Before the implementation of the Affordable Care Act (ACA), health plans could deny coverage to people with preexisting conditions, set premiums based on health status, and exclude essential health benefits like emergency services, mental health treatment, and maternity care. The ACA eliminated most of these plans. Now some California legislators fear a return to the “old Wild West days, pre-ACA, with what’s sometimes termed as ‘Swiss cheese benefits,’ policies that have a lot of holes,” said Michael Lujan, an executive with Oscar Health, in an interview with Capital Public Radio’s Sammy Caiola.

This fear stems from the Trump administration’s final rule on short-term health plans, released last week. Because short-term plans are intended to serve only as stopgap coverage, they are exempt from the ACA’s patient protections. However, the new rule allows insurers to sell short-term plans that cover up to 12 months instead of three months and can be renewed for up to 36 months in all. This will likely drive younger, healthier people to leave the ACA marketplace for short-term plans with lower premiums and skimpier coverage, which will in turn destabilize the ACA’s risk pools. Learn more about the potential impacts on California’s individual health insurance market in this report by Georgetown University’s Center on Health Insurance Reform.

States that are concerned about the “Swiss cheese benefits” that short-term plans provide are already moving to limit them with regulatory authority that was not changed by the new federal rule. In California SB 910, a bill introduced by State Senator Ed Hernandez (D-West Covina) to prohibit the sale of short-term plans, has passed the California Senate and is awaiting a vote on the State Assembly floor, reports California Healthline. The bill would prohibit insurers from selling plans that provide less than 12 months of coverage.

$900,000 in Unexpected Medical Debt

Two months after Kevin and Linda Conroy of San Diego purchased a short-term plan, Kevin suffered a heart attack and underwent triple bypass surgery. The family’s insurer, HCC Life, refused to pay Kevin’s medical bills, leaving the Conroys on the hook for $900,000. Reed Abelson of the New York Times reported that HHC Life rescinded the policy and sued the Conroys, claiming that Kevin “failed to disclose he suffered from alcoholism and degenerative disc disease, conditions he said were never diagnosed.” The case has been litigated in federal court for more than two and a half years, and court records indicate the parties are nearing a settlement that will avert a trial.

Some states have already blocked the sale of short-term plans for longer periods under the Trump administration’s final rule. In the New York Times, Robert Pear reported that Maryland and Vermont have limited short-term plans to three months with no renewals allowed. Hawaii has passed a law that not only sets a three-month limit on short-term plans, but also forbids insurers from selling these plans to people who were eligible for coverage through the ACA in the prior year.

At a recent meeting of the National Association of Insurance Commissioners, state insurance regulators expressed concern that neither the Trump administration nor insurers are being clear about the limited coverage of short-term plans. Lori Wing-Heier, director of Alaska’s Division of Insurance, told the Huffington Post’s Jonathan Cohn, “I’m concerned that people will buy these policies, show up at the hospital for a condition they did not expect, and discover they are not covered.” Short-term plans do not have to cover essential health benefits like prescription drugs or maternity care, Cohn writes. They are also permitted to deny coverage to people who have preexisting conditions.

Strong Profit Incentives for Health Insurance Companies

Margot Sanger-Katz cautions in the New York Times that insurers and brokers have a powerful financial incentive to sell short-term plans. Health plans on the ACA exchange are mandated to limit overhead costs and profits to 20% of premiums. Short-term plans, on the other hand, are not. This means insurers can keep higher profits from short-term plans and pay brokers higher commissions for referrals.

The Economist calls short-term plans “an ingenious run around Obamacare’s regulations.” Several states appear to be moving to prevent this, but others are not. We will see what impact that has in the coming years on coverage in California and nationwide.

What have you read about “Swiss cheese benefits”? Tweet at me with #EssentialCoverage or email me.

Xenia Shih Bion

Xenia Shih Bion is a communications officer at CHCF, where she helps to lead communications around the foundation’s work to create health equity. She is the founding author of the “Essential Coverage” column in The CHCF Blog. Read More

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