Consumer Federation of California

Roughly 113,000 Californians whose individual health plans were set to expire at the end of the year will be given the option to extend their coverage though the end of March.

Those with individual plans issued by Blue Shield of California Life & Health Insurance Company will be allowed to retain their plans for an extra three months regardless of whether they purchased coverage before the March 2010 passage of the federal health care law – the cutoff for “grandfathered” policies.

State officials estimate upward of 1 million Californians were receiving cancellation notices. Nearly 600,000 residents who buy their own health insurance are bracing to pay more for new plans in large part because of the federal health care overhaul. Blue Shield had given a three-month notice to 119,000 subscribers that their plans would be withdrawn from the market and replaced with new compliant policies.

Insurance Commissioner Dave Jones suggested the cancellations required a six-month warning and threatened legal action if existing policyholders were not allowed to retain their plans until March 31.

“Our action today is solely related, as it should be, to the question of whether Blue Shield complied with the notice requirement. They did not,” Jones said. “We told them they needed to comply, and we reached this agreement with them.”

The cancellations have enraged customers nationwide and caused headaches for President Barack Obama, who last week was forced to walk back repeated assertions that Americans who were satisfied with their health plans could keep them.

Stephen Shivinsky, a spokesman for the company, said it was able to accommodate Jones’ request because the insurance plans in question are regulated by the Department of Insurance. New plans offered on the state insurance marketplace, Covered California, are regulated by the Department of Managed Health Care and are bound by the model contract between the exchange and insurance companies.

Blue Shield is mailing letters to 80,000 households informing them of the change and letting them know that they would have to ask to extend their coverage in their current plan. The deadline to retain current coverage is Dec. 6.

Still, Shivinsky said the company is warning customers that an extension is not without complications. Significant risks include: Having to pay a deductible twice in one year; missing tax credits and cost-sharing subsidies for plans that meet new requirements of the federal health care overhaul and are purchased via the exchange; and needing to enroll in a new plan by March 15, 2014 to avoid a gap in coverage after March 31.

“We are providing a lot of cautions to our subscribers if they choose to extend their coverage,” Shivinsky said.