From the IRS:
Actual text:
f. 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.[27] 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.[28] 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,[29] while another found that nearly 30 percent maintained
policies for more than three years.[30]
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.
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