“Bare” Counties Are a Real Concern. Short-Term Policies Are Not the Answer

Last week, fourteen GOP Senators sent a letter to the Secretary of the Department of Health and Human Services, encouraging him to rescind an Obama-era regulation limiting the marketing and sale of short-term health plans. While doing so might help some healthy people find more coverage options (so long as they stay healthy), it would also make insurance less accessible and more expensive for people with pre-existing conditions. Here’s why.

What are short-term health plans?

We’ve written about short-term health insurance on CHIRblog before, noting that these policies are not regulated by the Affordable Care Act (ACA), and thus don’t need to comply with federal prohibitions on pre-existing condition discrimination, out-of-pocket cost protections, or requirements to cover a basic set of essential health benefits. Consumers can enroll in short-term plans outside of the ACA’s prescribed open enrollment period as long as they are healthy enough to pass the plan’s medical underwriting.

Many consumers are attracted by the plans’ very low prices (they can be as much as 70 percent cheaper than unsubsidized traditional insurance). However, it is “buyer beware” because these plans often offer shoddy coverage that, if you need health care services, can leave consumers holding the financial bag. In addition, these plans don’t count as minimum essential coverage (MEC) under ACA rules, meaning that people with these plans will face a penalty under the law’s mandate that individuals maintain health coverage. Because some of the marketing of these short-term policies can be deceptive, several state departments of insurance, such as Indiana’s and Wyoming’s, have issued alerts warning consumers about the risks of these policies.

How did the Obama administration regulate short-term plans?

In 2016 the Obama administration published a rule making it less attractive for insurers to sell short-term plans to potential marketplace enrollees. Previously, consumers were able to enroll in such plans for up to 364 days, but the 2016 rule required that short-term policies be just that – short term. Specifically, insurers can only issue short-term policies for up to 3 months, and they cannot be automatically renewed. In addition, insurers must provide a prominent notice that the short-term policy is not health insurance and that the consumer might have to pay the tax penalty for failing to maintain coverage.

What are the benefits and risks of de-regulating short-term plans?

The fourteen GOP Senators who wrote to Secretary Price believe that short-term policies can provide many consumers with a more affordable coverage option than what is available via ACA-compliant plans. This is probably true; however, the Senators neglect to mention that short-term policies are only available to healthy people, fail to cover many critical benefits, and contain a number of limits and exclusions, exposing consumers to financial risk if they experience an unexpected health issue.

Further, allowing increased enrollment in short-term policies will only put the ACA marketplaces in greater jeopardy by siphoning healthy risk away from ACA-compliant coverage. This makes the marketplace risk pools sicker, which in turn could drive more insurer exits and higher premiums.

To be sure, many U.S. counties face the grim prospect of having no willing insurer in their ACA marketplaces come 2018. This is a result of the uncertainty created by Congressional ACA repeal efforts, an unwillingness of the Trump administration to commit to funding cost-sharing reduction subsidies, and insurers’ concerns that this administration won’t enforce the individual mandate.

Achieving a stable individual insurance market that works for all consumers, not just the healthy ones, is not rocket science. We’ve floated several pragmatic options here, as have others (here and here). But the clock is ticking and action is needed fast.

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