Stakeholders Respond to the Proposed Short-term, Limited Duration Insurance Rule. Part III: State Insurance Departments and Marketplaces

In February, the Trump administration published a proposed rule 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 are not considered health insurance under federal law. As a result, they do not have to comply with the Affordable Care Act’s (ACA) consumer protections. For example, insurers selling STLDI can deny enrollment to people with pre-existing conditions and exclude from coverage essential health benefits like prescription drugs, maternity, and mental health treatment services. Also, unlike ACA-compliant policies, short-term plans are not subject to the medical loss ratio or risk adjustment, so they 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 duration of these policies to three months, with the goal of limiting their ability to siphon healthy people away from the ACA’s health insurance marketplaces. They also sought a federal definition that more appropriately reflects STLDI’s purpose, which has traditionally been to fill temporary gaps in coverage. Under the Trump administration’s proposed rule, short-term plans would be allowed to extend for up to 364 days – mimicking the length of ACA-compliant policies and enabling insurers to market them as alternatives to traditional health insurance. For more detail on the proposed rule, please read our issue brief here.

The Departments of Labor, Health & Human Services and Treasury received over 9,000 comments on the proposed rule. According to a recent Los Angeles Times analysis, among health care stakeholders who commented, 98 percent criticized the proposal, with many noting the potential harm to patients and people with pre-existing conditions. For CHIR’s analyses, in addition to reviewing comments from health care stakeholders such as consumer and patient groups and major medical insurers, we also reviewed comments from insurers and brokers that sell STLDI.

In this third blog in our series, we review comments from department of insurance (DOI) and marketplace officials. Fifteen states and the District of Columbia submitted comments on the proposed rule (Minnesota’s DOI and marketplace sent separate letters). The National Association of Insurance Commissioners (NAIC), which represents state insurance departments nationwide, also submitted feedback. Of these comments, 12 were generally critical of the proposed rule, while five states and the NAIC were generally supportive.

States that commented were:

Alaska DOI

Arkansas DOI

California Marketplace

Colorado Marketplace

District of Columbia Marketplace

Iowa DOI

Massachusetts DOI and Marketplace

Minnesota DOI

Minnesota Marketplace

Montana DOI

National Association of Insurance Commissioners (NAIC)

Nevada Marketplace

New Mexico DOI

New Jersey DOI

New York DOI

Pennsylvania DOI

Oregon DOI

Washington DOI

Broad Support for State Authority to Regulate STLDI

Although our sample of state comments reflected diverse views on the merits of the proposed rule, they all supported continued autonomy to regulate STLDI as each state sees fit. For example, states such as New Jersey, New York, Massachusetts, Washington, and Oregon all sought to preserve their ability to prohibit or limit the duration of STLDI.

Alaska, Arkansas, Montana, Iowa, and the NAIC, which generally supported the proposed rule, also urged the administration to maintain states’ flexibility, particularly with respect to the sale, design, rating, and renewability of STLDI. New Mexico’s insurance commissioner, whose letter expressed concerns about short-term products, nonetheless supported the proposed rule, arguing: “it should be our responsibility rather than the federal government’s to assess the impact of these plans on New Mexico’s consumers and markets and to regulate accordingly.”

States are Split on Extending the Duration of STLDI

As noted above, Alaska, Arkansas, Montana, New Mexico, Iowa and the NAIC submitted comments that were generally supportive of the proposal to extend STLDI to 364 days. The NAIC noted that such a move was consistent with prior federal law and also aligned with the definition of STLDI that exists in most states. Arkansas, Montana, Iowa, and Alaska all embraced the proposed extension of STLDI as a way to expand consumers’ choices, with Alaska noting that the Obama-era policy was “unnecessarily restrictive” and Montana asserting that the proposed rule would “enhance options” for consumers.

In contrast, the proposal was panned in the comments from Oregon, D.C., Minnesota, California, Colorado, Nevada, New York, Pennsylvania, Washington, Massachusetts, and New Jersey. A primary concern for these states is that extending the duration of STLDI would “segment the ACA’s single risk pool” (Oregon), increase premiums for Marketplace plans (Nevada), “harm consumers” (Washington), result in an “adverse selection ‘death spiral’” (New Jersey), and cause insurers to compete on risk selection instead of price and quality (California). New York further pointed out that “there is nothing short-term about a policy that lasts 364 days,” while Minnesota recommended that STLDI contract duration be set at no more than 6 months.

Washington’s insurance commissioner argued that STLDI lasting up to one year that is potentially renewable would create a “shadow health insurance market for healthy consumers,” going on to predict that premiums would “skyrocket for Washingtonians with chronic health conditions who need comprehensive, guaranteed issue coverage….” The D.C. marketplace commissioned an actuarial study that found that its individual market claims costs would increase by as much as 21.4 percent as a result of the proposed rule.

States Had Differing Views on Renewability but Generally Did Not Support a Federal Standard

The proposed rule would allow STLDI to be renewed upon reapplication by the policyholder and with the consent of the insurer. State commentators urged the Departments to leave decisions about the renewability of these policies to the states. NAIC’s letter argued that “any decision over whether and when these plans should be renewable should be left up to the States, not dictated by the Federal government.”

However, states had differing views about the benefits and risks of renewability. For example, Iowa’s insurance commissioner expressed his belief that STLDI should be guaranteed renewable (i.e., renewable by the policyholder without the insurer’s consent), in order to more closely match consumers’ experience with traditional health insurance. Iowa’s letter argues that this could enable some consumers who develop a health issue while enrolled in STLDI to maintain their coverage until the next open enrollment period for Marketplace coverage.

Conversely, Arkansas’ commissioner expressed strong concerns about allowing STLDI to be renewable, noting that doing so would make them “de facto annual health insurance policies.” He went on to note that renewability would “fundamentally alter the role of STLDI plans in state insurance markets and could result in adverse selection issues.”

States Strongly Support Consumer Disclosure Requirements

Several states noted that STLDI is a frequent source of consumer complaints, as many people sign up for the plans without realizing they are not comprehensive health insurance. NAIC and Minnesota for example noted that consumers are often confused and misinformed regarding STLDI, and Arkansas’ DOI has conducted investigations of a number of STLDI carriers that were fraudulently advertising plans to consumers as “Obamacare-compliant” or “ACA-compliant.” In the last two years, Pennsylvania’s DOI has suspended the licenses of 8 insurance brokers who misrepresented the coverage offered under STLDI.

While state commentators generally supported disclosure requirements, several felt that the federally proposed disclosures should go further. Colorado, for example, described the proposed disclosures as overly “vague.” Several states are concerned that consumers are often misled into thinking STLDI is similar to comprehensive major medical insurance, even with the required disclosures. To better educate consumers, Pennsylvania and D.C. suggested that STLD insurers be subjected to greater transparency requirements, such as offering consumers a Summary of Benefits and Coverage (SBC) that would enable the comparison of short-term plan benefits to a comprehensive health insurance product. California recommended that the federal disclosures include “understandable cost scenarios that illustrate how certain conditions” such as a cardiac event or cancer, would be covered.

A Few States Requested Clarification of Whether ACA Section 1557 Would Apply to STLDI

Section 1557 of the ACA prohibits insurers that participate in federal health programs from discriminating against applicants or enrollees on the basis of race, color, national origin, sex, age, or disability. Some experts have argued that Section 1557 effectively prevents insurers that participate in Medicare, Medicaid, or the ACA’s marketplaces from also offering STLDI, because the underwriting conducted by these plans is, by its very nature, discriminatory.

Comments from the NAIC, Montana, Alaska and Iowa asked the Departments to clarify whether issuers of STLDI policies would be exempted from the nondiscrimination standards in Section 1557, arguing that failing to do so would prevent many “traditional and established” health plans from offering these products. For example, Iowa’s comment letter states: “Without clarification on this issue, we fear that reputable carriers who currently offer ACA-compliant products will not be able to participate in the [STLDI] market. Instead, we will see carriers enter the Marketplace who have no connection with our state or communities, and who see limited value in maintaining and stabilizing our entire health insurance market.”

A Call for a Later Effective Date for New STLDI Rules

Although the proposed rule suggests that new standards for STLDI could be in place as early as 60 days after publication of the final rule, several states and the NAIC have asked the Departments to delay implementation to 2020, arguing that they need time to “modify existing laws and regulations to protect consumers and state markets.” A 2020 effective date would allow states to “assess the impact” of the final rules on their markets and take regulatory or legislative action if needed. Iowa’s insurance commissioner, on the other hand, urged a 2019 effective date, “given the collapse of our individual market.”

Take Away

The commenting states were split between whether extending the duration of STLDI is good or bad for consumers and the insurance markets as a whole. Perhaps not surprisingly, those with state-based marketplaces or led by Democratic governors were more critical of the rule than states with leadership that has historically opposed the ACA. Several DOIs from those states argued that STLDI could be a viable, affordable alternative to ACA-compliant coverage.

On the other hand, most of the commenting states appear to share the Washington commissioner’s sentiment that: “While the proposed rule could increase affordability for younger and healthier consumers, I do not support doing so at the cost of decreasing affordability for older and sicker Washingtonians.”

A Note on Our Methodology

This blog is intended to provide a summary of comments submitted by a specific stakeholder group: state officials. Comments were selected to provide a range of perspectives. This is not intended to be a comprehensive report of all comments from all states on every element in the short-term, limited duration insurance proposed rule. For example, many states may not have submitted their own comments because they relied on the NAIC to express their views. The final post in this blog series will summarize comments from carriers and brokers selling short-term plans. For more stakeholder comments, visit http://regulations.gov.

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