coverage.

The expiration of enhanced subsidies on December 31 resulted in a significant rise in health insurance premiums within California's state-run marketplace, set up under the Affordable Care Act (ACA). Initially approved in 2021, these subsidies temporarily expanded beyond ACA's traditional income limits, aiding individuals earning up to 400% of the federal poverty level. With these enhancements gone, the average premium for Covered California plans increased by over 10%, driven by rising medical costs.

In response, California allocated $190 million this year to assist lower-income families with premium subsidies, planning to boost this to $300 million by 2027, potentially aiding more families. Governor Gavin Newsom's budget proposal also suggests extra funding for gender-affirming care costs for Covered California participants. Despite a decrease in ACA plan enrollments, California aims to mitigate coverage disruptions by increasing state subsidies. However, many consumers have turned to more affordable Bronze plans with higher cost-sharing, such as increased co-pays and deductibles. Altman expressed concern that this shift might lead to deferred healthcare services among members.