3 things to know about proposed expansion of short-term insurance plans

Under a newly proposed rule from HHS, short-term health insurance coverage that doesn’t comply with the Affordable Care Act (ACA) would be more widely available, which the agency admitted may lead to insurer losses on the ACA exchanges if younger, healthier customers leave that market to buy short-term plans.

The Trump administration touted the rule as a way around “soaring healthcare premiums” and fewer choices in the existing individual market.

“Americans need more choices in health insurance so they can find coverage that meets their needs,” HHS Secretary Alex Azar said in a statement. “The status quo is failing too many Americans who face skyrocketing costs and fewer and fewer choices. The Trump Administration is taking action so individuals and families have access to quality, affordable healthcare that works for them.”

Here are three important aspects of this proposed rule:

1. What coverage short-term plans provide

Short-term plans aren’t required to comply with ACA regulations. This means plans could charge more based on pre-existing conditions, include annual or lifetime limits on benefits and exclude the ACA’s essential health benefits like maternity care or prescription drug coverage.

The proposed rule would require insurers offering these plans to tell customers they’re buying coverage which doesn’t qualify as essential minimum coverage under the ACA. This would’ve meant buyers would be responsible to paying the penalty for violating the ACA’s individual mandate, but that penalty won’t exist after this year thanks to a provision in the tax cut legislation passed late in 2017.

2. Changing the definition of “short-term”

Short-term plans have continued to be available since the ACA was passed. A 2016 rule from the Obama administration limited the duration of these plans to three months, but the proposed rule would reverse this and allow them to last long as 364 days.

In the proposed rule, CMS said the three-month limit left policyholders with no coverage options if they developed a health condition during that time, as other short-term offerings may deny them coverage and they likely wouldn’t qualify for a special enrollment period to buy an ACA exchange plan.

3. Impact on ACA risk pool

The risk pool on the ACA exchanges has been an issue since they opened for 2014 coverage, with the covered population being sicker and older than insurers expected. The three-month limit on short-term coverage was part of the previous administration’s efforts to attract younger customers which could improve the pool and thus lower costs.

CMS Administrator Seema Verma said on a conference call with reporters she expects only a “very small number of healthy people” to leave the ACA market and buy short-term coverage instead.

“Specifically, we estimate that only 100,000 to 200,000 people will shift. And this shift will have will have virtually no impact on the individual market premiums,” Verma said.

The proposed rule itself, however, said the wider availability of short-term plans could weaken the individual market risk pool, resulting in financial losses for insurers which may then decide to leave the exchanges—essentially reducing choices for plans which comply with the ACA by expanding options for plans which don’t.

“If individual market single risk pools change as a result, it would result in an increase in premiums for the individuals remaining in those risk pools,” the proposed rule said, adding this may also increase costs for the federal government as it will pay more in premium support subsidies if rates rise.