A Biden Administration initiative to regulate “junk insurance” will have an impact on the brokerage industry and employee benefits, as some popular voluntary benefit programs are covered by the language of the proposed changes. However, industry insiders say there is a long way to go before the regulations are finalized, and that they hope to make the case that the regulations should be adjusted to prevent doing more harm than good.
As with many high-profile proposals, “junk insurance” is a politically charged concept, designed to play on Americans’ dissatisfaction with a complicated and expensive health care system. The current administration has clearly decided that the “Bidenomics” brand should include a more consumer-friendly stance that attempts to cut down on things like high fees and unexpected bills.
But one of the main reasons health insurance has become so complicated is that the over-riding problem—the high cost of health care in the U.S.—has not been adequately addressed. Insurance experts point out that as regulators and policymakers keep moving the puzzle pieces around, the problem of cost will likely re-appear somewhere else.
What the Biden Administration proposes
The change in regulations was announced on July 7 with the White House saying that the administration was “cracking down on junk insurance.”
The announcement focused mostly on short-term health insurance plans, which under the Affordable Care Act (ACA), were limited to three months of coverage (with the option of extending coverage for an additional month). The Trump Administration had changed that time period to three years, saying that extending the short-term plans would create more affordable options. The new proposal would bring the short-term plans back into line with the original ACA rules.
According to the Biden Administration, the previous administration created loopholes that allowed the marketing of misleading insurance products that can discriminate based on pre-existing conditions. The “junk” plans could leave families with thousands of dollars in medical expenses, the statement said.
When announcing the new regulations, Biden pointed out that short-term plans are exempt from ACA regulations mandating coverage if patients have pre-existing conditions. This had created cases where Americans thought they were covered through short-term plans but found out that the fine print allowed the insurer to refuse to pay the bill.
“Just imagine if you had a heart attack and you expect your insurance company to pay for it, when you’re diagnosed with a cancer and you expect your insurance company to pay for it,” Biden said. “But they dig into your medical records… claim you had a pre-existing condition, and then refuse to pay.
“Folks, that’s not health insurance,” he said. “That’s a scam. That’s a scam. It has to end.”
In addition to the changes to short-term plans, the proposal also would affect “fixed indemnity” plans, which include voluntary benefits such as separate benefits for hospitalization, or specific types of disease.
According to an analysis by MZQ Consulting, new restrictions on coordination between voluntary benefits such as hospital indemnity and minimally essential coverage (MEC) plans would have a big impact on the voluntary benefit market.
“With respect to the coordination of policies with other group plans… it would be impermissible to offer a hospital reimbursement plan alongside a preventive care-only plan. If finalized, this would make the relatively common practice of providing a fixed indemnity plan alongside a preventive care- only MEC plan (to satisfy ACA requirements) impermissible.”
The analysis also noted that there are tax implications to the new rules, since the regulations would specifically say that fixed indemnity benefits are not medical benefits. “This means that for fixed indemnity plans, either premiums can be paid on a pre-tax basis, or benefits can be paid without being subject to tax, but not both,” the analysis said.
MEC plans + fixed indemnity combinations under scrutiny
According to Jennifer Berman, CEO of MZQ Consulting, the new rules could have a big effect in industries that have sought to offer some kind of health coverage to employees who might decide they couldn’t afford a traditional health plan.
“Those are really big changes,” she said of the new regulations. “There are many employers who offer MEC plans and pair them with hospital insurance plans, and those would no longer be permitted.
“It’s a very common strategy for retail, hospitality, high-turnover-type industries.”
Janet Trautwein, CEO of the National Association of Benefits and Insurance Professionals (NABIP), also said the use of voluntary benefits is common for some types of industries. “Certain employers choose to offer two types of benefits. Maybe they have a transitory workforce, or employees choose not to take up the company health plan. These are usually very low wage workers; they absolutely cannot afford health plan coverage. This comes about so the companies can offer something.”
Trautwein said these types of voluntary benefits have evolved so that employers can have some sort of health care for those workers, and because it allows companies to avoid a penalty under the ACA, which requires employers to offer plans.
“I’m not saying these are bad plans,” Trautwein said. “It’s not that they’re trying to cheap out on something, it’s that their employees are not going to take the other option.
“The cost of care is very high in this country, so we’re seeing some of these creative approaches,” she added. “Whether it’s a great thing I don’t know, but it’s being offered to address a problem that does exist.”
In the meantime, sausage-making will continue Both Trautwein and Berman said the announcement by Biden is just a first step in a long process of regulatory change.
Trautwein said the NABIP is still studying the proposed regulatory changes and formulating a response. She noted that even with short-term insurance, her organization is not seeing a lot of inappropriate use of such plans. “For the most part, short-term duration insurance is being used for the short term,” she said.
She added that her group may push for a compromise: a six-month short-term limit, with one renewal, for a total of 12 months.
Berman noted that the proposed regulations include a request for information on level-funded self-insured plans, which are popular with many smaller businesses. There are not new regulations proposed for those plans at the moment, but the information request may be a signal that regulators are looking more closely at those arrangements.
She also agreed that the regulations could go through a lot of changes between now and their proposed implementation date of Jan. 1, 2027. In the meantime, the industry is getting a better feel for the input it will give in the comment period for the new regulations. “There’s a lot of discussion at the moment and folks are beginning to gear up for the notice and comment process,” Berman said. “So, there is an opportunity to provide feedback, and there are definitely interested parties that are in the process of doing just that.”