State Policies Protect Consumers from Short-Term Health Plans

May 13, 2019 - States are taking action to protect consumers from low-value health payer plans, including short-term health plans, according to a new issue brief from the Commonwealth Fund.

Short-term health plans were originally created to fill gaps in coverage for individuals who were between jobs or in other situations in which they could not obtain their health payer coverage. Most policy experts agree that short-term plans play a key role in ensuring patients have access to some type of health insurance.

But these plans are widely regarded as flimsy, largely because they do not have to comply with coverage provisions included in the Affordable Care Act (ACA). These plans are do not necessarily need to add protections for patients with pre-existing conditions or coverage of certain preventive care. These plans are known to be extremely inexpensive, but with little value for your dollar.

Because of that limited coverage, previous regulations limited enrollment to only 12 months. After the 12-month period, consumers were required to seek more comprehensive healthcare coverage.

An August 2018 rule from the Trump Administration overturned that enrollment limitation. Instead of just 12 months, patients are now allowed to remain enrolled in a short-term plan for up to three years. According to CMS Administrator Seema Verma, this move came in an effort to provide patients access to affordable coverage options.

READ MORE: Congress Opens Probe into Short-Term Limited Duration Insurance

“We continue to see a crisis of affordability in the individual insurance market, especially for those who don’t qualify for large subsidies,” Verma said of the ruling. “This final rule opens the door to new, more affordable coverage options for millions of middle-class Americans who have been priced out of ACA plans.”

But these plans could do more harm than good, especially for patient finances, the Commonwealth Fund researchers asserted.

“Short-term plans may appear cheaper, but may result in higher out-of-pocket costs or in people going without necessary care,” they said. “In one instance, a plan paid only $11,780 toward $211,690 for heart surgery, leaving the enrollee with about $200,000 in bills. The insurer claimed this remainder exceeded the allowable amount under the plan.”

The Congressional Budget Office estimates that 1.2 million individuals will enroll in short-term coverage by 2028. These consumers will be left with “inadequate coverage that excludes services such as substance use disorder treatment or is cancelled after high-cost claims are filed,” the authors said.

Industry experts likewise expressed concerns that expanding short-term health plans could weaken other health insurance exchanges. With more healthy patients opting for short-term plans, other exchange plans could increase their rates or exit the exchange altogether, weakening consumer choice.

READ MORE: Marketing for Short-Term Health Plans May Mislead Consumers

To that end, states across the country have implemented their own regulations to ensure consumers do not fall into health plans that are inappropriate for their health and financial needs.

Because state authority supersedes that of federal agencies when it comes to these insurance regulations, states have the power to protect consumers from flimsy health plans and potentially exorbitant out-of-pocket costs.

Numerous states had these types of provisions before the Trump Administration decision to expand access to short-term health plans. However, nine states and the District of Columbia did put new plans to protect consumers into action as a direct result of the 2018 rule.

“Decisions by states to regulate or ban short-term plans were based on concerns for consumers and the stability of health insurance markets,” the report authors said, noting the statewide resistance to the rule. “Some concerns centered on the coverage limitations of short-term plans.”

State efforts to protect patients from flimsy plans included:

• Requiring certain benefits
• Requiring a medical loss ratio
• Limiting ratio factors
• Mandating protections for re-existing conditions
• Strictly limiting rescissions
• Limiting who can enroll on short-term plans
• Disclosure of plan limitations and consumer education

READ MORE: CMS Final Rule Extends Short-Term Health Insurance to 3 Year Max

Some states took an innovative approach to this, the authors said. In Hawaii, only individuals who are not able to enroll in an exchange for that plan year may enroll in a short-term plan, considerably shrinking the pool of consumers looking into short-term plans. Washington state prohibits the sale of short-term plans during the open enrollment period.

What’s more, these efforts were largely bipartisan, the report noted.

“One factor credited for bipartisan consensus was the efforts of advocates to educate legislators on the nature and limitations of short-term policies,” the researchers wrote. “Advocates said they laid out the differences in benefits between individual market and short-term policies.”

There were some states that had policies to protect consumers before the administration expanded enrollment duration for short-term health plans. While some states banned the sale of short-term health plans altogether, others put in place provisions that would limit those plans.

Twenty-two states had limited short-term plan duration to 12 months. Other states banned “stacking,” a practice in which health plans will sell multiple short-term plans to consumers with consecutive start dates.

These state policies may serve as a paradigm for other states going forward, a move the researchers said would behoove states that have not already put in their own protections.

“In states that take no steps to protect consumers, premium costs for ACA-compliant coverage are likely to rise and consumers will discover too late that their short-term plan does not provide the protection they expect,” the researchers cautioned. “An increasing number of people will likely be left with denied claims or find themselves uninsured when their coverage is rescinded.”

However, it would also benefit policymakers to be agile and ready to adapt any protections that may not be improving healthcare costs and access to insurance coverage.

“Although the effects of these state actions on the broader insurance markets is still unknown, these efforts show that regulating the short-term market is feasible,” the researchers concluded. “Legislation can be passed with support across party lines and with the backing of large health insurers, as well as consumer and patient advocates.”