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

Note: All xpostfactoid subscriptions are now through Substack alone (still free), though I will continue to cross-post on this site. If you're not subscribed, please visit xpostfactoid on Substack and sign up! 

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.

Psst, red states, want to destroy your ACA-compliant market? Set strict standards for short-term plans

Most discussion of the Trump administration's finalized rule allowing short-term health plans to be sold for a term of up to one year and renewed for up to three years spotlights not only the likely damage to risk pools in the ACA-compliant market, but also the dangers to enrollees posed by far-from-comprehensive insurance.

The Kaiser Family Foundation, for example, analyzed current short-term offerings available in 45 states. The report emphasized the impact of medical underwriting, exclusions for pre-existing conditions, medical loss ratios averaging 67% (and 50% for the two largest carriers) -- and the holes in coverage:

Of the short-term products offered on eHealth and/or Agile Health Insurance across all states, 43% do not cover mental health services, 62% do not cover services for substance abuse treatment (both alcohol and other drugs), 71% do not cover outpatient prescription drugs, and no plans cover maternity care. In seven states, none of these four benefit categories are covered in the short-term policies offered.

The plans on offer on eHealth.com do look pretty bad. I looked at one that does provide "prescription drug coverage" -- with a relatively low deductible of $1000 -- but with this caveat:

Covered after plan deductible when prescribed on an inpatient basis for a covered Injury or Sickness. Outpatient not covered; discount only.

As for the hospital where you have to get that covered drug prescription: benefits are capped at $1000/day.

When reading about such Swiss-cheese coverage, I've wondered: what if the federal government or a state required these medically underwritten plans to meet ACA standards, or something close to them? -- e.g., cover Essential Health Benefits, offer actuarial value of at least 60%, perhaps meet a minimum MLR of, say 75%? Or: what if insurers decided to take advantage of a new market opportunity and offer ACA-comparable plans in the noncompliant market?  Suppose they offered EHBs and a relatively high actuarial value, but with a yearly benefit cap?

I suspect that the public policy impact might be worse than under current rules, which allow plans to exclude pretty much whatever they want.

Not drowning but waiving: Timothy Jost on how Democrats might compromise responsibly on ACA

There's news today -- good news -- of Democrats in both the House and Senate acknowledging flaws in the ACA and proposing their own fixes (House) or exploring bipartisan fixes with Republicans (Senate).

All reports of such discussions or proposals include a couple of no-brainers: 1) a permanent reinsurance program, such as those included in both the AHCA (the House repeal/replace bill) and the BCRA (the Senate iteration), and 2) permanent assurance that the ACA's Cost Sharing Reduction subsidies will be paid, which isn't a conceptual fix, just an agreed end to Republican sabotage.

There's scarce discussion of what Democrats would give up to get Republicans to drop their deadly assault on the ACA's core features and all Medicaid as well, that is, the assault against 1) the taxes that fund the ACA's extension of health insurance access; 2) the ACA Medicaid expansion; 3) the federal government's open-ended commitment to pay its agreed share to each state for all those who are determined eligible Medicaid; and 4) income-based private market subsidies funded at ACA levels, whether structured differently or not.

One possible field of compromise is in the structure of the ACA's Section 1332 "innovation waivers," which allow states to propose variations on ACA marketplace structure to HHS. Through these waivers, states can propose alterations to almost any ACA Marketplace feature -- including repealing the individual and employer mandates, changing subsidy structure and eligibility, and altering the Essential Health Benefits that every insurance plan is required to offer. The catch is that the state seeking a waiver must demonstrate -- and convince the Medicare actuary -- that its alternative scheme will cover as many people as comprehensively and as affordably as the default structure -- and do so without increasing the deficit. Critics complain that the option effectively boils down to "you can change everything, as long as you don't change anything." That's not true, but the guardrails are pretty tight.

Republican can do what they will to American healthcare -- by accepting the Affordable Care Act

Ask Republicans how they will reform the health insurance market if they succeed in repealing the Affordable Care Act and you will not get a substantive "replace" plan. You will, however, hear three desiderata: 1) give states more control of their insurance markets; 2) give insurers more freedom to design plans outside ACA-imposed constraints; and 3) give consumers in the individual insurance market more choice (though the ACA marketplace shelves in most regions at present are not what you would call bare).

If Republicans were sincere about changing the market in this direction, they would have enormous leverage to do so, both by working within the ACA's essentially federalist (or "state-deferential") structure and by negotiating changes to the law that Democrats would surely accept in exchange for an end to dead-end opposition.

Let's count the ways that Republicans in state government and Congress could shape the health insurance markets to their liking, starting with the tamest and moving toward the most aggressive.

Conservative reform of the ACA: cutting strings at different ends

When those few conservatives who would genuinely like to see affordable health insurance available to all Americans -- and the many Republican office holders who pretend to -- float alternatives to the Affordable Care Act, they talk about making insurance more affordable, about offering more choice and flexibility to insurers and hence to customers.

Giving insurers more flexibility generally means three things. First, reducing or eliminating the ACA's federally mandated Essential Health Benefits (EHBs) -- which include mental health, drug treatment, childbirth and children's dental coverages that many people might plausibly protest they don't need. Second, allowing sale of plans with lower actuarial values -- the percentage of the average user's annual medical costs paid by the plan -- than the ACA allows. The law sets a floor of 60% AV in both the employer and individual markets and, in the exchanges, establishes silver-level 70% AV plans as the benchmark to which subsidies and Cost Sharing Reduction subsidies (boosting AV for lower income buyers) are tied. Third, widening the allowable price variation according to the plan holder's age and allowing price variation according to sex.

There's much less here than meets the eye.

Two ways to reform the ACA's free preventive services

The Wharton School's Mark Pauly has co-authored an article (with Duke's Frank A. Sloane and Sean D. Sullivan at U. Washington) arguing that the free preventive care services mandated by the ACA to be covered by all insurance plans should be subject to cost-benefit analysis. Currently they are not; the decisions of the two entities that determine which preventive services must be provided for free  "are based on a comparison of health benefits and risks alone," as Rebecka Rosenquist summarizes on the blog of the Leonard Davis Institute at Penn. She further notes:

Pauly and colleagues note that the groups “have no responsibility for a total expenditures budget for medical services that would constrain their recommendations.” They cite an analysis that shows a 1.5 percent increase in private insurance premiums due to the cost of the US Preventive Services Task Force recommendations. “When they do recommend a new costly vaccine or service, that recommendation usually increases both public and private spending (including insurance premiums).”

Indeed. Outcomes research funded by the ACA should also shape Medicare reimbursements, but demagogic screams about health care "rationing" made that impossible. Recall, too, the outcry in November 2009 when the US Preventive Services Task Force -- one of the two agencies* charged with setting the ACA's free preventive services mandates -- downgraded its mammography recommendation for women under 40, deeming that the decision whether to undergo the test should be based on individual circumstance.  The ACA drafters rushed to mandate free mammograms at any age.

Can states "repeal and replace" the ACA? Nicholas Bagley on the scope of the law's "innovation waivers"

There is a paradox in the power the Affordable Care Act lends to states to devise alternative means to meet the law's goals. On the one hand, the scope of the law's Section 1332 "innovation waivers" is sweeping: states can propose alternatives to the law's coverage rules, funding and subsidy formulas, and mechanisms for compelling participation, i.e., the employer and individual mandates.

On the other hand, the alternatives proposed in waiver applications must provide coverage "at least as comprehensive" as that defined by the ACA and protections against excessive out-of-pocket spending that render coverage at least as affordable as stipulated by the ACA. Waiver proposals must also cover "at least a comparable number" of the state's residents and must not increase the federal deficit.

Does the left hand's demand of equivalence take back the right hand's proffer of freedom of design? I posed the question to Nicholas Bagley, a health law scholar at the University of Michigan and  former appellate attorney at the U.S. Department of Justice who blogs about health law and policy at The Incidental Economist.

Republicans wouldn't scrap the main driver of ACA rate shock

As the reality that millions have benefited from full implementation of the Affordable Care Act takes hold, more and more Republicans are resorting to what Ezra Klein has dubbed Fauxbamacare: propose to repeal the hated law, replace all its popular components without providing any details.

Progressives counter that if you claim you want to make health insurance affordable to all, unless you come out in favor of a single payer system there is no real alternative to the basic structure of the ACA: guaranteed issue (that is, no variation in health plan price based on a person's medical history), an individual mandate or equivalent* to offset the influx of sick people into the risk pool, and subsidies (or Medicaid) for those who can't afford the premiums.

While that's mostly true, it's also true that some plans crafted to current conservative specs look significantly if not radically different from the ACA. The vast majority of Republican elected officials have shied from putting forward such a plan -- or ignored the one put forward by Senators Coburn, Burr and Hatch --  since such alternatives require tough tradeoffs. The main difference is that conservative schemes give insurers more leeway to sell plans with skimpier benefits and lower premiums. They eliminate or vastly reduce the Essential Health Benefits (EHBs) mandated by the ACA. They loosen the allowing "age banding" of premiums -- the degree to which older buyers can be charged more than younger ones -- from the ACA-mandated 3-to-1 to the pre-ACA norm of 5-to-1.

It's true that for healthy people who were buying insurance in the individual market prior to the ACA, the law's coverage rules substantially drove up the premium price. Rate shock is a real phenomenon. As the complaints poured forth, the EHBs were a prime attack point.  "I'm 55 -- I don't need childbirth coverage." "I'm of sound mind -- I don't need mental health coverage."  Limited age-banding was also a rallying point, since the 5-to-1 ratio was based on actuarial calculations.  Why should a 23 year-old pay more so that a 58 year-old can pay less?

These complaints have some legitimacy. The EHBs and age-banding limits involve tradeoffs that can be argued from either side. But they are not the prime drivers of the rate hikes caused by the ACA.

Obamacare to be repealed and replaced in 2017...

In at least one state, that is.

Almost everything that Republicans who profess to want to reduce the ranks of the uninsured on the ACA's scale say they want to do can be done via state waivers effective 2017.

Here is a summary of ACA Sec. 1332, Waiver for State innovation, from an ACA outline posted on the Democratic Policy and Communication Center website:

Beginning in 2017, allows States to apply for a waiver for up to 5 years of requirements relating to qualified health plans, Exchanges, cost-sharing reductions, tax credits, the individual responsibility requirement, and shared responsibility for employers. Requires States to enact a law and to comply with regulations that ensure transparency. Requires the Secretary to provide to a State the aggregate amount of tax credits and cost-sharing reductions that would have been paid to residents of the State in the absence of a waiver. Requires the Secretary to determine that the State plan for a waiver will provide coverage that is at least as comprehensive and affordable, to at least a comparable number of residents, as this title would provide; and that it will not increase the Federal deficit.