Skimpy Health Plans Put Consumers, Insurance Markets at Risk

The Affordable Care Act’s (ACA) critics are now proposing “alternative” health coverage options that offer skimpier benefits and operate separately from regular health insurance markets that serve individuals. While recent state-level and federal proposals differ in the details, they’d have a similar result: People who buy skimpy plans would face staggering costs when they get sick, and consumers who want comprehensive coverage could face drastic premium increases.

Most recently, Idaho has proposed to simply ignore the ACA. Governor C.L. “Butch” Otter says he wants insurers to offer individuals “state-based plans” that flout many federal requirements; for example, they could leave out coverage of some essential health benefits such as maternity care, charge older people and those with pre-existing conditions far higher premiums, and raise consumers’ out-of-pocket costs beyond what the ACA permits, including by allowing insurers to impose annual dollar limits on benefits. Asked how he would square this proposal with the clear requirements of federal law, Idaho’s insurance commissioner indicated that he’s counting on the Trump Administration not to be “sticklers” about laws it doesn’t support.

Idaho insurers have expressed some skepticism about offering these plans because that could put them at risk of steep financial penalties if the federal government enforces the law or if enrollees file lawsuits. But if insurers that don’t offer the state-based plans fear their competitors may do so, thus drawing healthier people away from the ACA-compliant market, they will raise their premiums to account for that risk.

Idaho’s proposal to ignore the ACA is especially blatant, but the Trump Administration’s executive order of October would do much the same thing. It directs relevant agencies to consider ways for more people to buy health coverage that’s exempt from many ACA standards. The Administration is also expected to propose rules to let short-term health plans operate as an alternative to regular health insurance by lifting their three-month limit. Like Idaho’s state-based plans, plans categorized as “short-term” can deny coverage or charge higher prices based on pre-existing conditions, exclude coverage of essential health benefits, and impose annual limits on coverage. As a result, these plans can offer low-cost coverage to healthy people, drawing them out of the ACA-compliant risk pool. When these consumers get sick, they will find themselves without the protections that health insurance is meant to provide; meanwhile, premiums for comprehensive coverage will rise, potentially substantially.

Along similar lines, the Trump Administration has proposed rules to expand Association Health Plans (AHPs) and give small businesses with healthier employees and individuals a route to leave their current insurance markets and get coverage as large employers under a weaker set of standards and protections. In Iowa, the insurance commissioner floated the related idea of letting individuals (such as those who share a profession) join together and buy group coverage. While details are scant, that idea could be similar to the federal AHP proposal. Previously, Iowa’s governor touted short-term plans not subject to the ACA as an attractive option for Iowans this year.

Each of these ideas raise the risk that insurance pools will split into separate healthy and less healthy groups, which is known as adverse selection and which prompts insurers to raise premiums, sometimes substantially, for the less-healthy group with more comprehensive coverage. That’s the same force at work under last summer’s proposal from Senator Ted Cruz as part of the broader effort to repeal the ACA. Senator Cruz said insurers that offer at least one plan meeting ACA standards should be able to sell other plans that don’t comply with those standards, similar to Idaho’s proposal and what could result under the Administration’s anticipated short-term plans rule. Consumer and patient groups, the American Academy of Actuaries, health policy experts, and health insurers panned the Cruz proposal due to the risk of adverse selection and because it would likely destabilize ACA insurance markets and raise premiums.

Policymakers understandably want to find ways to lower premiums for individuals who buy their own coverage but have incomes too high to qualify for subsidies to help them buy coverage through the ACA marketplaces. But ideas that split the risk pool would only raise premiums for comprehensive health insurance even further, a burden that falls most harshly on middle-income people with pre-existing conditions. Policymakers should set such proposals aside in favor of other ideas, such as reinsurance programs that serve to hold down premiums, enhanced subsidies, improved outreach to potential insurance plan enrollees, and other efforts to broaden the risk pool that build on current standards and protections.