Coverage That (Doesn’t) Count: How the Short-Term, Limited Duration Rule Could Lead to Underinsurance

Any day now, the Trump administration is expected to publish new rules that will expand access to short-term, limited duration insurance (STLDI). The proposed rule would allow STLDI plans to extend up to almost a full year, along with other changes that enable 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 services or the prohibition against denying coverage to sick people or charging them higher premiums.

Recently, the nonpartisan Congressional Budget Office (CBO) released projections of the impact of the STLDI rule. The federal agency predicted that 2 million people will enroll in STLDI plans once the rule is finalized. They also estimated that less than 500,000 of those people will end up purchasing plans that do not meet the agency’s definition of health insurance. Because CBO will use these projections when they score legislation and evaluate the impact of other policies, it is worth taking a closer look at what their definition of “health insurance” means.

How Does 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, 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, 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, a fixed indemnity product will 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, 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.”

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, the 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?

Once the STLDI rule is finalized, consumers will have broader access to plans that do not have to meet the ACA’s benefit, cost-sharing, or rating requirements. A Kaiser Family Foundation study of STLDI plans currently on the market 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. Plans that do cover some of these services were found to impose strict benefit limits, such as a $3,000 limit on prescription drug coverage, and almost all plans excluded coverage of pre-existing conditions.

The CBO’s projection of the STLDI rule’s impact asserts that, while the new 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 private health insurance. The agency notes that the plans will likely resemble individual products sold prior to the ACA. In light of this comparison, we would do well to remember why the ACA created new standards for individual market coverage in the first place.

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 the CBO 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 in the U.S. were uninsured or underinsured.

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

So, what does the CBO’s label of “insurance” really mean? When an estimated 2 million people migrate to STLDI for the cheaper premiums, the CBO asserts that the majority of them will be effectively “insured.” What will that look like?

  • 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 probably 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 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.

CBO would apparently consider people in the above situations to be “insured.” However, as the bills from hospitals and other providers start to pile up, many of these folks would likely disagree – and would come to realize they’re not really insured at all. 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.