After the Trump administration loosened the requirements for and promoted the use of non-ACA compliant short-term plans as cheaper alternatives to comprehensive health insurance, a U.S. House of Representatives Energy & Commerce Committee Report found that enrollment in these plans had increased about 27 percent, bringing the number up to at least 3 million Americans. Another 1 million people were estimated to have enrolled in health care sharing ministry plans, another kind of alternative coverage arrangement, in 2019. While some Americans might have chosen these skimpier plans based on their lower price tag, there is evidence that a number of them might have been misled into purchasing these plans. The incoming Biden administration has an opportunity to use the powers of the federal government – and specifically the Federal Trade Commission – to protect consumers from deceptive trade practices associated with these products.

State Insurance Regulators Troubled by Proliferation of Deceptive Marketing

Following a trend from the last couple of years, this year’s open enrollment season for the 2021 benefit year has once again seen consumers being bombarded by misleading and aggressive marketing of non-ACA compliant plans. Consumers face a “Wild West” of insurance products, including: (1) short-term limited duration plans, (2) health care sharing ministry plans, and (3) various combinations of limited benefit plans like fixed indemnity products, disease-specific coverage, and medical discount cards. These types of plans are cheap and generally lack several key consumer protections like coverage for pre-existing conditions, essential health benefits like maternity and mental health benefits, and caps on enrollees’ out-of-pocket costs.

Many enrollees do not know that they’re signing up for these non-ACA compliant products, thanks to misleading sales practices. As part of a covert investigation of short-term plan marketing tactics, the Government Accountability Office (GAO) reached out to 31 consumer service representatives during the open enrollment season for the 2020 benefit year and found that eight of them had engaged in deceptive marketing practices, while two others had failed to clearly explain what coverage they were offering. Studies by CHIR and the Brookings Institute have found that insurance agents and brokers are not always transparent with enrollees about what products they are selling and/or fail to provide written plan information, resulting in significant customer confusion. There are also widespread problems with online marketing. A recent study by ProPublica shows that deceptive advertisements widespread on the internet, with heavy marketing on popular platforms like Facebook and Google.

Many state insurance commissioners and attorneys general have played an active role in finding and punishing specific companies or brokers for deceptive marketing practices, but state regulators have generally found that targeting these bad faith actors is like playing “whack-a-mole” because those caught simply incorporate under another name and resume their activities. Further, there is the issue that some of these products, like fixed indemnity or short-term plans, are sold through out-of-state associations, which complicates individual states’ ability to hold these actors accountable. State-level consumer protection efforts would be far more effective if they had some help from the federal government.

The Federal Trade Commission Can Step In To Protect Consumers

The Federal Trade Commission (FTC) has broad jurisdiction over “unfair” and “deceptive” trade practices, but its authority over activities that constitute the “business of insurance” is constrained by the McCarran-Ferguson Act. However, the FTC can – and has – successfully stepped in to protect consumers from deceptive insurance marketing practices. To do so, they must satisfy a fact-specific test. First, as explained in an FTC advisory opinion, the McCarran-Ferguson Act does not broadly exempt entities like insurance companies or brokers from the FTC’s jurisdiction, but instead exempts only those activities that constitute “the business of insurance,” and even then only to the extent that such activities are regulated by state law.

In Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119, 129 (1982), the Supreme Court established a three-part factual inquiry to evaluate whether any particular activity constitutes the “business of insurance”:

• Does the activity have the effect of transferring or spreading a policyholder’s risk;
• Is the activity an integral part of the policy relationship between the insurer and the insured; and
• Is the practice limited to entities within the insurance industry?

In order to be exempt from FTC’s jurisdiction, the activity has to pass the above test and be subject to state regulation.

In the last four years, the FTC has engaged in one large public enforcement action against the deceptive marketing of health care coverage products. In 2018, the agency filed a suit against a Florida-based company, Simple Health Plans, which made at least $100 million by selling “worthless plans that left tens of thousands of people uninsured.” According to the FTC, the named defendants pretended to be affiliated with reputable insurance companies and organizations like AARP and Blue Cross Blue Shield. They also used “a network of deceptive lead generation websites that claimed to provide information about comprehensive health insurance,” but lured consumers into enrolling in medical discount or limited benefit programs instead that left them effectively uninsured. The Court temporarily halted the company’s operations while the case awaits resolution, and the FTC issued a consumer alert informing current enrollees that they are not enrolled in comprehensive health insurance and that the Federally Facilitated Marketplace will allow them to enroll in an ACA-compliant plan during a special enrollment period.

The Simple Health Plans action is just one case. Given the documented growth in the deceptive advertising of these products and the limited ability of state regulators to take action against out-of-state actors, a more active federal role is warranted. Yet a report by a consumer watchdog group found a significant drop in FTC enforcement actions under the Trump administration. The Biden administration now has an opportunity to protect consumers by ensuring the FTC has both political support and greater capacity to step up its oversight, in cooperation with state officials. Only active and concerted enforcement will ensure that those responsible for the false and misleading advertising of non-ACA-compliant health insurance products are held accountable.