BEYOND THE NUMBERS
The Trump Administration proposed rules today to expand the use of short-term health plans as an alternative to plans that meet more stringent standards. This would let a parallel market for skimpy plans operate alongside the market for comprehensive individual health insurance, exposing consumers to new risks and raising premiums for people seeking comprehensive coverage, especially middle-income consumers with pre-existing conditions.
The proposal itself acknowledges that it “may further reduce choices for individuals remaining in the individual market risk pool” by weakening states’ individual markets, and that “consumers who purchase short-term, limited-duration insurance policies and then develop chronic conditions could face financial hardship as a result.”
The proposed rule change would roll back 2016 regulations defining short-term plans as those lasting less than three months, defining them instead as those lasting less than one year. It will be open for public comment until April 23.
Because short-term plans offer less coverage and can deny coverage or charge higher prices to people with pre-existing conditions, they offer lower premiums for some healthy consumers than comprehensive plans that comply with the Affordable Care Act (ACA). As a number of groups representing both insurers (such as America’s Health Insurance Plans and the Blue Cross Blue Shield Association) and consumers (including CBPP) have warned: “If short-term plans are allowed to be sold as a long-term alternative to regular health insurance, they will attract healthier consumers away from the regular insurance risk pool and endanger people’s access to comprehensive coverage.”
Compounding the problem, the tax law enacted in December will, in 2019, end the ACA’s individual mandate that most people have health coverage or pay a penalty. This year, the mandate could provide some protection against the expansion of short-term plans because enrolling in one wouldn’t protect someone from having to pay the penalty during 2018. But next year, without the mandate, short-term plans would likely attract more enrollees.
A surge of enrollment in short-term plans would likely:
- Raise premiums in the individual market. Because they aren’t considered individual market insurance coverage, short-term plans aren’t subject to many of the ACA’s consumer protections, like its requirement that plans treat people the same regardless of their health status or pre-existing medical conditions. Short-term plans can — and typically do — exclude coverage of pre-existing medical conditions, limit the dollar amount of benefits that a person can receive from the plan, and omit many of the essential health benefits that the ACA requires individual market plans to cover, including maternity care, prescription drugs, mental health treatment, and substance-use disorder services.
Because short-term plans can cover less care and exclude coverage for serious medical needs, they offer low premiums, which may attract healthier people to them. That could lead to severe “adverse selection” as healthier people who cost less to cover leave the individual market, raising premiums for the remaining enrollees as soon as 2019. The Administration acknowledges that those who will buy short-term plans are “likely to be relatively young or healthy” and that this could worsen the individual market risk pool, raising premiums as well as federal spending on the ACA’s premium tax credits in 2019. Federal spending on the premium tax credits, which help low- and moderate-income people pay their premiums, would increase because the credits rise as premiums rise.
But middle-income people buying insurance without subsidies would likely face cost increases — and tough decisions about how to afford comprehensive coverage — when the final, higher premiums are announced in the fall of 2018.
- Undermine market reforms and access to comprehensive coverage in the individual market. Adverse selection not only raises premiums but also makes it harder for insurers to predict the makeup of their risk pools and set premiums, especially in the near term. That could cause insurers that offer comprehensive plans to leave the traditional insurance market, reducing access to more robust benefits for the many consumers who want them.
- Expose more consumers to gaps and high costs. As noted, short-term plans provide much more limited coverage than true health insurance. The three short-term insurers with the largest enrollment spent just half of the premiums they collected on enrollees’ medical claims in 2016, well below the 80 percent threshold that providers of comprehensive individual-market coverage must meet. Many people who enrolled in short-term plans discovered later that the insurers didn’t pay their claims when they got sick, leaving them with thousands of dollars in medical bills.
The Administration’s proposal says that the short-term plans wouldn’t likely meet ACA standards that require coverage of pre-existing conditions, preventive care at no cost to enrollees, and core services such as maternity care and prescription drugs. As a result, the Administration acknowledges, “consumers who purchase short-term, limited-duration insurance policies and then develop chronic conditions could face financial hardship as a result, until they are able to enroll in [ACA]-compliant plans that would provide for such conditions.”
These new proposed rules are part of the Administration’s broader effort — which the President launched in October with an executive order — to make alternative forms of health coverage more widely available, such as association health plans (AHPs) and health reimbursement arrangements. A separate rule proposing an expansion of AHPs is open for public comment until March 6. While the President says he merely wants to expand health coverage options, the proposed changes could have severe, damaging effects.
Consumers would be best off if the Administration discards the proposed rule. But if the Administration does finalize the rule, states could still protect their residents and their insurance markets, such as by banning short-term plans that don’t meet ACA insurance market rules or restoring the three-month limit so these plans are truly “short term.” States can also protect their insurance markets from expected changes in federal rules for AHPs and consider other steps, such as establishing their own individual mandates and reinsurance programs, to bolster their individual markets.
There’s strong support for bold state action, as the aforementioned insurer-consumer group letter shows. It urges states to “act swiftly” if federal rule changes let short-term plans last for long periods and to consider additional steps to protect consumers from other federal changes that would leave them without adequate coverage.