{"id":7318,"date":"2023-07-17T11:07:36","date_gmt":"2023-07-17T15:07:36","guid":{"rendered":"https:\/\/chirblog.org\/?p=7318"},"modified":"2023-07-17T11:44:20","modified_gmt":"2023-07-17T15:44:20","slug":"administration-takes-action-to-limit-junk-health-insurance","status":"publish","type":"post","link":"https:\/\/chirblog.org\/administration-takes-action-to-limit-junk-health-insurance\/","title":{"rendered":"Administration Takes Action To Limit Junk Health Insurance"},"content":{"rendered":"\n

On July 7, 2023, the Departments of Health & Human Services (HHS), Labor, and Treasury (collectively the \u201ctri-agencies\u201d) published a proposal<\/a> to alter federal regulation of short-term, limited duration health insurance (STLDI) and \u201chospital and fixed indemnity\u201d insurance; both of these insurance products are largely exempt from federal and many state-level consumer protections. The proposed rule would effectively reverse a 2018 tri-agency rule<\/a> designed to expand the marketing and sale of STLDI to consumers.<\/p>\n\n\n\n

The administration also seeks public comment on the impact of other health insurance products and arrangements, namely specified-disease coverage, such as cancer-only or diabetes-only policies, and level-funded<\/a> health plans. The proposed policies were prompted by President Biden\u2019s April 5, 2022 Executive Order<\/a> directing federal agencies to consider polices or practices that make it easier for consumers to enroll in and retain coverage, understand their coverage options, and protect consumers from low-quality coverage. Comments on these proposals are due 60 days after their publication in the Federal Register.<\/p>\n\n\n\n

Changes To Short-Term, Limited Duration Insurance-\u2013Regulatory Background<\/h2>\n\n\n\n

Federal law explicitly excludes from the definition of \u201cindividual health insurance coverage\u201d short-term, limited duration insurance. As a result, most federal standards and rules that apply to individual health insurance, such as those under the Health Insurance Portability and Accountability Act (HIPAA), the Affordable Care Act (ACA), the Mental Health Parity and Addiction Equity Act (MHPAEA), and the No Surprises Act (NSA), do not apply to short-term plans. However, the federal statute does not define what short-term, limited duration insurance means. Rules promulgated by the U.S. Department of Health & Human Services in 2004 defined STLDI to be: \u201cHealth insurance coverage\u2026that is less than 12 months after the original effective date of the contract.\u201d<\/p>\n\n\n\n

At that time, STLDI was generally used by consumers to fill brief gaps in their health insurance coverage, such as when a college student must disenroll from their student health plan over the summer months, or a newly hired employee must wait until the end of a probationary period to enroll in their employer\u2019s health plan. However, after enactment of the ACA\u2019s individual market reforms, some STLDI issuers began marketing their plans to consumers for up to 364 days<\/a>, just shy of 12 months. They could offer these policies more cheaply than ACA individual market plans because, unlike ACA-compliant plans, STLDI issuers can deny policies to people with pre-existing conditions, set caps on benefits, and exclude from coverage critical benefits such as prescription drugs, maternity services, and mental health care. Many consumers purchased these policies in the mistaken belief that they provided comprehensive coverage, when in fact many of these plans covered only a fraction of their care if they got sick.<\/p>\n\n\n\n

In response to these concerns, the tri-agencies issued an updated definition<\/a> of STLDI in 2016. The new definition specified that the maximum coverage period for STLDI must be less than 3 months. The rules also required STLDI issuers to prominently display a disclosure to consumers stating that the coverage was not \u201cminimum essential coverage\u201d under the ACA, and that they could face a tax penalty under that law for failing to maintain health coverage.<\/p>\n\n\n\n

However, in 2017, shortly after Congress failed to repeal the ACA, President Trump issued an Executive Order<\/a> directing the federal government to expand access to short-term plans. In response to that directive, the tri-agencies in 2018 published a new definition<\/a> of STLDI. Under those regulations, STLDI is defined as having an initial contract term of less than 12 months, and inclusive of renewals or extensions, having a duration of no longer than 36 months. These regulations also revised the language of the consumer disclosure to state that the coverage does not comply with ACA federal requirements, and to urge consumers to check their policy carefully for exclusions and limitations.<\/p>\n\n\n\n

There is evidence that the longer duration of STLDI under the 2018 regulations has increased the number of people enrolled in this form of coverage. The National Association of Insurance Commissioners (NAIC) has collected data<\/a> suggesting that the number of individuals in STLDI plans more than doubled between 2018 and 2019, from approximately 87,000 to 188,000. However, this is likely an undercount of the total number of people enrolled in STLDI because these data do not include enrollment in STLDI sold through associations. The Congressional Budget Office (CBO) and Joint Committee on Taxation have estimated<\/a> that 1.5 million people could currently be enrolled in STLDI, although this projection was made before Congress passed enhanced premium tax credits for Marketplace coverage in 2021.<\/p>\n\n\n\n

The Case For Revisiting The STLDI Definition: Risks For Consumers, Insurance Markets<\/h2>\n\n\n\n

The tri-agencies are proposing to change the definition of STLDI to help consumers more clearly distinguish between a short-term policy and comprehensive, ACA-compliant plans. They also seek to protect the individual market risk pool from adverse selection and keep premiums stable.<\/p>\n\n\n\n

Risks For Consumers<\/h3>\n\n\n\n

Numerous recent studies have documented deceptive STLDI marketing<\/a> practices that steer consumers seeking comprehensive insurance to STLDI products. Marketing materials often do not fully disclose that STLDI products do not cover pre-existing conditions or essential benefits, or pay only a fraction of the actual cost of medical services, leaving policyholders at significant financial risk if they get sick or injured. One study<\/a> of the medical claims of 47 million plan enrollees found that the implied actuarial value<\/a> of STLDI is 49 percent, compared to the 87 percent implied average actuarial value of a Marketplace plan. This means that STLDI issuers are, on average, covering only 49 percent of their enrollees\u2019 medical costs. While this is likely highly profitable for the STLDI companies, their enrollees may not realize that the financial protection they were promised is largely illusory.<\/p>\n\n\n\n

At the same time, the U.S. Government Accountability Office<\/a> (GAO) and other researchers have found that many insurance agents and brokers have strong financial incentives to sell consumers STLDI instead of an ACA-compliant policy. One study found<\/a> that brokers\u2019 commissions for selling STLDI are up to 10 times higher than their commissions for selling an individual health insurance policy (averaging 23 percent for STLDI and only 2 percent for an ACA-compliant individual market policy).<\/p>\n\n\n\n

In their proposed rule, the tri-agencies note that the 2018 extension of STLDI to 12 months (and renewable up to 36 months) appears to be contributing to consumer confusion and increasing the likelihood that people unknowingly purchase STLDI when they actually need and want comprehensive coverage. This risk has become an even greater concern as states disenroll millions from Medicaid<\/a>, many of whom will need to seek another coverage option in the commercial insurance market.<\/p>\n\n\n\n

Risk Pool Issues<\/h3>\n\n\n\n

Because STLDI issuers can deny coverage to people with pre-existing conditions and cap benefits, they tend to enroll people with a relatively low risk of needing medical care, compared to those in ACA-compliant plans. The tri-agencies note that after the 2018 rule lengthened the duration of STLDI, studies<\/a> found that healthier individuals did indeed gravitate to these products, leaving a less-healthy population in the individual market risk pool. This contributed to an increase in individual market premiums in 2020.<\/p>\n\n\n\n

Proposed Changes To STLDI<\/h2>\n\n\n\n

The administration is proposing to interpret \u201cshort-term\u201d to mean a contract term of no more than 3 months. The term \u201climited duration\u201d would be interpreted to mean that the maximum permitted duration for STLDI is no more than 4 months in total, inclusive of any renewals or extensions. However, the duration limit on STLDI applies to policies issued by the same issuer. Once their STLDI policy terminates, consumers could purchase another STLDI policy from a different issuer.<\/p>\n\n\n\n

The tri-agencies also propose to update the disclosures that STLDI issuers must provide to consumers. Issuers would be required to prominently display the notice in at least 14-point font, on both marketing and application materials, including on websites that advertise to enroll consumers in STLDI. The proposed new disclosure language would say:<\/p>\n\n\n\n

\n

IMPORTANT:<\/strong> This is short-term, limited-duration insurance. This is temporary insurance. It isn\u2019t comprehensive health insurance.<\/strong> Review your policy carefully to make sure you understand what is covered and any limitations on coverage.<\/p>\n\n\n\n