The White House recently released a list of demands it is making in congressional negotiations over an Affordable Care Act (ACA) stabilization package. Among them is legislation that would clarify that insurers selling short-term limited duration insurance (STLDI) “may offer renewals of that coverage to individuals without those individuals going through health underwriting.” The next day, Secretary Azar told reporters: “We would like to be able to do renewability of these plans, because we think they’re low-cost options.”
As CHIRblog readers know, the administration has published a proposed rule that would extend the allowable contract duration of STLDI to up to 12 months, renewable at the option of the insurer. The administration has also asked for public comment on how to make it easier for a consumer to keep his or her short-term policy for longer than 12 months, such as through an expedited reapplication process.
Now, a new bill introduced by Senator Barrasso would codify the proposed rule but also require STLDI to be guaranteed renewable, at the option of the consumer. Aside from the semantic silliness of calling something a “short-term limited duration” plan when it can be indefinitely extended, what would a “guaranteed renewable” short-term plan mean for consumers, and for the stability of health insurance markets?
What does guaranteed renewal mean?
Before Congress enacted the Health Insurance Portability and Accountability Act (HIPAA) in 1996, insurers in some states would refuse to renew a health insurance policy because of the amount of health care the enrollee had used the previous year. HIPAA stopped that practice, requiring insurers to renew individual policies except in certain limited conditions (i.e., the entire product line is discontinued, or the enrollee doesn’t pay premiums or moves outside the plan’s service area). The HIPAA guaranteed renewability protection applies to health insurance issuers, and explicitly does not include issuers of STLDI.
Risks to consumers
On the surface, requiring STLDI to be “guaranteed renewable” sounds like it could protect consumers who want to keep their short-term coverage even if they get sick. But the right to renew by itself isn’t much of a protection. Guaranteed renewability does not mean guaranteed premiums or even guaranteed benefits. Unlike ACA-compliant plans, STLDI can charge consumers a higher premium based on their health risk. So a consumer who’s healthy when they first sign up for a short-term plan but later gets a diagnosis of cancer could be subject to a dramatic premium increase when they try to renew their policy.
Similarly, unlike ACA-compliant plans, STLDI doesn’t have to cover a guaranteed set of essential health benefits. So that cancer patient could find that his or her oncology treatments aren’t covered, or that their hospitalization benefit is capped at a low dollar amount, leaving them with thousands of dollars in out-of-pocket costs. Additionally, unlike ACA-compliant plans, STLDI isn’t subject to the ban on policy rescissions, a particularly egregious practice pre-ACA in which the insurer would comb through an enrollee’s medical records and retroactively cancel the policy if they identified any undisclosed pre-existing conditions, even if the consumer didn’t know they had the problem. Reports suggest that STLD insurers are particularly aggressive in this area, and nothing in the HHS rule or the Barrasso bill would limit rescissions for these products.
Risks to markets
The White House and Secretary Azar are interested in guaranteed renewability of STLDI because it will make these products appear more akin to traditional health insurance, and thus more marketable to consumers. Because these plans are allowed to refuse coverage to people with pre-existing conditions, they are only accessible to healthy individuals, many of whom are currently enrolled in ACA-compliant coverage.
The Urban Institute has estimated that the effect of the administration’s short-term plan rule alone would reduce enrollment in ACA-compliant plans by 19 percent. When combined with the repeal of the individual mandate penalty, cuts to marketplace advertising budgets, and the expansion of association health plans for the self-employed, ACA-compliant plan enrollment could decline by as much as 43 percent. But the Urban Institute acknowledges that the migration to STLDI could be even greater if companies aggressively market these products. They may be more inclined to do so if they walk and talk more like traditional health insurance, but are exempt from the ACA’s patient protections and underwriting limits.
While Congress failed to repeal the ACA in 2017, the administration has implemented a range of regulatory and operational tactics to effectively kill the law. This latest push to make short-term plans a long-term insurance option is a core part of that strategy.