Wednesday, July 26, 2023

Limit short-term health plans to a...short term? Buyers and sellers speak out

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My last post considered a rule proposed by the Departments of Health and Human Services, Treasury and Labor to restore a three-month term limit on so-called Short Term, Limited Duration (STLD) health plans. Those plans are currently available for year-long terms in some states, renewable for up to three years.

My main point was that if the removal of the ACA’s original income cap on subsidies by the American Rescue Plan Act (ARPA), extended through 2025 by the Inflation Reduction Act, is not further extended, STLD plans will once again be the only viable option as of 2026 for some modestly affluent non-elderly people who lack access to employer-sponsored or other insurance. For that reason, I suggested that the proposed rule automatically sunset if the income cap on subsidies returns.

To review briefly: STLD plans are not regulated as insurance and not compliant with ACA rules for individual health plans. They are medically underwritten, do not have to cover the ACA’s Essential Health Benefits (drug and mental health benefits are often excluded or very limited), are not subject to the balance billing protection provided by the No Surprises Act, and generally cap benefits at $1 million or $2 million. Some but not all STLD plans have provider networks (and so some balance billing protection) and annual out-of-pocket caps for covered benefits.

For further perspective I turned to the comments submitted so far in response to the proposed rule. There are just 43, from a mix of consumers and brokers (as opposed to more than 25,000 for the FDA’s proposed ban on most noncompete agreements). All, perhaps not surprisingly, ask that the allowable STLD term not be shortened as proposed.

No insurance seeker left behind? Not quite

A fair number of consumer commenters and some brokers as well seem to be unaware of key features of the ACA marketplace, including the current absence of an income cap on subsidy eligibility, the generosity of subsidies and extent of subsidy eligibility created by ARPA, and the availability of Special Enrollment Periods for people who lose other coverage (e.g., an employer’s). Some comments are ideologically driven and express hostility to the ACA’s reshaping of the individual market.

A few brokers, however, detail remaining groups of people who have no viable option outside the STLD market who would be harmed if forced to find a new plan after four months (three months plus an allowed one-month extension). Some consumer commenters indicate that they are in one of these categories (derived largely from this broker comment), which include:

  • People in the coverage gap in states that have refused to enact the ACA Medicaid expansion — that is, adults with household income below 100% of the Federal Poverty Level, who don’t qualify for marketplace subsidies and in most cases also don’t qualify for Medicaid.

  • People who for whatever reason missed or skipped Open Enrollment or had their plans canceled — say, for failure to provide required documentation of income or immigration status.

  • The undocumented, or people visiting the U.S. for more than a few months.

  • Young adults, for whom 8.5% of income for high-deductible coverage (the max paid for a benchmark silver plan) may be a substantial bite (say, $262/month for a single person with an income of $37,000), and who can sometimes find adequate, much cheaper substitutes in the short-term market.

  • People who live in two states (you can keep switching marketplace coverage via SEP, but that’s tricky).

  • People who cannot find an affordable marketplace plan that provides access to needed providers. Provider networks in many ACA marketplaces are horrific, particularly for the lower-priced plans in each metal level.

  • Itinerant workers. Two brokers cited travel nurses, one claiming that there are 1.7 million of them.

Regarding those who realize they need coverage outside of the annual Open Enrollment Period: while some might regard that as a personal failure, it’s a “failure” to which almost anyone might find themselves susceptible — not least because of frequent administrative incompetence and error at the agencies that handle enrollment. (I knew of one Medicaid applicant who received a rejection notice, then, seven months later, an insurance card indicating coverage beginning at the time of rejection.) Blame who you will, ignorance of what’s available to nonelderly adults who lack access to employer-sponsored insurance is endemic. According to KFF’s most recent estimate, 64% of the 27.5 million uninsured are eligible either for Medicaid or for marketplace subsidies. Millions of people don’t know what’s available, don’t know how to access it, are tripped up by application complexities when they do try to enroll, or don’t recognize or act soon enough when they lose coverage — for example, if their income rises enough to disqualify them from Medicaid.

A fixed open enrollment period in the ACA marketplace is essential to keep people from enrolling only when they get sick. But given the hard realities created by our patchwork of health insurance programs, I thought one agent’s proposal was reasonable: “I would suggest that you change the maximum duration of the short term plan to be "to the end of the year (Dec 31)" in order to coordinate with the open enrollment effective date of ACA plan eligibility (Jan 1) and assure continued coverage.”

Those who prefer not to obtain ACA-compliant coverage

With respect to the limitations of STLD plans and protections offered by ACA-compliant plans, a Texas consumer’s comment is worth considering, notwithstanding a palpable hostility to the ACA:

I have been truly flummoxed by the people who say my short-term plan (that I have 24 month contract for) is "junk" insurance. I have spent hours and hours researching plans after obamacare upended the market, and the only "junk" insurance plans I've found were on Those are accepted by virtually no private doctor or facility, only by one publicly funded hospital and doctors tied to that hospital (in one of the largest counties in Texas). When I broke my arm, I was taken to a private hospital, and my "junk" insurance paid fully, quickly, and without complication. On obamacare plans, I would have been out of network at virtually every hospital and doctor I saw during that illness.

It’s true that provider networks in Texas are often extremely limited, as Dallas-area broker Jennifer Chumbley, president and CEO of KG Health Insurance, has described to me in detail. In response to this comment, Chumbley also pointed out, however, that while certain STLD plans might work well for a broken arm, coverage is likelier to be more problematic for severe illness, such as cancer.

First, Chumbley noted, drug coverage is generally extremely limited. I checked out drug coverage in short-term plans available via eHealth in Dallas. Three out of four carriers offer no drug coverage. A third, United Health, caps drug coverage at $2,500 for 12-month plans with a $7,500 deductible, or $5,000 for plans with a $15,000 deductible; some longer term plans cover only physician-administered drugs. Coverage for non-generic drugs generally only kicks in after the deductible. Cancer drugs can run to hundreds of thousands of dollars.

Second, Chumbley suggested that when cancer treatment is sought, a short-term plan will look closely for evidence that the disease pre-existed coverage. Even if the insurer does ultimately grant coverage, they may hold up payment — and so, treatment — while they investigate.

As to the complaints about ACA-compliant coverage, Chumbley acknowledged again that networks can be very narrow but noted that for emergency care at least, the No Surprises Act has mitigated the harm, as emergency treatment (through stabilization) is no longer subject to balance billing. (Prior to the ACA, much of Texas was ground zero for rampant balance billing in emergency care.) But there’s no denying that major hospital systems are out of network in many, many ACA-compliant plans.

Regulating a grayish market

Regulating short-term plans more tightly — say, by subjecting them to the ACA’s MLR rule requiring that 80% of premium revenue be spent on medical care — is something of a Catch-22. Make the plans too good, and they will suck healthy people out of the ACA-compliant risk pool. Leave them barely regulated — free to spend, say, 45% of premium dollars on medical care — and people will get burned, deceived in many cases by predatory brokers.

More than one commenting broker who opposed restoring the three-month term limit expressed support for the bulked-up disclosure the proposed rule would mandate. The disclosure as currently drafted details the limitations of STLD plans and the availability of marketplace coverage:

IMPORTANT: This is short-term, limited-duration insurance. This is temporary insurance. It isn’t comprehensive health insurance. Review your policy carefully to make sure you understand what is covered and any limitations on coverage.

This insurance might not cover or might limit coverage for:

  • preexisting conditions; or

  • essential health benefits (such as pediatric, hospital, emergency, maternity, mental health, and substance use services, prescription drugs, or preventive care).

  • You won’t qualify for Federal financial help to pay for premiums or out-of-pocket costs.

  • You aren’t protected from surprise medical bills.

  • When this policy ends, you might have to wait until an open enrollment period to get comprehensive health insurance.

  • Visit online or call 1-800-318-2596 (TTY: 1-855-889-4325) to review your options for comprehensive health insurance. If you’re eligible for coverage through your employer or a family member’s employer, contact the employer for more information. Contact your State department of insurance if you have questions or complaints about this policy.

As noted by Georgetown’s Sabrina Corlette in Health Affairs, “The tri-agencies [issuing the proposed rule] seek public feedback on ways to prevent or mitigate the potential that consumers will mistakenly purchase STLDI instead of comprehensive coverage during the annual open enrollment period.”

* * *

The alternative market would not be necessary in a healthcare system where good-enough insurance is not only available, but positively hard to avoid — for all. The ARPA boosts to ACA premium subsidies got us closer to that point, but by no means all the way there. And given the very possible sunsetting of the ARPA subsidy schedule in 2026 — with restoration of the income cap on subsidies at 400% FPL — the STLD market’s dysfunctional place in a dysfunctional system may swell again.

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