As states await final federal regulations that will loosen restrictions over the sale of short-term health insurance policies, the clock is ticking for state legislators and regulators to enact policies to protect and inform consumers about the limited and “thin” coverage that these plans offer.
|What Short-Term Insurance Plans Don’t Cover
Most short-term insurance plans offer limited benefits, while this results in cheaper policies, it limits consumer access to many critical health care services. A Kaiser Family Foundation analysis of 24 short-term plans sold in 45 states found:
The sale of these plans, which generally offer less coverage than Affordable Care Act (ACA) marketplace plans, can begin 60 days after the final rule is issued, which means states now have a short window to implement consumer protections. The sale of these short-term policies could begin later this year.
During this legislative session, eight states proposed bills to address these plans, ranging from bills to enable the short-term plan flexibilities allowed by the Administration’s rule (MN HF 4280, MO 1685, VA H 892) to bills that regulate (HI HB 1520, GA H 474) or prohibit (CA SB 910, VT H 892) short-term plan sales. Maryland recently passed a law that limits short-term plans to a three-month coverage period, restricts the ability to renew these plans, and limits the standards by which insurers can rate or deny coverage (medical underwriting) for plans.
As explored in How Will Short-Term Insurance Plans Impact State Insurance Markets?, the rule would extend the period during which plans can be sold from 3 to 12 months and allow for consecutive renewal of short-term policies, meaning consumers can re-enroll in the policies for an indefinite period of time. The intent of the rule is to grant consumers affordable coverage alternatives — studies show that short-term plans charge significantly lower premiums than plans sold through ACA state insurance marketplaces. However, the more “affordable” coverage comes with less coverage. Consumers who purchase these plans face:
- Limited benefit offerings;
- Significant out-of-pocket costs;
- Risk of plan cancellations due to pre-existing conditions; and
- Possible deceptive advertising practices.
Increased sale of these plans to younger, healthy people is expected to draw thousands of these healthy consumers out of state’s individual market’s risk pool, leading to an unhealthy risk mix and subsequent increases in marketplace health insurance premiums.
Below, the National Academy for State Health Policy details the impact these short-term plans are expected to have on states’ markets and the actions states may consider to regulate these plans.
The Impact of Short-Term Plans on Affordable Care Act Coverage
Short-term insurance plans are not new, these temporary coverage plans historically were used to bridge gaps in coverage, such as the loss of a job. The plans target healthy individuals seeking stop-gap coverage (until they find or start a new job) or in the case of an emergency. Rather than provide comprehensive benefits, most short-term plans provide limited coverage and have less costly premiums than other coverage options. Additionally, the plans are not subject to many of the requirements of other insurance plans, such as provisions that require insurers to offer coverage to individuals with pre-existing conditions and requirements that help protect consumers from excessive out-of-pocket costs including:
- Prohibiting issuers from placing annual or lifetime limits on insurance spending,
- Limiting consumer cost-sharing for essential health benefits, and
- Requiring that 80 percent of premium dollars are spent on enrollee care (Medical Loss Ratio, MLR).
These plans are not considered part of the individual market for the purposes of risk pooling, meaning that short-term plans siphon young and healthy individuals from the pool used to spread risk and therefore lower premiums for those who purchase insurance in the individual market. Under the Administration’s proposed short-term insurance rule, officials estimate that 100,000 to 200,000 individuals will switch from marketplace coverage to short-term plans, drawing these individuals out of the individual market risk pool. This is expected to lead to average premium increases of $2 to $4 per month (ranging from 0.7 to 1.7 percent, according to reports) for coverage purchased through state marketplaces An analysis by the Urban Institute estimates that 4.3 million individuals will enroll in short-term plans, resulting in marketplace premium price increases ranging from zero to 30.5 percent due to the combined effect of the sale of the short-term plans and the elimination of the individual mandate penalty approved by Congress in December.
State Options to Regulate Short-Term Insurance Plans
States have wide latitude to regulate short-term insurance sold in their markets. As detailed in a recent Commonwealth Fund Report, three states outright ban the sale of short-term plans, while many other states impose regulations that limit the sale of plans or impose some form of consumer protections, such as mandating specific benefits. Depending on their goals, policymakers have several options if they wish to regulate these plans, beyond imposing outright bans on their sale. States can:
|State Regulation of Short-Term Insurance Plans|
|Prohibits underwritten short-term plans||MA, NJ, NY|
|Limits short-term plan contracts to under 12 months (ranges from 3 months to 185 days)||AZ, CA, CO, CT, IN, MD*, MI, MN, ND, NH, NV, OR, SD|
|Limits total length of time consumers can be covered by a short-term plan (e.g., plan renewability)||CO, MD*, ME, MI, MN, NH, NV, OR, WI|
|Requires coverage of all state-mandated benefits||AR, CO, FL, KS, MD, MN, PA, RI, TX|
|Requires coverage of some state-mandated benefits||CA, DE, DC, GA, HI, IL, IA, ID, KY, ME, MI, MO, NV, NH, NM, NC, ND, OH, OR, SC, SD, TN, UT, VT, WV, WI|
|Source: State Regulation of Coverage Options Outside of the Affordable Care Act: Limiting the Risk to the Individual Market, The Commonwealth Fund, March 2018.||*Maryland’s law limiting short-term insurance plans became law after publication of the Commonwealth Fund report.|
- Impose term limits on plan contracts: By limiting contract terms, consumers seeking long-term coverage will be encouraged to purchase coverage through the individual market instead, strengthening the individual market risk pool and lowering premium costs. This also reinforces the use of short-term plans for limited, stop-gap coverage.
- Prohibit the sale of consecutive contracts or mix-and-match plans: Similar to the imposition of term limits, these policies encourage consumers who need long-term coverage to purchase coverage through the individual market. This also helps to lessen confusion among consumers who purchase a series of short -term policies, each with potentially different benefit and network offerings. This also mitigates potential profiteering by brokers and agents who “mix-and-match” plans and receive a commission for each plan sold.
- Require mandated benefits: While most states require short-term insurers to cover at least some state-mandated health care benefits, most plans do not offer comprehensive benefits, including the 10 essential health benefit categories mandated by ACA. Stricter benefit mandates ensure that short-term policies provide the health benefits that the state requires, such as prescription drug coverage.
- Impose protections for individuals with pre-existing conditions: One of the most significant limitations of short-term plans is they exclude or impose significant cost-sharing on individuals with pre-existing conditions, meaning that these plans are not viable options for most individuals, including the half of all adults with chronic conditions. More alarming, insurers often have wide latitude to rescind coverage if consumers have a pre-existing condition, leaving consumers vulnerable to losing even their short-term insurance protections if the condition is deemed to have originated prior to the purchase of the plan. Stricter policies or oversight to prohibit these practices can protect consumers from losses in the case of such situations. A bill in Georgia, for example, would prohibit short-term plans from defining pre-existing conditions any stricter than how state law describes them.
- Employ other regulatory tools: States have other regulatory tools they can use to fortify coverage offered by short-term plans, or to limit the risk of excessive out-of-pocket spending by consumers who purchase these plans. These include limiting premium rating ratios, requiring caps on consumer cost-sharing for certain or all services, and imposing a modified MLR requirement on short-term plans. States may also consider policies to counteract the effect of these plans on their risk pools, such as imposing an assessment on these plans as a means to raise revenue for a reinsurance program.
- Increase consumer awareness and education: If they permit the existence of these plans, states can fortify efforts to make sure consumers are educated about the risks and potential limitations of purchasing short-term plans. These proposed regulations can require that short-term plan contracts include language to notify consumers that the plans may not comply with federal health insurance coverage requirements. States may compel entities that sell short-term policies (including agents, brokers, and insurers) to use greater transparency or clearer language when assisting consumers with the purchase of a short-term plan. For example, a Missouri bill that grants greater flexibility for the sale of short-term plans, stipulates that short-term notices include information that the plan may not cover certain benefits nor cover pre-existing conditions, “including conditions you may currently have and are unaware of but are not diagnosed until the policy’s term.”