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Is Tiptoeing Toward Short-Term Health Plans 'a Step in the Wrong Direction'?

By Steven Porter  
   February 20, 2018

Numbers crunched by the Trump and Obama administrations, and others, indicate loosening restrictions on short-term options would harm ACA exchanges.

Following up on a directive the White House issued last October, the departments of Health and Human Services and the Treasury issued a proposed rule Tuesday that would ease restrictions on cheaper short-term, limited-duration coverage options.

Such plans are exempt from certain provisions of the Affordable Care Act, so making them more accessible is expected to further increase premiums for those who secure coverage on an ACA exchange—a fact the proposed rule itself acknowledges.

Short-term coverage used to be capped at 12 months, but in 2016 the Obama administration proposed lowering that limit to three months. That lower cap took effect last April, but the Trump administration now proposes reverting to the 12-month limit.

Related: Freeing Up Short-Term Coverage Seen as Boon for Insurers

Centers for Medicare and Medicaid Services Administrator Seema Verma said the longer time frame will make it easier for Americans who are stuck between jobs or are otherwise unable to find affordable coverage.

“In a market that is experiencing double-digit rate increases, allowing short-term, limited-duration insurance to cover longer periods gives Americans options and could be the difference between someone getting coverage or going without coverage at all,” Verma said in a statement.

HHS Secretary Alex Azar similarly said this change is about offering people affordable options.

“Americans need more choices in health insurance so they can find coverage that meets their needs,” Azar said in the statement. “The status quo is failing too many Americans who face skyrocketing costs and fewer and fewer options.”

It’s true that these short-term plans are cheaper. They cost about $124 per month in 2016’s fourth quarter, while unsubsidized ACA-compliant plans cost about $393 per month, according to a fact sheet published Tuesday with the proposed rule. But they’re also skimpier than ACA plans, which is why companies that offer them will be required to include a notice in the application materials and contract to ensure consumers know their plans fall short of the ACA's minimum essential coverage requirements.

The Obama administration restricted short-term plans precisely because they could be used to undermine healthcare reforms, citing the possibility that short-term plans could cater to healthier populations, exclude consumers with preexisting conditions, or impose lifetime and annual dollar limits on essential health benefits.

American Hospital Association President and CEO Rick Pollack came out against the proposal Tuesday.

"Today’s proposed rule is a step in the wrong direction for patients and health care providers because it would allow insurers to sell products that do not constitute true 'insurance,'" Pollack said in a statement. "These products would appear cheaper to consumers, but would do so at a significant cost: by covering fewer benefits and ensuring fewer patient protections, such as coverage of pre-existing medical conditions."

Currently, the ACA’s individual mandate imposes a financial penalty on those who go without a compliant plan. With the passage of the tax reform law late last year, however, that penalty will go away in 2019, making these short-term options more attractive.

Moody’s Investors Service said last October that the promotion of skimpy plans would undermine the ACA exchanges by incentivizing healthier populations to leave, while a sicker population stays behind, as HealthLeaders Media reported.

The administration estimates 100,000 to 200,000 people—most of them young and healthy—will switch next year from the exchanges to the short-term option next year. This exodus is expected to increase average premiums for those left behind, as well as expected subsidies paid by the government, according to the proposed rule, which is slated to be published Wednesday in the Federal Register.

The estimated average monthly premium for those who rely on the ACA exchanges in 2019 rose from $649 to $714 as a result of the ACA’s individual mandate penalty being eliminated, according to the proposed rule. That estimated monthly average will rise another $2 if 100,000 people switch to short-term plans, or another $4 if 200,000 people make the switch.

Meanwhile, the proposed rule would increase the federal government’s expenditures on healthcare subsidies—via advance payments of the premium tax credit (APTC)—by $96-168 million annually, according to the proposed rule.

“There is significant uncertainly regarding these estimates,” the proposal notes, “because changes in enrollment and premiums would depend on a variety of economic factors and it is difficult to predict how consumers and issuers would react to the proposed policy changes.”

Related: After Individual Mandate Repeal, Who’ll Pay For Rise in Uncompensated Care?

The uncertainty goes beyond tabulating the government's future bills. Pollack said hospitals and health systems will ultimately incur more bad debt because many consumers will be unaware of the gaps in their short-term coverage.

"The AHA strongly believes that patients should have access to affordable, comprehensive health care coverage options," he said, "and we encourage the Administration to achieve this goal without removing critical consumer protections for patients."

Public comments will be accepted until 5 p.m. Eastern Standard Time on April 23.

Editor's note: This story has been updated to include a statement from the American Hospital Association and additional information about the Obama administration's rationale for restricting short-term coverage options.

Steven Porter is editor at HealthLeaders.


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