Loss of the Individual Mandate, Loosened Regulation of Short-Term Plans Feared by Healthcare Industry

Health insurers—and hospitals—soon may be socked by a double whammy that could drive away insurers’ healthier customers, induce them to spike premiums and unravel the individual market.

First, the Senate Republican tax cut bill would repeal the Affordable Care Act’s requirement that nearly everyone get insurance. That provision, which House Republicans support, is projected to reduce the number of insured Americans, particularly healthier people, by 13 million in 2027 and boost premiums each year by an average of 10%, according to the Congressional Budget Office.

Second, under an executive order by President Donald Trump, HHS is expected to issue a proposed rule by Dec. 12 that allows insurers to sell short-term health plans lasting up to 364 days that do not comply with ACA rules and offer lower premiums than available from ACA-compliant plans. The Obama administration last year limited the duration of such plans to 90 days, making them less appealing to consumers.

Premiums for short-term plans are lower because insurers don’t have to sell these plans to people with pre-existing conditions. They can exclude coverage for maternity care, behavioral health, prescription drugs and other ACA-required benefits. They can impose annual and lifetime benefit caps. And they can deny benefits or even rescind policies if enrollees file claims for what insurers deem pre-existing conditions. That’s why some critics call them “gotcha” plans.

The combination of the mandate repeal and the expansion of short-term plans could deliver a severe blow to the ACA-regulated individual market serving nearly 20 million Americans.

“The loss of the mandate is bad enough, but combined with (expansion of) gotcha plans, this will accelerate the coming death spiral in the individual market,” said Margaret Murray, CEO of the Association for Community Affiliated Plans, which represents safety net insurers.

“Without the mandate and with these other plans out there,” she added,” that will suck more people out of qualified health plans, which will become a high-risk pool for the sickest and most expensive people.”

Despite their coverage gaps, the popularity of short-term plans has grown due to the rise in premiums for ACA-compliant plans, even though many buyers must pay the law’s tax penalty for not having qualified coverage.

Experts expect that sales will grow even more if Republicans repeal the ACA’s mandate penalty, eliminating that financial disincentive for buying short-term plans. The typical monthly premium for an individual in a short-term plan is $175, with a $5,000 deductible, according to Jeff Smedsrud, co-founder of HealthCare.com, a health plan shopping website. That compares favorably with rates for ACA-regulated plans.

If the mandate is repealed and the duration of plans is lengthened from 90 to 364 days, “for sure people will be more inclined to buy short-term plans because the price is so low,” said Cindy Holtzman, an insurance broker in Woodstock, Ga.

Since the Obama administration limited these plans to 90 days, Holtzman has not sold any short-term plans because consumers would have to go through the insurer’s medical underwriting process to renew their policy after each 90-day period. She expects many of her higher-income and younger clients will opt for short-term products if the mandate disappears and the rules change.

Smedsrud said he and his wife, who are in their 50s, just bought a short-term plan from Companion Life because they’re moving from Minnesota to Arizona. “Individuals have a difficult decision to make,” he said. “What can my budget afford now versus what might the long-term risks be? It’s not exactly what they want to do, but it may be the best solution for now.”

State insurance regulators are wary about the growth of such plans, due to coverage problems consumers in these plans have faced both before and after the ACA was passed. There have been a number of lawsuits filed against insurers selling such plans, including UnitedHealth Group’s Golden Rule Insurance and Tokio Marine HCC.

The carriers have been accused of refusing to pay claims for what they say are pre-existing conditions—even when the condition had not been diagnosed at the time the policy was purchased. That’s known as post-claims underwriting. Still, in August, Golden Rule won dismissal of a Georgia case in which the plaintiff alleged the company left her with a $400,000 bill for breast cancer treatment.

Public anger about similar coverage denials and policy rescissions by insurers helped Democrats pass the Affordable Care Act in 2010.

“These plans reintroduce many of the problems the ACA was meant to solve,” said Murray, whose member plans do not intend to offer short-term products. “Should people actually need coverage, they’ll quickly realize these plans don’t cover much and don’t provide the same consumer protections like out-of-pocket limits.”

Some states already impose restrictions on short-term plans. But with the Trump administration expected to loosen federal rules to encourage sales of cheaper short-term plans, many state regulators now are eyeing tougher limits. That’s expected to be a major topic of discussion at the National Association of Insurance Commissioners’ meeting in Honolulu this weekend.

Currently, only New York and New Jersey effectively prohibit short-term plans by requiring insurers selling short-term products to cover all ACA-mandated essential health benefits and to issue policies to any applicant regardless of pre-existing conditions, according to Sabrina Corlette, an insurance expert at Georgetown University’s Health Policy Institute.

Regardless of the new federal rules, states have broad authority to establish their own policies on short-term plans to protect consumers and maintain the viability of their ACA-regulated market, according to a new analysis by Corlette and her Georgetown colleagues.

They can ban or limit short-term products, require them to comply with ACA market rules, limit their duration, require plans to spend a fixed percentage of premium revenue on medical services, and mandate that insurers and brokers fully disclose to consumers what coverage and protections these plans provide or don’t provide.

But state officials face political constraints because many consumers who have incomes too high to qualify for ACA premium subsidies are finding ACA-compliant plans unaffordable and are turning to short-term plans and unregulated, religious-based, healthcare cost-sharing plans as more affordable options.

“Many states will find themselves between a rock and a hard place,” Corlette said. “If you don’t regulate short-term plans and allow enrollment to grow, that will cause premiums to rise even more in the individual market. But if you do try to curtail sale of these plans, you could get an outcry from the industry and from consumers who view them as a cheaper alternative. So the politics are tough.”

Smedsrud, however, thinks the threat posed by short-term plans to the insurance market are overstated. He notes that even before the Obama administration limited the duration of these plans to 90 days, consumers stayed in short-term plans for an average of 5.7 months. He sees faith-based cost-sharing plans as growing faster and posing a bigger threat.

“Most people buy a short-term plan with a ‘punt for a while’ mentality, not as something they consider a viable long-term replacement for a permanent health plan,” he said. “It’s not as large a market as many people think.”

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