CBO: Administration’s Short-Term Plans Rule Means a Return to Pre-ACA Practices

The House Energy and Commerce Health Subcommittee will consider legislation tomorrow to curb so-called “short-term” health plans, which are exempt from the Affordable Care Act’s (ACA) consumer protections. Some argue, wrongly, that these plans are less harmful than they appear, and they have cited a recent Congressional Budget Office (CBO) report to make their case. That report, however, confirms that the Trump Administration’s expansion of short-term plans will leave people who buy these plans with large gaps in coverage and will raise costs for people with pre-existing health conditions.

CBO’s report examines the combined impact of two Administration rules. The first expands the availability of short-term plans by allowing them to last up to one year (versus three months previously) and be renewed. Short-term plans are exempt from many of the ACA’s consumer protections, including its bans on denying coverage or charging higher premiums based on health status, its requirement that plans cover essential health benefits such as maternity care and prescription drugs, and its ban on annual and lifetime limits on coverage. The other rule expands the availability of association health plans (AHPs, which a trade or other association offers to its members), including by allowing them to sell coverage to small businesses and certain self-employed workers without following the rules that apply to other small-group and individual market plans. For example, AHPs can exclude essential health benefits and charge higher premiums to firms with sicker-than-average workforces.

CBO finds that:

• Short-term plans will have benefit exclusions and other restrictions on coverage similar to individual market plans that were offered before the ACA. CBO expects that most short-term plans “will resemble a typical nongroup insurance plan offered before 2014.” That means they will “often exclude coverage for pre-existing conditions” and will exclude “many” essential health benefits. For example, 75 percent of individual market plans offered in 2013 excluded maternity care, 45 percent excluded substance use treatment, and 38 percent excluded mental health care, according to Kaiser Family Foundation estimates.

  CBO counts short-term plans as health coverage, just like it did with pre-ACA plans with benefit exclusions or annual and lifetime limits. But those buying short-term plans will often face catastrophic costs if they get sick. Moreover, CBO’s analysis may not fully account for the widespread use of deceptive marketing practices by short-term plan sellers, as documented in a recent Georgetown Center for Health Insurance Reforms report. If these practices are prevalent and successful, more people will likely enroll in even worse health plans than CBO projects. As CBO notes, some short-term plans offer even more limited coverage than typical pre-ACA individual market policies and “do not meet CBO’s definition of private health insurance.”

  CBO predicts that AHPs will offer more comprehensive coverage than short-term plans, but less comprehensive coverage than ACA small-group plans. In particular, it notes that not all AHPs will cover all essential health benefits, since they are not required to do so.

• The new rules will cause about 4 million people to drop comprehensive ACA individual or small-group coverage and enroll in a short-term plan or AHP. CBO finds that the Administration rules will lead to a dramatic growth in both types of plans. Most people who enroll due to the new rules — about half of those enrolling in short-term plans and almost 90 percent of those enrolling in AHPs — would otherwise have had comprehensive ACA coverage.
• The lower premiums that short-term plans and AHPs offer to healthy people and firms will come at the expense of higher costs for sicker people and firms. Because these plans will pull healthy people out of the ACA individual and small-group markets, annual premiums in these markets will rise: by $350 to $400 on average for single coverage and $900 to $950 for family coverage by 2028, according to CBO. Lower-income consumers will be protected from these higher premiums, because federal premium tax credits that are designed to help these consumers buy coverage will increase to compensate. But individual market consumers who have incomes too high to qualify for tax credits but who need comprehensive coverage — including middle-income people with pre-existing conditions — will pay more.

Moreover, because premium tax credits will rise to protect subsidized consumers from the premium increases that result from the rule, the short-term plans rule will increase federal costs. While CBO’s report does not include an estimate, the Administration itself estimated that the rule would increase federal costs by billions of dollars over ten years. Policymakers could use those resources instead to reduce the cost of coverage for both healthy and sick people with incomes too high to qualify for premium tax credits, without the downsides of expanding substandard plans.