Thursday, May 05, 2022

If HHS cuts back short-term plans, they'd best be sure that the ARP subsidy boosts are extended

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 Alice Ollstein of Politico relays:

[HHS Secretary] Becerra says he's "in the midst of rulemaking" to crack down on skimpy health insurance plans that Democratic lawmakers and activists call "junk plans." No word on when that rule could come out, but it would undo the Trump admin's rule opening the door to more of those plans.

The "skimpy health plans" are so-called short-term limited duration (STLD) plans promoted and facilitated by the Trump administration. STLD plans are not ACA-compliant: they don't have to cover the ACA-mandated Essential Health Benefits (and usually don't provide coverage of most prescription drugs), and they are medically underwritten, meaning that applicants with pre-existing conditions can be charged more, denied coverage altogether, or offered coverage with the pre-existing condition excluded.

The ACA didn't kill STLD plans, but as enrollment in such a plan does not satisfy the individual mandate to maintain health insurance, reliance on them could be very expensive until the Republican Congress zeroed out the mandate penalty, effective in January 2019.  In 2016, the Obama administration finalized a rule that limited their duration to three months, effective in 2017. In 2018, the Trump administration countered with a rule, effective October 2, 2018, extending the allowable term to a full year, with up to two years of renewal. In tandem with the zeroing out of the individual mandate penalty, this stimulated a parallel market of comparatively cheap plans, which gave rise to a marketing tsunami (largely online) steering people toward these plans. Insurers pay much higher commissions for STLD plans than for ACA-compliant plans. Unlike ACA-compliant plans, STLD plans are not required to spend 80% of premiums on enrollees' medical costs, and sometimes spend as low as 45%.

Progressives reacted with outrage to the Trump administration's fostering of STLD plans and other ACA non-compliant alternatives. The enhanced STLD market was designed to undercut the ACA marketplace, draining out relatively healthy people (who could withstand medical underwriting) and leaving many enrollees exposed to high and sometimes catastrophic healthcare costs. Most (not all) STLD plans do not have a provider network: they pay a fixed rate (say, 150% Medicare) to any provider the enrollee accesses, exposing the enrollee to balance billing (and enrollees are not protected by the No Surprises Act, which bans most balance billing in ACA-compliant plans). They often exclude key benefits, most often including maternity care, mental health care, preventive care, and prescription drugs, as Louise Norris (citing KFF) explains. They also usually have a cap on benefits, say $1 or 2 million -- which is illegal for ACA-complaint plans.

The hard fact is, however, that STLD plans partially filled a gap left by the ACA's inadequate subsidy structure -- that is, prior to the subsidy boosts provided through 2022 by the American Rescue Plan, which Democrats have yet to extend with new legislation. Before ARP, coverage was often unaffordable for people with income above the cap on subsidy eligibility, 400% of the Federal Poverty Level (currently $51,520 for an individual $69,680 for a couple, $106,000 for a family of four) -- as well as for some who were subsidy eligible. In 2018, a pair of 60-somethings with an income of $66,000 (just over the 400% FPL threshold) could pay over $2,000 a month for bronze coverage with a deductible north of $6,000 for each. (I provided a somewhat less extreme illustration of unaffordability here.) Unsubsidized enrollment in ACA-compliant plans cratered in response to steep premium hikes in 2017 (a needed market correction) and 2018 (triggered in large part by the Republican repeal drive and legislative assaults), dropping from 6.7 million in Q1 2016 to 3.4 million in Q1 2019, according to KFF estimates. Before the ARP was implemented, takeup of ACA coverage by those who were subsidy eligible was below 50%, also according to KFF. And in fact, average monthly enrollment in the ACA marketplace did not decline during the Trump years, unless you include the off-exchange ACA-compliant market, which is unsubsidized, and was cut in half. (While signups during Open Enrollment did decline by about 10%, improved retention offset the apparent losses.)

Moreover, some STLD plans at least are emphatically better than nothing.  Here is a tale of an STLD plan from United Health Care with a decent out-of-pocket maximum and a decent provider network.

Since Trump  and Republicans in Congress opened the ACA-noncompliant floodgates, some people have doubtless been harmed by inadequate coverage, and some who are eligible for hefty ACA premium subsidies were likely steered away.  There are, however, some mitigating factors that might give HHS pause. They include:

  • More than half of states now either limit STLD plan durations to six months or less or ban them entirely.

  • The ARP subsidy boosts give the ACA marketplace a much more credible claim to offer affordable comprehensive insurance to all. At low incomes in particular, plans with actuarial values that exceed those of most employer-sponsored plans are available free or at very low cost.

  • Importantly, the wild west of Internet search for health insurance was substantially cleaned up in advance of Open Enrollment for 2022, thanks to efforts by HHS, the state-based exchanges, the commercial broker HealthSherpa, and the major search engines.  A search for "health insurance" now consistently brings up, the federal exchange, at the top of results; add a state name, and the appropriate state exchange (for the 18 states including DC that run one) will top results. 
The middle point -- that ACA subsidies now offer more or less affordable coverage to people of all incomes who lack access to other comprehensive insurance -- is double-edged. Extension of the ARP subsidies beyond this year is by no means certain -- it's stalled with the rest of Democrats' Build Back Better agenda, though it will probably be included if any fragment of that package is salvaged. If the marketplace subsidy schedule reverts to pre-ARPA limits, the need for ACA-noncompliant alternatives -- yes, there was a need -- will also snap back. The marketplace as originally designed and enacted did not meet its promise of "affordable" coverage to many who needed its services. That was a disgrace, and failure to extend the ARP subsidy increases would be a more egregious disgrace, a failure informed by hindsight.

If the ARP subsidies are extended, limiting STLD plans to three months might make sense, but it also might not matter that much. The cleanup of online search, the Biden administration's bulked-up budget for enrollment assistance and marketing, and the adequate subsidy schedule -- along with state regulation -- might detoxify the STLD market, regardless of extended duration allowed in some states. 

1 comment:

  1. This is a very good summary of a thorny problem. I was not aware that a person with short term coverage would not be protected by the No Surprises Act.

    Now, the person who can pass underwriting for a short term plan will probably not need coverage for anything in the next 12 months. But of course they might, and then their shabby coverage is revealed.

    It is a classic example of what Tressie Cottom described as "negative social insurance:...

    “Unlike actual social insurance programs”, she explains, negative social insurance “doesn’t actually make us more secure. It only makes our collective insecurity profitable.”