From Health Plan Week

HHS Proposes New Time Limits on Popular Short-Term Health Plans

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By ,
June 13, 2016Volume 26Issue 21

To improve the risk pool on public marketplaces that have sucked billions and billions of dollars from health insurers’ bottom lines, HHS on June 8 issued a draft rule to limit short-term health policies to no longer than three months, instead of up to a 12-month term as is now allowed, and to end renewals of these policies.

If HHS gets its way, the growing popularity of short-term health plans that do not qualify as coverage by Affordable Care Act (ACA) standards will diminish, and possibly as a result boost the number of younger, healthier individuals enrolling on ACA exchanges.

HHS’s plan would further mandate that insurers selling short-term coverage “clearly tell consumers that the plans do not qualify as coverage under the health law and that they may still face a tax penalty if that is the only insurance they have.”

The action on short-term policies was part of a broader effort announced by HHS on June 8 to strengthen the ACA marketplaces by tweaking risk-adjustment factors, encouraging seniors to enroll in Medicare and putting more bite into the agency’s new limitations on people seeking to enroll during so-called Special Enrollment Periods. These moves came a day before HHS Sec. Sylvia Burwell convened a June 9 conference to highlight ACA marketplace success stories in a broad confidence-building initiative meant to calm carriers who are concerned about the costs of remaining on exchanges.

On short-term health plans, the HHS message conveyed through the draft rule is that consumers are not free and clear from the ACA individual mandate if they purchase these non-compliant plans. The fines this year for not having acceptable coverage is $695 per adult or 2.5% of household income (whichever is higher), but the popularity of short-term plans, especially for young people, has grown exponentially.

And the people buying these skinnied-down plans are exactly the consumers that health insurers need to balance out a much sicker and older ACA exchange risk pool than most of them expected, market sources say. For instance, individuals between the ages of 18 and 34 made up 55% of all short-term insurance applicants at eHealthInsurance Services Inc. in 2014 (HPW 4/18/16, p. 1).

But will the HHS draft rule, if finalized, work to stem the short-term policy tide? Here’s a sampling of responses to an informal survey of noted health insurance industry consultants and observers:

Tom Miller, a resident fellow at the American Enterprise Institute

  • The [Obama] administration message to consumers desperate for non-ACA options: “You can still run, but there will be fewer places to hide.” They want your dollars to subsidize the coverage of others. (All the previous ways to do this through coercion and subsidies haven’t helped participating insurers’ books of business enough. This modest twist of the thumb screws won’t either.)

Tim Jost, a Washington and Lee University emeritus law professor who serves as a consumer advocate at the National Association of Insurance Commissioners

  • I do think the proposed regulation would go a long ways toward ensuring the short-term policies are limited to their real purpose — to cover brief gaps in coverage — and are not a means to siphoning healthy people out from the risk pool. I also believe that the proposed regulation should discourage unscrupulous insurance marketers from selling people on the idea that short-term coverage is real minimum essential coverage.

Erik Johnson, vice president for value-based care at Optum, Inc., a unit of UnitedHealth Group

  • I think this is a reasonable policy response — recognizing that short-term plans have some value but should be used only for short-term coverage. The way those plans are underwritten do pose a real threat to the exchanges, but they also fill a gap in the marketplace. This is a classic insurance spiral: consumers are going to look for these types of work-around plans as long as the rates continue to go up dramatically (or choice is increasingly limited) in the exchanges — and the more they opt out of the exchanges, the faster the premiums will rise. The exchanges need those healthy people in order to provide some predictability into their premiums, but if public policy fails to constrain the attractiveness in short-term plans, it’ll be difficult. Limiting duration and renewability are two good steps to balance the risk pools in the exchanges. I’m not sure it will be enough.

Deborah Chollet, Ph.D., fellow at Mathematica Policy Research

  • There are a few issues to keep an eye on: Many or most short-term policyholders probably already know that short-term policies are not ACA-compliant and therefore expose them to a tax penalty. Indeed, some issuers seem to be marketing them as less expensive (because of underwriting and limited benefits) even after the tax penalty. But restricting short-term policies to 3-month nonrenewable coverage should help substantially. I suppose a motivated consumer might sequence short-term policies, either from the same issuer (in states that don’t require issuers that sell multiple policies to substantially differentiate them) or otherwise by moving from issuer to issuer. Nevertheless, these new rules seem likely to resolve the most egregious situations.

The proposed rule is available in the Federal Register at 81 Fed. Reg. 38019 (June 10, 2016).

© 2015 by Atlantic Information Services, Inc. All Rights Reserved.

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