In February, the Trump Administration issued a proposed rule that aims to expand the availability of short-term, limited duration insurance (STLDI) by relaxing federal restrictions put in place by the Obama Administration. Short-term plans were originally designed to provide consumers a “bridge” as they transitioned between comprehensive coverage, for instance, for those changing jobs or for students taking a semester off. Because the plans were meant to fill only temporary gaps in coverage, they are not considered individual health insurance under federal law and, therefore, do not have to comply with the Affordable Care Act’s (ACA) consumer protections. For example, insurers selling STLDI can deny enrollment to individuals with preexisting conditions and exclude from coverage the services needed to treat those conditions, including essential health benefits like prescription drugs and maternity care. Unlike ACA-compliant policies, short-term plans are not subject to the medical loss ratio or risk adjustment, so insurers are not obligated to spend a certain amount of premium dollars on medical care, and they have no incentive to cover individuals with high-cost conditions.
The Obama Administration limited the length of these policies to three months to ensure they were used to fill only a “short-term” gap. Under the Trump Administration’s proposed rule, this three-month restriction would be eliminated and short-term plans would be allowed to last for 364 days—closely mimicking the length of ACA-compliant plans (365 days). The rule then considers allowing insurers to renew short-term coverage at the end of the period, effectively making them permanent coverage. For more detail on the proposed rule, please read our brief here.
The Departments of Labor, Health and Human Services, and Treasury received over 9,000 comments on the proposed rule. To understand reactions to the proposal, CHIR reviewed a sample of comments from stakeholders, including consumer advocates, insurers and brokers selling STLDI, and state officials. The first blog in this series summarized responses from seven consumer and patient advocacy organizations. In this second blog, we highlight comments from nine major medical insurers and associations, including:
The Majority of Insurers Opposed a 364-Day Extension, Citing Risks to the Individual Market
Of the nine comments reviewed, seven insurers vehemently disagreed with extending the length of STLDI (AHIP, ACAP, BCBSA, Centene, Cigna, Kaiser, UPMC). Insurers noted that “by definition” 365 days is not “short-term” (ACAP) and prolonging the policies would threaten the stability of the individual market. BCBSA explained that short-term policies tend to be cheaper than ACA-compliant coverage, and when sold side-by-side, short-term carriers would be able to “cherry pick” healthy consumers. BCBSA feared this would create “two systems of insurance”: one for healthy individuals who are not eligible for the ACA’s subsidies and opt for cheaper short-term policies, and one for consumers who have a preexisting or ongoing medical condition and rely on comprehensive ACA coverage. Ultimately, the seven insurers agreed that such a scheme would result in serious adverse selection with short-term carriers being able to “recruit healthier consumers” (Centene), leading to higher premiums and reduced insurer participation in the individual market (Cigna). Rather than achieving its goal of enhancing consumer choice, Kaiser noted that the proposed rule would actually lead to fewer choices for most consumers.
While the majority of insurers urged the agencies to maintain the three-month restriction, some insurers were open to extending the policies to six months. For example, AHIP explained that there may be times when a consumer needs more than three months of temporary coverage, like when an employer requires a new employee to complete 90 days of work before being eligible for employer-sponsored coverage. For individuals that have even a week gap between leaving one job and starting the next, STLDI may be a good solution as they count down the 90-day waiting period. UPMC agreed that a six-month extension would provide sufficient flexibility for consumers, while reducing adverse market effects.
In contrast, two insurers—Aetna and UnitedHealth—did not oppose the 364-day extension. Aetna argued that consumers need more affordable options than ACA-compliant plans and that STLDI may be a viable option, with some caveats. For example, Aetna argued that STLDI should have a limited “look back” period for pre-existing conditions, meaning carriers should not be able to deny claims for current care based on conditions that occurred more than a year prior to enrollment. It also urged the agencies to set a minimum floor of basic coverage that STLDI must provide, such as physician, in-patient hospital, and mental health and substance use disorder services. UnitedHealth stood alone in supporting the proposed 364-day duration. The insurer reasoned that the current 3-month limit exposes consumers to gaps in coverage, such as when a consumer misses the open enrollment period for marketplace coverage. These insurers did not share their competitors’ concerns of market stability and adverse selection, likely because Aetna has completely exited the ACA marketplaces and UnitedHealth maintains only a minimal presence.
The Majority of Insurers Rejected Short-Term Renewability & Streamlined Reapplications
In the proposed rule, the Departments state that they are open to allowing STLDI to be renewed beyond 12 months when both the insurer and policyholder wish to continue coverage, and they called for comments on how to streamline such a process. The same insurers that opposed a 364-day extension also rejected short-term renewability beyond the maximum duration, citing concerns with risk mix and consumer confusion (AHIP, ACAP, BCBSA, Centene, Cigna, Kaiser). Several insurers noted that the ability to renew essentially eliminates any duration limits imposed on STLDI, and they resisted implementation of a reapplication process, “much less a streamlined process” (ACAP). BCBSA argued that allowing renewability would “be ignoring the plain language of the statute,” regarding what counts as “short-term,” and could lead a court to find such rulemaking to be arbitrary and capricious. Centene cautioned that renewability could create risks for consumers, as they may need to reapply for coverage and could then be denied at the point of renewal. If consumers were denied STLDI and were also outside of marketplace open enrollment, Centene worried consumers would be “surprised” to find they have no health coverage options.
Here again, UnitedHealth broke from the pack, supporting the renewability of STLDI, but arguing that STLDI should not be subject to guaranteed renewability requirements, which would require the insurer to renew the policy without regard to the enrollee’s claims history. Rather, the insurer warned that if insurers are made to comply with guaranteed renewability, they will likely increase their levels of underwriting and deny more people coverage, and “certain populations—such as older individuals—could find it more difficult to purchase STLDI than they do now.” UnitedHealth also expressed concern that this approach would bring STLDI premiums in line with exchange premiums; such alignment could diminish the company’s hope to profit from expanded sales of STLDI.
Insurers Supported the Proposed Notice & Disclosure Requirement, But Called for Stronger Language
The agencies proposed that short-term contracts and application materials include notice and disclosure clauses stating that STLDI does not comply with ACA requirements, including that it is not minimum essential coverage and has service limitations. Insurers supported the disclosures, but mostly asked that additional language be included to reduce consumer confusion. For example, AHIP asked that the disclosures make clear that STLDI is not required to offer the same cost sharing limits as ACA-compliant policies, and suggested that policy documents outline the distinctions between individual plans, HIPAA excepted benefit products, and STLDI. Several insurers specifically asked that disclosures be required to explicitly note that essential health benefits are not covered. ACAP and BCBSA added that such disclosures should also be required in marketing materials. Overall, insurers agreed that notice and disclosure requirements are needed, but felt that the proposed statement was too general and failed to capture the meaningful differences between STLDI and major medical coverage.
Deference to State Regulation & Oversight Remains a Top Concern
Noting that state regulators are well positioned to protect their insurance markets, half of the insurers urged the Departments to clarify that the proposed rule does not “displace” traditional state regulation and oversight (Kaiser). The insurers asked that the final rule affirm that STLDI is not excluded from state regulation or filing requirements (UPMC), and that the rule is not intended to preempt state authority regarding required disclosures or benefit designs (Kaiser). AHIP and BCBSA also urged HHS to encourage states to review their regulations of short-term plans, and reminded states that STLDI may also be sold through group trusts or associations. Such products are often not included in state and national counts of STLDI enrollment, making it difficult for regulators to track and truly understand the impact of STLDI on their markets.
Take Away: Major medical insurers and associations largely opposed the STLDI proposed rule, expressing significant concern with extending short-term policies to 364 days, with the potential for renewal. Aside from UnitedHealth, which is eager to sell more short-term policies, the other insurers agreed that the proposal would undermine the individual market by tempting healthier consumers to leave the marketplaces on the promise of low-premium STLDI. Insurers noted that the Departments “significantly underestimat[e]” the impact of this policy (BCBSA) and warned that it will only result in increased costs and reduced choices in the individual market.
A Note on our Methodology
This blog is intended to provide a summary of some of the comments submitted by a specific stakeholder group: major medical insurers and associations. Comments were selected to provide a range of perspectives, including small and large, for-profit and nonprofit insurers and associations that market across the country. This is not intended to be a comprehensive report of all comments from major medical insurers on every element in the short-term, limited duration insurance proposed rule. Future posts in this blog series will summarize comments from carriers and brokers selling short-term plans, and state-based marketplaces and state insurance regulators. For more stakeholder comments, visit http://regulations.gov.