By Sabrina Corlette and JoAnn Volk

The broker called JoAnn’s cell phone just as she was trying to leave the office for the day. But when she heard the pitch, she couldn’t resist staying on the line and finding out just what, exactly, this guy was selling. He was calling from the “National Health Enrollment Center” and he wanted JoAnn to buy a short-term health plan, available from up to 37 different insurance companies.

“Wow,” JoAnn said, playing dumb. “Is this like an ‘Obamacare’ plan? I won’t have to pay a tax penalty for not having insurance?”

“Don’t worry about that,” he said, “You won’t have to pay a penalty – there are ways not to be fined.”

“This is a bridge plan, for month-to-month coverage.” he said, “Since you can’t sign up for an Obamacare plan until November. This will get you covered when you’ve just lost your job-based insurance, or COBRA, or moved to a new area.”

All of these events of course would trigger a special enrollment period (SEP) for an ACA-compliant, “Obamacare” plan.

But JoAnn, again playing the innocent, just asked about the benefits under the plan. No, it did not cover maternity services, pediatric dental benefits or mental health, all services “above what you need,” the broker told her. After covering 4 annual doctors’ visits, the plan would only cover 30 percent of any additional visits.

“Gee,” JoAnn said, “this sounds really interesting, but I’m not sure I totally understand how the benefits work. Do you have a description you could send me in writing?”

“I’m sorry,” the broker told her, “Obamacare prohibits me from sending you anything in writing.”

Uh huh. It’s not surprising that the National Health Enrollment Center has been the subject of hundreds of consumer complaints to the Better Business Bureau. And why JoAnn will be filing a complaint of her own.

Unfortunately, these days it’s hard to find any insurance company marketing ACA-compliant policies to people going through the life changes that would qualify them for a SEP. But insurers and their brokers can’t seem to get enough of these short-term policies – you can’t swing a stick without bumping into an advertisement for one. Just google “find health insurance” or visit http://obamacarefacts.com/ to see for yourself.

Obama Administration cracks down on short-term policies

JoAnn was savvy enough not to fall for the shady sales pitch. But what about consumers who don’t spend their every working hour studying health insurance and how it’s regulated? Who helps protect them? Thankfully, the Obama administration has now taken some steps to do so.

The proposed rule just published by the Obama Administration would, if finalized, make it less appealing for insurers and their brokers to continue to flog these policies. First, the proposed rule would require that short-term policies be just that – short term. Specifically, insurers could only issue short-term policies for up to 3 months, and they could not be renewed. In addition, insurers would be required to provide a prominent notice that the short-term policy is not health insurance and that the consumer might have to pay the tax penalty for failing to maintain coverage.

Why is this proposed rule necessary?

As noted in our previous blog posts (here and here), short-term policies are not regulated by the ACA, and don’t need to comply with federal prohibitions on pre-existing condition discrimination, out-of-pocket cost protections, or requirements to cover a minimum set of benefits. Consumers can enroll in them outside of the ACA’s annual open enrollment period, so long as they are healthy enough to pass the plan’s medical underwriting.

In marketing these policies, insurers and brokers often tout the fact that they are substantially cheaper than ACA-compliant policies. This is for two primary reasons. First, insurers can deny these policies to people with pre-existing conditions. If your only enrollees are healthy people who don’t generate many medical bills, you can charge a low premium. Second, these policies often carve out certain benefits, such as mental health and maternity. They can also cap benefits. So the coverage itself is skimpier than an ACA-compliant plan. As a result, even though the consumers that buy these plans must pay a tax penalty for not maintaining insurance, they still may end up paying less than if they bought an ACA-compliant plan.

In its proposed rule, the Administration acknowledges that, before the ACA, short-term policies were an important means for some people to obtain health coverage when between jobs or during other life transitions. However, in the wake of the ACA’s insurance reforms, comprehensive health plans are guaranteed available to people in the individual market. And SEPs enable people going through life changes, such as the loss of a job, a move, or marriage, to buy a plan outside of the annual enrollment period. So short-term coverage is no longer one of the only ways for people to get transitional coverage.

The Administration finds that, post-ACA, insurers have stretched the short-term policy definition beyond recognition. Many people are not only purchasing short-term plans as their primary source of coverage, but some insurers are providing these plans for longer than 12 months. As the proposed rule states, “…some issuers are taking liberty with the current definition of short-term, limited duration insurance either by automatically renewing such policies” or having a simplified renewal process, so that the effect is that the coverage lasts for longer than 12 months.

Requiring short-term policies to be limited to 3 months and be non-renewable won’t eliminate them. They’ll still exist, but they’ll serve the purpose for which they were intended. And the broker who called JoAnn will have to move on to his next scam.