Trump Administration Issues Final Rule Expanding Short-term Insurance

At the start of August, the Trump Administration announced plans to make it easier for American consumers to purchase short-term medical plans as a cheaper alternative to Affordable Care Act (ACA) insurance coverage.

The Secretaries of the Treasury, Labor, and Health and Human Services published a proposed rule on February 21, 2018, to consider allowing short-term, limited-duration insurance to cover longer periods and be renewed by the consumer.

When the proposal was initially released, Alex Azar, JD, secretary of the Department of Health and Human Services indicated that the move could benefit millions of middle-class families who cannot afford the premiums of plans on the ACA marketplace. 

These plans are not for everyone, he acknowledged. “But for Americans who have been priced out of Obamacare plans, who can't find a plan that will cover their doctor, or who are looking for affordable coverage between jobs, these short-term plans could make a lot of sense.”

Criticism has surfaced, however, from a variety of stakeholders ranging from doctors and patient advocacy groups to hospitals and the health insurance industry. 

“From our perspective, these policies aren’t in any way comprehensive,” said Emily Curran, MPH, research fellow with Georgetown University’s Center on Health Insurance Reforms, “so extending them is really going to expose consumers to skimpy policies that aren’t going to cover their basic needs.” 

Lower Prices for Less Coverage

The rule will become effective 60 days after publication in the Federal Register, which means insurers would be able to begin selling short-term plans prior to the November 1 start date of the next ACA open enrollment period.

Under the Short-Term, Limited-Duration Insurance Final Rule, consumers will have the ability to buy these types of insurance policies for periods of up to 1 year, which can be renewed for up to 3 years. This form of insurance, previously limited to 3 months, was originally designed to fill coverage gaps for those who are between jobs or otherwise in need of temporary coverage while transitioning from one health care plan to another.

Notably, the policies are not subject to the same provisions that apply to individual health insurance coverage under the ACA. This means they do not have to cover a minimum set of benefits and can avoid covering entire categories, such as prescription drugs. 

Plans will also have the ability to deny coverage to those with pre-existing conditions, charge more based on health status, or rescind coverage when a member enrolls in a policy, gets sick, and attempts to renew.

A Kaiser Family Foundation analysis of short-term, limited duration health plans offered by two large national online brokers found that it is not uncommon for the most inexpensive short-term policy to be priced at 20% or less of the premium tied to the lowest cost ACA-compliant bronze plan in the same region. 

As one would expect, the lower price tag corresponds with less comprehensive coverage, however. The analysis revealed, for example, that 43% of the plans examined do not cover mental health services, 62% do not include substance abuse treatment, and 71% do not include outpatient prescription drugs. None of them provide coverage for maternity care.

Although Matt Eyles, MS, applauded the requirement for short-term plans to make clearer disclosures to consumers, the president and CEO of America’s Health Insurance Plans expressed concerns as well. “Every American should be able to get affordable, comprehensive coverage, regardless of their income, health status, or any pre-existing conditions,” he said in a statement. 

“Consumers deserve more choices, particularly those who do not qualify for federal subsidies and must pay the full premium,” Mr Eyles continued. “We remain concerned that consumers who rely on short-term plans for an extended time period will face high medical bills when they need care that isn’t covered or exceed their coverage limits.”

Impact on Risk Pool, Premium Rates 

Experts point out that the plans are likely to appeal to those without employer-sponsored coverage who have income too high to qualify for the government subsidies that help pay for policies sold on the ACA exchanges. By Congressional Budget Office estimates, approximately 2 million people will own short-term plans by 2023. 

As these younger, healthier individuals abandon ACA individual marketplace plans for short-term coverage, those remaining will most likely be older, sicker individuals. As a result, one likely outcome is that this will adversely affect the risk pool and drive premiums higher. 

“Those that opt for limited coverage policies are those people that are looking to spend less in return for taking on the risk that they won’t encounter—or can self-insure for—uncovered expenses,” said Michael Abrams, MA, managing partner of the health care consulting firm Numerof & Associates. “And I think philosophically, the point of this policy change is to give individuals the freedom to make that choice to choose that sort of tradeoff.”

While the ACA has required that everyone buy the same minimum coverage, this new policy creates an alternative that offers lower costs and some measure of protection. But the level of protection depends on the policy design. 

Depending on how they are structured, it is possible that some could function much like the major medical policies of prior decades where most of the short-term expenses are left to the insured and the only thing that’s being provided is catastrophic coverage. On the one hand, this may be what some consumers want, and it could fill a real market need. 

“The other side of it is that inevitably there will be some people that opt for more limited coverage and wind up facing bills that they didn’t expect and may not be able to afford,” Mr Abrams explained. “The result of that is, I think, predictable: more disputed charges, more collection activity, more bad debt as insured individuals discover the limitations and exclusions in the fine print of their policies.”

Businesses that rely on exchanges to provide insurance for their employees will likely wind up paying more for comprehensive plans, or they may be tempted to purchase cheaper plans with more limited coverage. “Again, this is all about consumer choice and being able to buy what it is that you want for yourself or for your employees,” he added. 

States to Play a Central Role

The impact is expected to vary across the country considering each state can impose additional coverage restrictions on short-term policies. Some of the states will not allow them at all, Mr Abrams said, and some will require that they insert additional provisions. 

“Hopefully most of them will go to some lengths to try to ensure that the consumer is fully informed about what it is they are getting into,” he added. “I think we are going to see quite a lot of variability across the states as some take a much more activist role with regard to what these policies cover and how the consumer gets informed.”

Some state governments have already taken action, explained Ms Curran. Hawaii and Maryland, for example, have limited the lengths and renewal of these short-term contracts while other states—like Massachusetts and New York—require short-term plans to comply with some or all of the same rules as traditional coverage. 

Under the new rule, insurers will be required to provide clear explanations about what is included under coverage and to inform consumers that they do not have an automatic right to renew their policies upon expiration. 

But it does not really specify how that disclosure needs to be provided or where it needs to be displayed, Ms Curran pointed out. “So I think there’s a huge concern about consumer confusion—that consumers enroll in these policies, don’t know that they aren’t comprehensive, and then ultimately end up with a medical need that doesn’t get covered or claims that don’t get paid out,” she said.

Some states are starting to look at how they can review materials before they go online in the hopes of making sure consumers are better informed. Vermont, for example, has required short-term sellers to submit their marketing materials to the Department of Insurance for advanced review.

Ms Curran and colleagues at Georgetown University's Center on Health Insurance Reforms surveyed the Departments of Insurance in the 17 state-based ACA marketplace states to understand how the market for short-term coverage is working leading up to this policy change. 

Within their Common-wealth Fund survey, they compared the list of 2018 marketplace insurers in the state-based exchanges with the list of short-term carriers who have been approved to sell policies. When you look at the list of carriers, she noted, there is not a lot of overlap. The result is that these two totally different sets of players will be competing for the same healthy individuals. 

The ACA opened up the individual market to managed care organizations that traditionally had not played a role in private insurance, Ms Curran explained, and this new rule is going to create a risk of undercutting those ACA-compliant insurers.

Managed care plans that are mission oriented and want to provide comprehensive coverage to everyone are going to start feeling pressured to get into the short-term space and sell short-term policies, she predicted, to make sure they do not lose their healthy consumers.