On November 10, the Supreme Court heard a case challenging the Affordable Care Act (ACA), the landmark health law that led to a historically low uninsured rate in the U.S. The ACA is often touted for its coverage expansions, but the law was about coverage quality as much as it was about expanding the numbers of insured.
Prior to the ACA, the individual health insurance market was a minefield for people with pre-existing conditions – in addition to coverage denials, insurers could charge higher rates, exclude coverage of important health services, and cap benefits, leaving consumers holding the bag if they went over the maximum threshold. The ACA set the bar higher for health insurance coverage. A plan sold on the individual market today has to provide more comprehensive protection against the increasingly high costs of health care than pre-ACA plans did. The ACA fundamentally transformed health insurance, based on the understanding that decent insurance coverage is not just an option for the young and healthy, but a fundamental right for all.
But alongside the ACA’s reforms, an unregulated market has sprung up, due in no small part to federal actions expanding alternative products and encouraging their sale. Non-ACA-compliant products have been touted as a cheaper coverage option, but the lower sticker price is a result of these companies employing tactics that the ACA expressly forbids, including discriminating against sick people and failing to cover key health services. It is critical to understand the difference between these products and ACA-compliant plans; not just for consumers, who are often the targets of deceptive marketing tactics, but for policymakers seeking to improve access to comprehensive and affordable coverage. Unfortunately, these products are sometimes grouped together under the moniker of “health insurance,” painting a rosier picture of the number of “insured” than what is actually the case.
Case in Point: Short-Term Plans
In 2018, the Trump administration finalized a rule expanding the availability of short-term, limited duration insurance (STLDI), which largely does not have to comply with the ACA’s consumer protections. Recently, the nonpartisan Congressional Budget Office (CBO) determined that the majority of STLDI products sold under the new federal rules would be considered “health insurance” for the purposes of projecting the rate of coverage in the U.S. Despite a history of STLDI serving only as a way to fill gaps in coverage, rather than providing comprehensive major medical insurance, the CBO predicted that most people covered by STLDI after the new regulations took affect would be enrolled in a plan that looks like typical individual coverage sold before the ACA’s major reforms went into effect in 2014. Such coverage, the CBO contends, falls under the agency’s definition of “health insurance.”
Given what we know about STLDI, including its significant coverage gaps, such as exclusions for pre-existing conditions and prescription drugs; the extraordinarily high out-of-pocket costs that STLDI enrollees have incurred after undergoing needed medical treatment for conditions such as a heart attack or pneumonia; and evidence that the five largest issuers of STLDI in 2018 spent on average less than 40 percent of premiums on paying out claims; how is it that the CBO considers those consumers enrolled in STLDI “insured”? The problem lies in the fact that CBO hasn’t updated its definition of health insurance to sufficiently reflect the post-ACA market and consumers’ expectations of what coverage should be. We’ve looked at the CBO’s definition of health insurance before, but given a recent letter it sent to senators, where the agency doubled down on its assertion that STLDI constitutes insurance, it’s worth taking another look:
How Does the CBO Define Health Insurance?
The 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, the CBO must determine what it means to be “insured” in a world where insurance and insurance-like products come in a variety of shapes and sizes. An ACA-compliant plan, for example, must accept all applicants regardless of health status, limit the amount of cost-sharing imposed on an enrollee, and cannot set annual or lifetime dollar limits on key benefits. At the other end of the spectrum, insurers selling a “fixed indemnity product” can deny policies to people with health issues and pays 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, the 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.” It describes its evaluation of products like STLDI in terms of whether the coverage arrangement offers enrollees financial protection against “high-cost, low-probability events.”
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, the 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, they’ll also consider changes in regulations that allow for the sale of more non-ACA-compliant plans.
Health Insurance Has Changed, and That’s a Good Thing
The CBO’s definition of health insurance is rooted in the days of old, before the ACA set new, minimum federal standards. As the agency recently pointed out in its letter defending the inclusion of STLDI in the CBO’s definition of health insurance, prior to the ACA, insurers would routinely deny coverage to people with pre-existing conditions, charge them higher rates, impose waiting periods, or exclude coverage of claims for pre-existing conditions; policies sold under these conditions are considered health insurance, according to the CBO’s definition, “to those who were able to get through the underwriting process.”
The ACA outlawed these practices in the individual market. Plans are now required to cover pre-existing conditions, and insurers cannot deny people coverage or charge them higher rates due to health status. Today, 10 years after the ACA was enacted, lawmakers and the public hold insurance to a higher standard; members of Congress belonging to both parties have express the need to protect people with pre-existing conditions (even if they can’t agree on just how to do that), and public opinion overwhelmingly opposes a repeal of the ACA’s protections. In short, pre-ACA individual market coverage no longer makes the grade.
What is the Impact of the CBO’s Definition of Health Insurance?
The question of how to define health insurance is not an issue of semantics – the CBO’s definition of health insurance figures into their assessments when they evaluate the impact of a bill or project the insured rate ten years down the line, calculations that allow policymakers to make data-driven decisions when they craft, debate and implement health insurance reforms.
This fall the CBO, along with the staff of the Joint Committee on Taxation, published projections of federal spending on health insurance subsidies, based on the number of people estimated to be covered by different types of health plans. The projections indicate that enrollment in the non-group market – one of the markets most affected by the ACA’s reforms – will remain relatively stable, covering roughly 16 million people per year. However, estimates within non-group coverage illustrate a shift from coverage purchased through the marketplaces to coverage purchased outside the marketplaces; baked into this assumption is the CBO’s projection that the majority of STLDI expanded under the Trump administration will be considered “health insurance.” Put another way, the CBO projects a similar number of people will be “insured” over the next decade, despite its estimation that more than a million consumers may shift from either being uninsured or being enrolled in an ACA-compliant plan to STLDI. In this regard, the definition of health insurance papers over the many gaps, discriminatory practices and potentially exorbitant out-of-pocket costs these “insured” consumers may face when enrolled in STLDI.