By Brian Blase
Several Democrats on a House Energy and Commerce subcommittee at a hearing Wednesday derided short-term health-insurance plans as “junk,” accusing the Trump administration of “sabotaging” the health care system with a rule that expanded people’s ability to purchase these plans.
The accusations are without merit.
While I was at the National Economic Council, I coordinated the process to implement several policies to expand Americans’ ability to purchase more affordable coverage, including short-term plans.
Here are the key questions and answers that people should know about short-term health insurance plans.
Q: What are short-term plans?
A: Short-term plans have been available for more than two decades.
In a final rule implementing the Health Insurance Portability and Accountability Act of 1996, the departments of Health and Human Services, Labor, and the Treasury defined short-term plans as “health insurance coverage provided pursuant to a contract with an issuer that has an expiration date specified in the contract (taking into account any extensions that may be elected by the policyholder without the issuer’s consent) that is within 12 months of the date such contract becomes effective.”
That was the federal government’s definition of short-term plans for almost 20 years until the Obama administration changed the definition in an October 2016 rule.
Short-term plans are not subject to Obamacare’s mandates and thus have flexibility to set rates in an actuarially appropriate way so that premium matches risk. Short-term plans provide a variety of benefit designs and are subject to state regulation.
Q: How and why did the Obama administration restrict short-term plans?
A: In October 2016, the departments of Health and Human Services, Labor, and the Treasury finalized a rule to restrict the purchase of short-term plans to no more than 90 days and to restrict consumers’ ability to renew their coverage.
The Obama administration’s restrictions took effect on April 1, 2017. The Obama administration likely undertook this action to choke off competition with Obamacare plans. Short-term plans were becoming increasingly attractive to consumers, generally providing much lower premiums and much broader provider networks than Obamacare plans.
The rule sought to prevent consumers from buying these products.
Q: How did the Obama administration’s restrictions hurt the unhealthy?
A: The National Association of Insurance Commissioners objected to the Obama administration rule, stating that it would harm unhealthy consumers:
In fact, state regulators believe the arbitrary limit proposed in the rule could harm some consumers.
For example, if an individual misses the open-enrollment period and applies for short-term, limited-duration coverage in February, a 3-month policy would not provide coverage until the next policy year (which will start on January 1).
The only option would be to buy another short-term policy at the end of the three months, but since the short-term health plans nearly always exclude pre-existing conditions, if the person develops a new condition while covered under the first policy, the condition would be denied as a pre-existing condition under the next short-term policy. In other words, only the healthy consumers would have coverage options available to them; unhealthy consumers would not.
Q: What did the Trump administration’s short-term plan rule do?
A: In August 2018, the departments of Health and Human Services, Labor, and Treasury finalized a rule expanding consumers’ ability to purchase short-term plans. This rule largely reversed the Obama administration’s restrictions.
The new rule restored the 364-day contract period, permitted renewal of plans for up to three years, and clarified that people could combine short-term plans with separate insurance products—often dubbed “renewal guarantees”—that protect people from future medical underwriting.
The new rule also required short-term plans to include a disclaimer that urged consumers to carefully review benefit designs and made it clear that the policies did not satisfy Obamacare’s requirements.
Q: Who is projected to benefit from the expansion of short-term plans?
A: Short-term plans are primarily useful for the nearly 30 million uninsured, those between jobs, retirees near 65, and people in the middle-class without an offer of employer coverage who have been substantially hurt by rising premiums and have increasingly dropped out of the individual market.
Between 2016 and 2018, 2.5 million fewer unsubsidized enrollees had coverage in the individual market, a decline of 40 percent. In fact, despite the strong economy, the number of people without insurance between 2017 and 2018 increased by 1.6 million for individuals with incomes above 300 percent of the federal poverty level (about $75,000 for a family of four).
Q: What type of coverage and premiums will be available on short-term plans?
A: After interviewing insurers and other stakeholders, the Congressional Budget Office and the Joint Committee on Taxation “expect that a range of new short-term insurance products will be sold as a result of the new rule,” and that the products “will resemble a typical nongroup insurance plan offered before 2014.”
The Congressional Budget Office projects that 95 percent of people moving from the individual market to the short-term market will buy coverage that meets the CBO’s definition of private health insurance and provides true financial protection and with premiums “as much as 60 percent lower than premiums for the lowest-cost [Obamacare] bronze plan” for those who are eligible.
Chris Pope of the Manhattan Institute wrote a paper this spring comparing Obamacare plans with short-term plans.
According to his findings, for equivalent insurance protection, the premiums for short-term plans are much lower than Obamacare plan premiums—in some cases about half the cost.
Moreover, Pope finds that narrow-network HMOs are often the only types of Obamacare plans available and that short-term plans generally cover a much broader set of providers.
Pope provides an example from Fulton County, Georgia, where Obamacare plan premiums are about the national average and where the state permits the sale of short-term plans consistent with the Trump administration’s policy.
A Blue Cross bronze plan, which covers about 60% of medical expenses, for a 30-year-old male who doesn’t smoke costs $296 per month. The plan carries a $5,200 deductible, with a maximum out-of-pocket cost of $7,900.
Pope compares that with UnitedHealth’s short-term plan that lasts 360 days. That plan has a monthly premium of $209, nearly 30% lower. The deductible and out-of-pocket caps are also lower, at $5,000 and $7,000, respectively.
The savings are greater for a more generous silver plan (covers 70% of medical expenses): $467 a month in premiums on the exchange versus $250 for a comparable short-term plan.
Q: Will the Trump administration’s short-term plan rule hurt the individual market?
A: That’s unlikely. The individual market currently has two main types of enrollees—lower-income people who receive large subsidies to purchase coverage and people with expensive medical conditions who benefit from Obamacare’s insurance rules.
So, most of those people who would tend to benefit from short-term plans—relatively healthy people in the middle-class—would not be purchasing plans in the individual market.
It’s possible that a small number of people with individual market coverage will navigate to short-term plans. The actuary at the Centers for Medicare and Medicaid Services expects only about 100,000 to 200,000 to do so, however.
In opposing the Obama administration’s 2016 rule restricting short-term plans, the National Association of Insurance Commissioners believed the restrictions would harm the individual market:
[W]e do not believe this proposal will actually solve the problem it is intended to address.
If the concern is that healthy individuals will stay out of the general pool by buying short-term, limited-duration coverage, there is nothing in this proposal that would stop that. If consumers are healthy, they can continue buying a new policy every three months.
Only those who become unhealthy will be unable to afford care, and that is not good for the risk pools in the long run.
Q: How have legal challenges to the rule played out?
A: On July 19, U.S. District Court Judge Richard Leon dismissed a lawsuit challenging the short-term plan rule, writing: “Not only is any potential negative impact from the 2018 rule minimal, but its benefits are undeniable.”
Leon also pointed out that the Obamacare statute exempted some types of health insurance from its regulatory reach, writing that “lawmakers were not rigidly pursuing the [Obamacare]-compliant market at all costs, e.g., at the risk of individuals going without insurance.”