(From the editors of the John & Rusty Report: California Senate Bill 910, S.B.910, Hernandez, would prohibit short term plans in California. It is unclear at this time whether the final federal rules would pre-empt state law if S.B. 910, passes and is signed into law.)
Insurers will again be able to sell short-term health insurance good for up to 12 months under a proposed rule released Tuesday by the Trump administration that could further roil the marketplace.
“We want to open up affordable alternatives to unaffordable Affordable Care Act policies,” said Health and Human Sservices Secretary Alex Azar. “This is one step in the direction of providing Americans health insurance options that are more affordable and more suitable to individual and family circumstances.”
The proposed rule said short-term plans could add more choices to the market at lower cost and may offer broader provider networks than Affordable Care Act plans in rural areas.
But most short-term coverage requires answering a string of medical questions, and insurers can reject applicants with preexisting medical problems, which ACA plans cannot do. As a result, the proposed rule also noted that some people who switch to them from ACA coverage may see “reduced access to some services,” and “increased out of pocket costs, possibly leading to financial hardship.”
The directive follows an executive order issued in October to roll back restrictions put in place during the Obama administration that limited these plans to three months. The rule comes on the heels of Congress’ approval of tax legislation that in 2019 will end the penalty for people who opt not to carry insurance coverage.
The administration also issued separate regulations Jan. 4 that would make it easier to form “association health plans,” which are offered to small businesses through membership organizations.
Together, the proposed regulations and the elimination of the so-called individual mandate by Congress could further undermine the Affordable Care Act marketplace, critics say.
Seema Verma, who now heads the Centers for Medicare & Medicaid Services, which oversees the marketplaces, told reporters Tuesday that federal officials believe that between 100,000 and 200,000 “healthy people” now buying insurance through those federal exchanges would switch to the short-term plans, as well as others who are now uninsured.
The new rule is expected to entice younger and healthier people from the general insurance pool by allowing a range of lower-cost options that don’t include all the benefits required by the federal law — including plans that can reject people with preexisting medical conditions. Most short-term coverage excludes benefits for maternity care, preventive care, mental health services or substance abuse treatment.
“It’s deeply concerning to me, considering the tragedy in Florida and national opioid crisis, that the administration would be encouraging the sale of policies that don’t have to cover mental health and substance abuse,” said Kevin Lucia, a research professor and project director at Georgetown University’s Health Policy Institute.
Over time, those remaining in ACA plans will increasingly be those who qualify for premium tax credit subsidies and the sick, who can’t get an alternative like a short-term plan, predicts Lucia and other experts. That, in turn, would drive up ACA premiums further.
“If consumers think Obamacare premiums are high today, wait until people flood into these short-term and association health plans,” said industry consultant Robert Laszewski. “The Trump administration will bring rates down substantially for healthy people, but woe unto those who get a condition and have to go back into Obamacare.”
If 100,000 to 200,000 people shift from ACA-compliant plans in 2019, this would cause “average monthly individual market premiums … to increase,” the proposed rule states. That, in turn, would cause subsidies for eligible policyholders in the ACA market to rise, costing the government $96 million to $168 million.
Supporters said the rules are needed because the ACA plans have already become too costly for people who don’t receive a government subsidy to help them purchase the coverage. “The current system is failing too many,” said Verma.
And, many supporters don’t think the change is as significant as skeptics fear.
“It simply reverts back to where the short-term plan rules were prior to Obama limiting those plans,” said Christopher Condeluci, a benefits attorney who also served as tax counsel to the U.S. Senate Finance Committee. “While these plans might not be the best answer, people do need a choice, and this new proposal provides needed choice to a certain subsection of the population.”
But, in their call with reporters, CMS officials said the proposed rule seeks comment on whether there are ways to guarantee renewability of the plans, which currently cannot be renewed. Instead, policyholders must reapply and answer medical questions again. The proposal also seeks comments on whether the plans should be allowed for longer than 12-month periods.
The comment period for the proposed rule runs for 60 days. Verma said CMS hopes to get final rules out “as quickly as possible,” so insurers could start offering the longer duration plans.
Short-term plans had been designed as temporary coverage, lasting for a few months while, for instance, a worker is between jobs and employer-sponsored insurance. They provide some protection to those who enroll, generally paying a percentage of hospital and doctor bills after the policyholder meets a deductible.
They are generally less expensive than ACA plans, because they cover less. For example, they set annual and lifetime caps on benefits, and few cover prescription drugs.
Most require applicants to pass a medical questionnaire — and they can also exclude coverage for preexisting medical conditions.
The plans are appealing to consumers because they are cheaper than Obamacare plans. They are also attractive to brokers, because they often pay higher commissions than ACA plans. Insurers like them because their profit margins are relatively high — and are not held to the ACA requirement that they spend at least 80 percent of premium revenue on plan members’ medical care.
Extending short-term plans to a full year could be a benefit to consumers because they must pass the health questionnaire only once. Still, if a consumer develops a health condition during the contract’s term, that person would likely be rejected if he or she tried to renew.
Both supporters and critics of short-term plans say consumers who do develop health problems could then sign up for an ACA plan during the next open enrollment because the ACA bars insurers from rejecting people with preexisting conditions.
“We’re going to have two different markets, a Wild West frontier called short-term medical … and a high-risk pool called Obamacare,” said Laszewski.