On February 20, 2018, the Departments of Health and Human Services (HHS), Labor and the Treasury released a proposed rule that would increase the length of coverage for short-term health insurance plans from three months to 364 days. They proposed this rule in response to an executive order President Trump issued in October 2017 telling these departments to propose regulations or guidance that would make this type of insurance more available in order to encourage consumer choice and provider competition in the health insurance market.
“For Americans who have been priced out of Obamacare plans, who can't find a plan that will cover their doctor, or who are looking for affordable coverage between jobs, these short-term plans could make a lot of sense,” wrote Alex Azar, U.S. Secretary of Health and Human Services, in a February 23 op-ed published by CNN.
In October 2016, the Obama administration capped the duration of these plans at three months because of concerns that the plans were allowing people to skirt the healthcare law and keeping healthier people off the exchanges created under the Affordable Care Act (ACA). The Trump administration wants to remove the three-month cap in order to expand insurance options for individuals who don’t have health insurance through an employer or through the exchanges. According to the Kaiser Family Foundation, insurers have already found a way around the three-month limit by offering four-packs of three-month plans that only require the applicant to qualify once.
The proposed rule is now in a comment period that ends April 23. During this period, anyone can express their opinions about the proposal. The government will then review the comments and decide whether to enact the rule into law as is or make changes. Unlike bills that must be passed by both the House and the Senate and then be approved by the president in order to become law, agency rules easily become law after the public comment period ends. Thus, we can expect some version of this rule to become law in the next few months.
Potential Benefits of Increasing Short-Term Coverage
By increasing the maximum length of a short-term policy from three months to 364 days, people who might otherwise be uninsured may be able to purchase short-term coverage instead. These people include:
- individuals who missed the Affordable Care Act’s open enrollment period and who don’t qualify for a special enrollment period
- individuals who have lost their jobs and can’t afford COBRA health insurance (see What You Need to Know about COBRA Health Insurance)
- individuals who are between jobs and don’t have access to employer-based insurance
- students who are taking time off from school
- individuals who don’t have in-network access to their preferred providers through an ACA policy
- individuals who only have access to a single insurer under the ACA
- individuals who can’t afford the premiums of an ACA-compliant policy
In more than half of U.S. counties, according to HHS, only a single insurer participates in the ACA market. Many insurers have left certain markets because of large financial losses. In Alaska, Iowa, Oklahoma, South Carolina, Wyoming and several other states, the entire state has only a single insurer through the exchange.
The HHS fact sheet on the proposed rule says that in the fourth quarter of 2016, a short-term, limited duration policy cost about $124 a month, while an ACA-compliant plan cost $393 a month without subsidies, a difference of $269 per month, or $3,228 per year. A Kaiser Family Foundation analysis found even bigger differences when obtaining quotes for a 40-year-old male in some cities. The least expensive short-term plan in Chicago, for example, costs just $55 per month (the most expensive, however, costs $573) while the least expensive bronze marketplace plan, without subsidies, costs $305, a difference of $250 per month. (For another premium-cutting option see How High-Deductible Health Plans Work)
Potential Drawbacks of Increasing Short-Term Coverage
Short-term, limited-duration health insurance works the way all non-employer-based health insurance worked before the Affordable Care Act. Here are its potential downsides:
- It can exclude applicants with preexisting conditions.
- When policyholders submit claims, insurers can investigate whether the claim could be denied based on an undisclosed preexisting condition.
- Insurers can decline to renew policies for people who develop a condition during the policy term.
- It doesn’t have to cover all the conditions and treatments that Affordable Care Act policies must cover, such as maternity care and mental-health care. The plans will, however, be required to come with a disclaimer that they don’t meet the ACA’s consumer protection requirements.
- Individuals who buy short-term policies may not understand the limitations of their coverage and may find out too late that their medical bills aren’t covered.
- There are no limits on out-of-pocket cost sharing. The Kaiser Family Foundation found limits as high as $22,500 for three months of coverage in Miami, Atlanta, Chicago and Houston. ACA-compliant plans cap out-of-pocket cost sharing at $7,350 per year.
- There are limits on coverage. ACA-compliant plans can’t limit annual or lifetime coverage. The Kaiser Family Foundation found that limits of $250,000 to $2 million for three months were common for short-term plans. (See Why People with Good Health Insurance Go into Medical Debt.)
- Policyholders aren’t eligible for subsidies because short-term plans aren’t ACA compliant.
- For 2018, short-term policyholders may have to pay tax penalties for not having minimum essential coverage. The tax penalty for not having an ACA-compliant policy starts to disappear in 2019.
- Short-term policies may siphon healthy individuals away from ACA-compliant policies. This could lead to ACA policies becoming even more expensive because the ratio of sick to healthy people they cover will likely increase. Democrats have criticized short-term health plans as undermining the ACA.
The Bottom Line
Short-term policies can offer more choices and considerable savings to individuals who are healthy and stay healthy. They do so at a cost to individuals who carry ACA-compliant policies.
Marketplace policyholders can expect to pay higher premiums as short-term policies siphon healthy people away from the exchanges. They can also expect to see more insurers leave the ACA marketplace as it becomes increasingly expensive to cover less-healthy individuals who can only get insured through the marketplace.