Freeing Up Short-Term Coverage Seen as Boon for Insurers

A three-month limit was originally intended to close a loophole in Obamacare coverage requirements. The Trump administration's removal of that restriction has insurers rushing to satisfy consumers who need this option.

The Trump administration's executive order aimed at reversing the Obama administration's rule restricting short-term health coverage to less than three months is prompting health plans to quickly put together products that could benefit a range of consumers who need access to gap health plans.

It also knocks another leg out from under the Affordable Care Act. The disadvantages that come with the three-month rule were intentional, to encourage fuller participation in the health insurance exchanges.

The short-term rule issued by the Obama administration only went into effect in April 2017, so the true effect has not yet been seen. Prior to April, consumers had the option to enroll in short-term plans that were typically far cheaper than a plan on the Affordable Care Act exchanges.  The three-month rule was intended to close a loophole in the original law that critics said would have allowed people to buy short-term coverage when they could have purchased a plan during open enrollment.

The removal of the three-month limitation will be welcomed not only by short-term policyholders but also by a diverse range of policymakers and industry leaders, says Kev Coleman, head of research and data with HealthPocket.com, a free website that compares and ranks all health insurance plans. Some policymakers welcome the move as a way to placate consumers who are unhappy with the sharp increases in premiums and deductibles, and those left unhappy that the Trump administration has not dismantled Obamacare altogether.

Fourteen U.S. senators led by Sen. Ron Johnson, a Wisconsin Republican, asked for the short-term regulation to be rescinded earlier this year, backed up by the National Association of Insurance Commissioners (NAIC), the National Association of Health Underwriters (NAHU), and the state departments of insurance in Georgia, Illinois, Kansas, Louisiana, Nebraska, Oklahoma, and Wisconsin.

"This is generally regarded as a welcome development for insurers and many of those that left the market are interested in returning now if that rule is rescinded," Coleman says. "They've marketed these plans in the past with longer maximum duration plans, so there is nothing to learn or a risk to mitigate. They will be ready to go if the regulatory process resolves itself and the rule is changed."

Short-term coverage opportunities

Insurers may not only increase efforts to promote consumer awareness of these coverage options but also work on new plans and benefit designs as more people priced out of the ACA market in 2018 seek alternatives, he says.

Trump's executive order begins an administrative process that could still see the rule upheld, but Coleman expects the short-term rule will be reversed as early as January 2018.

Consumers who missed the open enrollment period are harmed by the restricted short-term plans, Coleman says, as are those with limited or no options on the healthcare exchanges and those in the "Medicaid gap"—making less than 100% of the federal poverty level but living in a state that did not expand Medicaid.

People without legal residency in the country cannot buy coverage on the exchanges, so short-term coverage may be their only option, Coleman says. For a range of consumers, short-term coverage can help as they go through transitions or wait for other options such as the next enrollment period, and insurers are ready to capitalize on that need.

"For decades, the short-term health plan market has played a role in helping consumers during insurance coverage transitions, often due to job loss. The three-month limitation implemented in April hurt the market by eroding the consumer appeal of these plans by requiring enrollees to re-apply quarterly and experience a reset of their deductibles," Coleman says. "Not surprisingly, enrollment shrank and we saw HCC, a major insurer in the market, stop selling the plans. If the three-month restriction is lifted as expected, it is a reasonable expectation that consumers will flock back to these plans with insurers soon to follow."

 Shaun Green, senior vice president at Agile Health Insurance, recently told the Washington Examiner that his company is anticipating high demand for short-term plans, noting that the cost rises by 3% to 4% every 12 months. "We're very bullish," he said. "We are looking to have a great year ourselves."

The three-month rule imposes penalties that make the product unappealing even to consumers caught without health insurance coverage, Coleman explains. Under the three-month rule the consumer has to buy a new plan every three months and the deductible resets. Any new health conditions that arise in that three months are not covered because short-term health plans do not cover preexisting conditions, Coleman notes. This was by design, to avoid encouraging consumers who might buy this coverage only for a major medical need and then drop it after.

The Trump administration's executive order is expected to restore state-specific regulation, in which a maximum coverage period of 364 days was allowed in most states.

"It's very important to make the period allowed for the short-term plans coincide with the lockout period for those who miss open enrollment," Coleman says.