Tuesday, July 18, 2023

A caveat about curtailing short-term limited duration health plans

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It’s generally a good thing when the Biden administration repeals a Trump-era administrative rule. Under current ACA marketplace conditions, a rule proposed by HHS, Treasury and the Department of Labor to restore a three-month term limit on so-called Short Term, Limited Duration (STLD) health plans is a good thing. In a rule finalized in August 2018, the Trump administration extended the allowable duration of such plans to a year, renewable for up to three years, creating an alternative market to the ACA-compliant individual market.

STLD plans by legal definition are not insurance and not subject to regulation by the ACA, HIPAA, the No Surprises Act, or the law mandating parity between physical and mental health coverage (MHPAEA). STLD plans 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. These plans do not have to cover the ACA’s Essential Health Benefits and often exclude drug coverage and mental health care. They often have no provider network - -instead, they set their own rates in payment to medical providers and thus leave enrollees subject to extensive balance billing — which is still possible, as these plans are not subject to the No Surprises Act, which began protecting people in ACA-compliant plans in 2022. (In many markets, however, United HealthCare does offer STLD plans that have a provider network.)

For the Trump administration, which inherited Republicans’ dead-end opposition to and demonization of everything ACA, STLD plans represented a kind of ideal, harking back to the Shangri-la of the pre-ACA individual market, in which plans without restrictive provider networks (and with coverage limitations similar to those of STLD plans) cost lucky, healthy enrollees considerably less than unsubsidized ACA-compliant plans would later cost. Seema Verma, Trump’s CMS director, lionized “choice” — a market teeming with lightly regulated options offering very partial coverage — and that is what the Trump administration created. Verma even floated ACA “waiver concepts” inviting the states to seek approval for providing federal subsidies for ACA-noncompliant plans.

STLD plans spend as little as 45% of premium dollars on enrollee’s medical care, as opposed to the the 80% minimum required of ACA plans. Insurers pay much higher commissions for STLD plans than for ACA-compliant plans, and deceptive marketing for STLDs exploded online after the Trump administration extended the allowable term (the STLD market was further stimulated by the zeroing out of the individual mandate penalty for not carrying ACA-compliant insurance, effective in 2019).

While the Trump administration promoted bad solutions (see also association health plans) to the ACA’s shortcomings, it was responding to very real shortcomings — most notably, the unaffordability of ACA-compliant plans for a significant number of Americans who lacked access to other affordable insurance (e.g., through an employer or via Medicaid or Medicare). At inception, the ACA marketplace was seriously undersubsidized. Perhaps the most acute affordability problem (excepting those with incomes below the poverty line in states that refused to enact the ACA Medicaid expansion) was suffered by those with incomes modestly above the cap for subsidy eligibility — 400% of the Federal Poverty Level, which in the 2018 marketplace was $48,240 for an individual and $98,400 for a family of four (for Open Enrollment 2024, 400% FPL will be $58,320 for an individual and $120,000 for a family of four).

For those ineligible for subsidies, STLD plans were sometimes the only option that provided any level of coverage at anything approaching an affordable premium. Back in 2017, anticipating the Trump STLD term expansion, I spotlighted such a plight for a subsidy-ineligible 58 year-old in Pottsville, PA:

…the cheapest bronze plan available is from Geisinger at $898 per month. The deductible is $6,100, though doctor visits are not subject to it.. The cheapest silver plan is $1069 per month, offered off-exchange only, with a $5000 deductible...

…The cheapest [short-term] plan available in the Pottsville market [listed by online broker eHealth] is $88 per month. It has a $750,000 coverage cap for the three month duration, a $5,000 deductible, a $10,000 out-of-pocket maximum (including the deductible) and 50% coinsurance for various services. Subject to that coverage limit, it does offer catastrophic coverage of sorts.

The American Rescue Plan Act (ARPA), enacted in March 2021, largely eliminated plights like this — except, again, for people with income below 100% FPL in the ten states that still have not expanded Medicaid eligibility. With that cruel exception, no one — or rather, no citizen or legally present noncitizen — who lacks access to other affordable insurance pays more than 8.5% of income for the benchmark (second cheapest) silver plan in their area — and usually far less for bronze coverage. While paying 8.5% of income for a silver plan with, say, a $5,000 deductible (usually with many services not subject to that deductible) may not feel like the pinnacle of government largess, the days of facing premiums at 15-20% of income or more are, for the most part, gone for the present.

The key words here, though, are “for the present.” The subsidy cliff looms again, as the Inflation Reduction Act extended the ARPA subsidy increases (originally a pandemic “rescue” measure in effect through 2022) only through 2025. The odds that Democrats will control the House, Senate and presidency in 2025 are low. And while much of the venom has finally drained out of Republican hostility to the ACA marketplace, the odds that Republicans will accede to an extension of the ARPA subsidy schedule also seem low. Maybe a full or partial ARPA subsidy extension can be bargained for in an omnibus bill. Maybe Republicans won’t want to force — and be blamed for — a return of the subsidy cliff at 400% FPL. But a snap-back to the pre-ARPA ACA subsidy schedule, with its infamous subsidy cliff, seems far from unlikely.

If we do go back to the undersubsidized ACA future, the STLD market will once again be the only marginally viable option for a substantial number of people — perhaps 3-5 million. Absent the ARPA subsidy boosts, a pair of 64 year-olds in Charleston, West Virginia with an income just over 400% FPL ($78,880) would as of now pay $3,048 per month for the cheapest bronze plan — with a per-person deductible of $9,100. (West Virginia has the second-highest premiums in the country, and 64 year-olds pay three times as much as 20somethings. Premiums in West Virginia are so high that under ARPA, if the two 64 year-olds earn $500,000/year, they qualify for a $450/month subsidy.) In the current short-term market, according to eHealth, a 12-month UHC plan with a $7,500 per-person deductible, a $17,500 out-of-pocket max and a $1 million coverage cap is available (without taking account of pre-existing conditions) for $481 per month.

In Phoenix, Arizona (a state with premiums near the national average), absent ARPA, two 52 year-olds with income at 401% FPL would pay $885/month for the cheapest bronze plan — again, with deductibles of $9,100 each. With ARPA in place, the cheapest silver plan is available for $552/month. At present, a UHC 12-month short-term plan with the same $7,500 per-person deductible, a $17,500 out-of-pocket max and a $1 million coverage cap as in Charleston, WV is available to this Phoenix couple for $346/month — if they have no pre-existing conditions.

These UHC STLD plans do have some drug coverage, capped at $2,500. They do have a decent provider network, and they do have an annual out-of-pocket maximum for in-network care.

Absent ARPA, if I were half of the Phoenix couple I’d probably go for the ACA-compliant coverage. If I were part of the West Virginia couple, however (that much older, and in a high-premium state), I suspect I’d go for the STLD plan — and hold my breath till Medicare (where a different Hobson’s choice awaits, between Medicare Advantage at $328 month for two vs. traditional Medicare + Part D + Medigap, at more than double that).

My point, again, is that if the subsidy cliff returns, we will be back in a world where STLD is the only game in town for some. And we may very well be staring at a subsidy cliff again in 2026. For that reason, I would make the current proposed rule shortening STLD terms contingent on the continued absence of an income cap on subsidies. There is recent precedent for such contingency. In September 2021, CMS finalized a rule providing year-round marketplace enrollment for applicants with income up to 150% FPL, but made the rule contingent on the continued availability of free benchmark silver plans (provided by ARPA) up to that income threshold. At the same time, the stiff warnings as to the limitations of STLD plans that the proposed rule mandates — warning that the plans might not cover or might limit coverage for pre-existing conditions; needn’t cover EHBs’ don’t protect from surprise billing; and are not subsidy-eligible — should be permanent.

Some postscripts: 1. Sabrina Corlett of Georgetown University provides a very complete account of the regulatory history of STLD plans, the provisions of the proposed rule, the rule’s forecast effects on coverage, and its provisions for other sub-insurance products known as “excepted benefits” (e.g., fixed indemnity plans, plans covering specific conditions like cancer, and others). 2. With characteristic thoroughness and accuracy, Louise Norris covers every aspect of short-term plan coverage and who might need it under what circumstances. 3. In November 2021 I interviewed Louise about the skewed incentives that lead some brokers to sell as many STLD plans as they can.

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