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Will Renewability Rule Make Short-Term Insurance More Attractive?

Analysis  |  By Gregory A. Freeman  
   February 28, 2018

The proposed rule on short-term plans hinges on the issue of renewability.

The Trump administration's new proposal on short-term health plans may open up more affordable options to consumers and new business opportunities for health plans, but much of the impact depends on making the plans renewable to the enrollee.

Easing the renewability rule is what will make short-term plans significantly more attractive, an analyst says.

The proposed rule would allow consumers to purchase health insurance coverage for a period of up to 12 months, a significant change from the Obama-era rule that limited short-term plans to a maximum of three months. That rule had been in effect only briefly, from April 2017. 

The rule proposed last week marks the administrative follow-up on an order issued by President Trump in November 2017. That executive order was widely seen as a positive move by those who need or prefer to purchase short-term insurance rather than a standard plan that is compliant with the Affordable Care Act.

Short-term plans offer lower premiums and deductibles, but they are not required to offer the same essential health benefits as an ACA-compliant plan. They are used by consumers who missed the open enrollment period and those with limited or no options on the healthcare exchanges as well as those in the "Medicaid gap" who make less than 100% of the federal poverty level but live in a state that did not expand Medicaid.

Another blow to Obamacare

Trump's move to make short-term plans more available to consumers was welcomed by some health plans that saw it as a way to regain footing in a market that had proven unprofitable for them.

Critics contend, however, that easing the use of short-term plans is one more blow to the ACA, giving consumers a way to opt out of the standard health plan marketplace. That leaves only the sickest and costliest consumers in those plans, they say, and only worsens the existing problem of high premiums and deductibles. The possibility of such a result was why the Obama administration limited the plans in the first place.

That impact may be limited, however, says Christopher Holt, director of healthcare policy with the American Action Forum, and independent think tank in Washington, D.C.

"The price point attractiveness of these plans is going to be limited to people who aren't getting subsidies," Holt says. "Currently we're at about 10.5 million people on the ACA exchanges and about 85% of those people are subsidized. So, it's not a huge population in the exchanges who would find this very attractive."

People paying full freight in the individual market will be more attracted to the short-term plans, and the affordability might draw in people who have avoided buying insurance at all, Holt says. But even then, the effect may be diluted because consumers will be getting less coverage in most cases from short-term plans and may be turned off by an application process that, unlike ACA plans, can result in denial for preexisting conditions.

Rule would allow renewals

The proposed rule, however, would make short-term plans renewable and that could eliminate one of the biggest downsides to these plans, Holt explains.

Currently short-term plans were limited to three months and cannot be simply renewed at the end of that term. Consumers must reapply every three months and any health changes could affect whether the health plan accepts that new application.

"That limits the attractiveness of these plans to a lot of the population," Holt says. "But if you allow them to be renewable at the behest of the enrollee, that provides a little more security and the product becomes a more attractive option."

As consumer interest grows, so will the interest among health insurance companies in offering short-term plans, Holt says. The market used to be significantly larger but some companies discontinued short-term plans when the three-month limitation decreased consumer interest, he says.

"There is interest in selling these. The impact is going to vary depending on the insurer, whether this is a business they have been in in the past and whether they have been longing to get back into it when consumer interest reached an acceptable level," Holt says. "There also could be some who see it as a new opportunity to claim a share of the marketplace they're not reaching."

Holt expects the proposed rule to proceed but he notes that there is still some discussion in Washington as to whether the renewability can be implemented administratively or whether it would require legislation.

"The renewability is key to making this a policy change with significant impact," he says.

Gregory A. Freeman is a contributing writer for HealthLeaders.

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