On February 20, 2018, the Trump administration announced a proposed rule to allow insurers to offer short-term, limited-duration insurance plans that provide coverage for a period of up to twelve months. The limit for this type of insurance is currently three months. The Administration touts the proposal as increasing affordable insurance choices for consumers who face rising premiums in the individual marketplace exchanges created by the Affordable Care Act (ACA). Short-term, limited-duration insurance plans, however, are unlikely to include many of the consumer protections required for their ACA counterparts. As a result, purchasers of short-term, limited-duration insurance plans may face greater out-of-pocket expenses, which could mean an increase in bad debts for hospitals that treat these patients.

Background

Short-term, limited-duration insurance is designed to provide temporary coverage for individuals transitioning between healthcare policies, such as an individual in between jobs, or a student taking a semester off from school. This type of coverage is exempt from the definition of individual health insurance coverage under the ACA and is therefore not subject to the ACA provisions that apply to individual health insurance plans. In other words, short-term, limited-duration policies are unlikely to include all the elements of ACA-compliant plans, such as the preexisting condition exclusion prohibition, coverage of essential health benefits without annual or lifetime dollar limits, preventive care, maternity and prescription drug coverage, rating restrictions, and guaranteed renewability.

Under regulations implementing Health Insurance Portability and Accountability Act (HIPAA), short-term, limited-duration insurance was once available for up to a twelve-month period. In October 2016, however, the Obama administration finalized a rule that limited insurers from offering short-term, limited-duration insurance for periods of three months or more, citing concerns that the pared-down insurance plans were being offered as a type of primary coverage and that adverse selection would negatively affect the risk pool for ACA-compliant plans. In October of 2017, President Trump issued an Executive Order instructing the Departments of Health and Human Services, Labor, and the Treasury to consider proposing regulations or revising guidance to promote healthcare choice and competition by expanding the availability of short-term, limited-duration insurance. The proposed rule is a direct response to the Executive Order.

The Proposed Rule

The proposed rule amends the definition of short-term, limited-duration insurance so that it may offer a maximum coverage period of less than twelve months, reverting to the pre-October 2016 standard. The preamble notes that, “short-term, limited-duration insurance has become increasingly attractive to some individuals as premiums have escalated for []ACA-compliant plans and affordable choices in the individual market have dwindled.”  The preamble cites an average monthly premium of nearly $400 for unsubsidized ACA-compliant plans and notes that 26 percent of enrollees (in 52 percent of counties) only have the option of a single insurer under the healthcare exchanges. During the same period, short-term, limited-duration monthly premiums averaged $124.

The Administration highlights the affordability of the short-term, limited-duration insurance option. In a press release dated February 20, 2018, U.S. Department of Health and Human Services (HHS) Secretary Alex Azar stated that, “Americans need more choices in health insurance so they can find coverage that meets their needs. . . . The status quo is failing too many Americans who face skyrocketing costs and fewer and fewer choices.”  CMS Administrator Seema Verma said, “In a market that is experiencing double-digit rate increases, allowing short-term, limited-duration insurance to cover longer periods gives Americans options and could be the difference between someone getting coverage or going without coverage at all.”

The proposed rule, if finalized, reignites some of the same concerns that the Obama administration raised when it restricted short-term, limited-duration insurance in 2016. In fact, the preamble discussion of the proposed rule acknowledges many of these concerns head-on. For example, “individuals who are likely to purchase short-term, limited-duration insurance are likely to be relatively young and healthy,” leaving a relatively higher risk pool of enrollees in the exchanges. The proposed rule estimates that in 2019, between 100,000 and 200,000 individuals previously enrolled in the ACA exchanges would exit to purchase short-term, limited-duration insurance policies. The effect on the insurance marketplaces are expected to be compounded as the Congressional Budget Office expects 3 million people to drop their individual health insurance coverage with the removal of the individual mandate penalty in 2019.

A concern for hospitals, in particular, is that individuals will face greater out-of-pocket expenses under short-term, limited duration plans as compared to ACA plans. The preamble states, “Consumers who switch to [short-term, limited duration] policies from []ACA-compliant plans would experience loss of access to some services and providers and an increase in out-of-pocket expenditures related to such excluded services” which could “possibly lead[] to financial hardship.”  The expected increase in out-of-pocket expenditures for this group could be the source of an uptick in bad debts for hospitals that treat these patients.

The Proposed Rule is available here.

The HHS press release is available here.