Coming up Short: The Problem with Counting Short-Term, Limited Duration Insurance as Coverage

In August, the Trump administration adopted a rule to expand access to short-term, limited duration insurance (STLDI). The rule allows STLDI plans to extend up to a full year, along with other changes that allow consumers to purchase STLDI as an alternative to comprehensive insurance products currently sold on the individual market. STLDI does not have to comply with the Affordable Care Act’s (ACA) consumer protections, such as the requirement to provide coverage of essential health benefits or the prohibition against denying coverage to people with preexisting conditions or charging them higher premiums.

After the rule was adopted, a group of federal lawmakers introduced a bill to reverse the regulation. In April, the nonpartisan Congressional Budget Office (CBO) released an analysis of that bill. Their analysis indicates that if the rule is reversed, it would increase the numbers of people who are “uninsured.” Specifically, CBO predicts that over the next 10 years, 1.5 million fewer people would purchase STLDI. Around 500,000 of those people would sign up for coverage through the ACA’s marketplaces, a small number would find coverage through their employer, and 500,000 people would have no insurance at all. However, CBO’s estimates are predicated on the assumption that most STLDI counts as “insurance.” For people with preexisting conditions, nothing could be further from the truth.

We took a look at CBO’s definition of “health insurance,” and what that standard means for how the agency projects the number of uninsured.*

How Does CBO Define Health Insurance?

CBO frequently estimates how policy proposals will affect rates of health insurance coverage, which federal lawmakers may take into account when deciding whether or not to vote for a bill. To make these assessments, CBO must determine what it means to be “insured” in a world where insurance products come in a variety of shapes and sizes. An ACA-compliant plan, for example, must accept all applicants, regardless of health status, limits the amount of cost-sharing imposed on an enrollee, and cannot set annual or lifetime dollar limits on benefits. At the other end of the spectrum, insurers selling a “fixed indemnity product” can deny policies to people with health issues and pay a fixed dollar amount for a very limited range of services, such as $100 per doctor’s visit, or $500 for a hospitalization. To accurately estimate the number of “insured” individuals, CBO defines comprehensive major medical insurance as “a policy that, at minimum, covers high-cost medical events and various services, including those provided by physicians and hospitals.”

This definition explicitly excludes certain limited products such as “dread disease” policies, fixed indemnity plans, and dental- or vision-only policies. The scope of benefits that does meet their definition of health insurance is a little hazier. Beyond covering “high-cost” medical events and “various” services, CBO’s definition of insurance appears to encompass a wide range of products. When a law establishes specific requirements for private insurance, such as the ACA, CBO will take those standards into account; however, changes in regulations that allow for the sale of more non-ACA-compliant plans are also considered.

What Does This Mean for Short-Term, Limited Duration Insurance?

With the new STLDI rule in effect, consumers can now purchase – and are often faced with unscrupulous marketing of – plans that do not have to meet the ACA’s benefit, cost-sharing, or rating requirements. Last year, a Kaiser Family Foundation study of STLDI plans on the market prior to the rule found that 71 percent of plans do not cover outpatient prescription drugs, 62 percent do not cover mental health or substance use treatment, and no plan covers maternity care. Almost all plans excluded coverage of pre-existing conditions. A recent CHIR analysis found that short-term plans sold after the final rule went into effect had deductibles up to $25,000, and that five out of six insurers excluded coverage for outpatient prescription drugs.

A previous CBO projection of the STLDI rule’s impact found that, while expanded STLDI products will likely raise rates and deny coverage based on health status, limit benefits, and impose lifetime and annual spending limitations, the “majority” of plans will “probably” meet their definition of health insurance. The agency believes that the plans will likely resemble individual products sold prior to the ACA. However, the ACA created new standards for individual market coverage for a reason: For too many, pre-ACA coverage was inadequate, inaccessible, and unaffordable.

The Problem of Underinsurance

The ACA is often lauded for reducing the number of uninsured individuals, and indeed it did. But beyond these historic coverage gains, the ACA aimed to improve the adequacy of health insurance, to ensure that people have access to a range of essential health services and gain reasonable financial protection from the ever-rising cost of health care. Prior to the ACA, health plans could deny coverage to sick people, vary rates based on health status and gender, and exclude coverage of necessary health services (similar, as CBO has pointed out, to STLDI). Annual or lifetime dollar limits on benefits were not uncommon, and many individual market policies came with deductibles as high as $20,000. This landscape left millions uninsured, and millions more underinsured.

The Commonwealth Fund has defined underinsurance as (1) out-of-pocket expenses equal to 10 percent or more of income; (2) out-of-pocket expenses equal to 5 percent or more of income if low income (less than 200 percent of the federal poverty level); or (3) deductibles equal to 5 percent or more of income. Exposure to this level of cost sharing can be devastating to individuals and families, causing bankruptcy and forcing individuals to forgo necessary care. Before the ACA, nearly half of all adults ages 19 to 64 in the U.S. were uninsured or underinsured.

What’s “Insurance”? It May be in the Eye of the Beholder

So, what does CBO’s label of “insurance” really mean? In their recent legislative analysis and earlier projections of the final STLDI rule’s impact, CBO indicted that the majority of people enrolling in STLDI are effectively “insured.” But is that an accurate description of their status?

  • If you are one of the 133 million Americans with a pre-existing condition, you are likely to be refused an STDLI policy, or if you get one, you can forget about coverage for the care required to effectively treat that condition.
  • If you are pregnant, you will have to find another way to pay for the cost of your pre-natal care and labor and delivery (maternity care charges for a normal birth average $32,093; $51,125 for an uncomplicated C-section).
  • If you get cancer, your plan will likely not cover oncology drugs, which can cost an average of $10,000 per month.
  • If you are hospitalized, you may find yourself owing hundreds of thousands of dollars for services that are not covered by your plan.
  • If your child has asthma or allergies, you will have to pay for any complications, preventive care, or prescriptions out of pocket.

As the bills from hospitals and other providers pile up, many STLDI enrollees would likely disagree with CBO’s assessment that they are “insured.” For CBO and the members of Congress who rely on their estimates, these may only be numbers on a spreadsheet. For the individuals enrolled in these plans, the devastating financial consequences could be real and long-term.

*This content updates a previous CHIRblog  to reflect the final STLDI rule and the new CBO analysis.

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