Appeals Court OKs 3-Year Short-Term Limited Duration Health Plans

July 20, 2020 - The US District Court of Appeals for the District of Columbia Circuit upheld the Trump Administration’s decision to extend the potential duration of short-term limited duration health plans.

The case—Association for Community Affiliated Plans (ACAP) v United States department of the Treasury (Treasury)—went before Judges Greg Katsas and Thomas B. Griffith, who assented, and Judge Judith W. Rogers, who dissented.

Supporters of short-term limited duration health plans say plans are more  affordable and give consumers more healthcare coverage options.

Opponents argue that these plans are not as affordable as they may appear on the surface, with additional costs coming out in enrollee out-of-pocket healthcare spending and in the higher premiums for those on the exchanges. Opponents also argue that payers market these short-term limited duration health plans as if they are ACA-compliant or comparable.

ACAP brought its case against the government saying that the extended timeframe was inconsistent with the law, arbitrary, and capricious. The main contention exists around the meaning of “short-term limited duration,” a fairly vague phrase.

READ MORE: Senators Oppose CMS Promoting Short Term, Limited Duration Plans

ACAP’s argument dug into the definition of this term as used in the law and argued that the Trump Administration’s expansion does not sync with the legal definition set forth in HIPAA.

The association also argued that the rule would do damage to the Affordable Care Act Exchange and did not protect consumers.

The Majority Opinion

In fact, Griffith did not oppose this argument, going so far as to call it “prudential.” But Griffith and Katsas sided against ACAP because they were not convinced that the Departments were outside of their authority in reinterpreting the definition of a short-term limited duration health plan.

“Boiled down, the dissent’s objection to the STLDI Rule is a prudential one—STLDI plans aren’t good for consumers, so they should be restricted as much as possible,” Griffith agreed. “But so long as the Departments have acted within the bounds of their statutorily delegated authority, that policy judgment is theirs to make.”

He argued that the Departments had the power to redefine and interpret the rule as they see fit, given that Congress did not put any restrictions on that authority.

READ MORE: Do Short-Term Limited Duration Plans Deserve Industry Skepticism?

“When Congress delegates decision-making authority to an agency, it sacrifices control for flexibility,” Griffith wrote.

The Dissenting Opinion

However, Rogers, in her dissenting opinion, stated that the short-term limited duration insurance rule now departs from Congress’s original intent for these health plans. Namely, the rule:

• Still allows health plans to skirt around providing essential benefits
• Incentivizes health plans to discriminate based on pre-existing conditions or other factors and permits plans to cancel coverage retroactively
• Produces adverse selection which increases costs on the Affordable Care Act exchange, which is contrary to Congress’s intent

“The rule directly undermines a central purpose of the ACA’s ‘major reforms,’ namely to ‘minimize . . . adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums,’” Rogers wrote, quoting a previous case.

Rogers accused the assenting opinion of underestimating the impact that the rule would have on the Affordable Care Act exchange premiums. The Departments estimated that the rule would contribute to escalating Affordable Care Act premiums by five percent within a decade.

“So long as junk insurance plans are permitted to compete directly with comprehensive, Affordable Care Act-compliant insurance plans, the health care protections of the ACA—and the consumers who rely on them—are in jeopardy,” Margaret Murray, chief executive officer of ACAP, wrote in response to the court’s decision.

READ MORE: Judge Preserves 3 Year, Renewable Short-Term Health Plan Rule

She pointed to recent evidence supporting the view that payers are marketing the short-term limited duration health plans as if they are ACA-complaint.

A recent Milliman study also discovered that short-term limited duration health plans leave enrollees with high out-of-pocket healthcare spending.

“We are disappointed in the court’s decision but remain firm in our belief that junk insurance plans violate both the Affordable Care Act and the Administrative Procedure Act,” Murray said.

“We’re confident the full D.C. Circuit will agree,” she added, indicating that the ACAP will appeal this decision to the full district court.

The Background

In his assenting opinion, Griffith helpfully charted out Congress’s process of trying to keep health plans affordable while ensuring that payers did not cut out coverage for crucial health benefits to do so.

The Affordable Care Act prohibited charging based on pre-existing conditions, race, or sex. But this had the potential of creating imbalance on the exchanges, attracting sicker individuals and causing premiums to soar which would eject healthier individuals.

Thus, Congress mandated that everyone have essential healthcare and that health plans on the Affordable Care Act exchanges offer all of the essential health benefits. When the courts invalidated this individual mandate as unconstitutional, 2.3 million Americans in states without Medicaid expansion fell into a Medicaid coverage gap.

For many individuals who found themselves in the gap, short-term limited duration health plans—which are cheap and exempt from the essential health benefits requirements and other Affordable Care Act exchange requirements—became the key solution.

“You get what you pay for,” admitted Griffith. “Still, for those in the Medicaid coverage gap or otherwise unable to afford an ACA-compliant plan, a barebones STLDI policy is better than nothing.”

In 2016, the Departments of Treasury, Labor, and Health and Human Services limited these policies to three months so that consumers would not rely on these plans for permanent healthcare coverage, but health plans simply would put together four three-month short-term limited duration policies to provide year-long coverage.

In 2018, the Departments—under an executive order from the White House—chose to return to the original timeframe for the short-term limited duration health plans of a full year and later expanded the definition so that the plans could last one to three years.

In 2019, a federal judge affirmed the extension of this rule to three years.