Short-Term Plans Could Short-Change Consumers

Stories that caught our attention this week

Insurance claim forms with a perscription bottle
The new short-term plan rule will take effect right before the Affordable Care Act’s open enrollment period begins on November 1, 2018.

Earlier this year, Anna Letsos, a 48-year-old consultant in Chicago, got a mammogram. She figured her insurer would pick up the bill, as is standard with health plans purchased on the Affordable Care Act (ACA) insurance exchange.

Except — Letsos didn’t purchase an ACA-compliant plan. She told Bloomberg reporters Zachary Tracer and Emma Ockerman that she chose to buy short-term health insurance for herself and her family this year. Short-term plans are exempt from the ACA’s patient protections, which means they don’t have to cover costs for preventive screenings like mammograms or other essential health benefits like maternity care, mental health services, and prescription drugs. Letsos’ insurer did not cover her mammogram and has requested five years of her medical history before it will agree to pay.

Essential Coverage

Letsos’ story illustrates an important shortcoming of short-term plans: Although their premiums tend to be lower than those of comprehensive health plans, the actual out-of-pocket costs for care incurred by short-term plan consumers can be steep and are often unexpected. Short-term plans are only intended for limited periods of time, like employment gaps, during which people are not covered by employer health benefits. Under the current rule, short-term coverage cannot exceed three months. But this week, the Trump administration issued a final rule that insurers will be able to sell short-term plans that cover up to 12 months and can be renewed for up to 36 months. POLITICO’s Paul Demko writes that the rule delivers “another blow to Obamacare that increases access to cheaper, skinnier coverage that doesn’t adhere to the health care law’s standards.”

The New Rule

Proponents of short-term plans say they give consumers more and cheaper coverage options. In the Washington Examiner, the Cato Institute’s Michael F. Cannon writes, “The new rule will expand consumer protections for the sick, cover up to two million uninsured people, reduce premiums for millions more, protect conscience rights [the rights of health care providers to refuse to provide certain health care services on religious or moral grounds], and make Obamacare’s costs more transparent.” Administration officials estimate that consumers who choose short-term plans will pay about half of what is charged for ACA insurance premiums.

Critics of short-term plans warn that the plans are skimpy and that many consumers won’t be aware of the limits of the coverage, even for some common medical treatments or services. For example, in addition to excluding essential health benefits, some short-term plans exclude immunizations, joint replacement surgery, or injuries related to organized sports. In the New York Times, Margot Sanger-Katz highlights the fine print found in some short-term plan agreements: Some plans impose a one-month waiting period for cancer treatment, and others only cover hospitalizations beginning during the week. Good luck if you need to be hospitalized over the weekend for a soccer league injury!

Sanger-Katz also cautions that insurers and brokers have an incentive to sell short-term plans. The plans are exempt from the ACA rule that requires health plans on its exchange to spend at least 80% of all premium dollars on medical care, limiting overhead costs and profits to 20%. Since insurers can make higher profits selling short-term plans, they can also pay brokers higher commissions for referrals.

Preexisting Problems

Finally, short-term insurers can bar people who have preexisting conditions from buying coverage. As we wrote last week, 27% of adult Americans under age 65 have preexisting conditions that could have left them uninsurable if they applied for individual market coverage in pre-ACA times. Since pregnancy, breast cancer, and even a history of domestic violence can be considered preexisting conditions, women are more likely than men to be sidelined by short-term plans.

Dawn Jones, an attorney in Atlanta, bought a short-term plan in 2014 as stopgap coverage between jobs. When she was diagnosed with breast cancer, her insurer refused to pay for her cancer treatment, leaving her with a $400,000 medical bill. Bloomberg reports that Jones took the insurer to court, but the judge sided with the insurer and dismissed the case on the grounds that the insurance policy stated that preexisting conditions wouldn’t be covered even if the customer was unaware of the condition.

The new short-term plan rule will take effect right before the ACA’s open enrollment period begins on November 1, 2018. Because of the relative affordability of short-term plans at the point of sale, the Centers for Medicare & Medicaid Services expects that enrollment in ACA plans could drop by half a million in the next year, POLITICO’s Demko reports. Younger or healthier people may flee the ACA marketplace, leaving remaining consumers with higher premiums.

However, the final rule does not change states’ regulatory authority, Julie Appleby writes in California Healthline. Stay tuned for a future edition of Essential Coverage looking at how policymakers across the country are responding to short-term plans.

In the meantime, have you read or written an article on how states are responding to the administration’s final rule? Share it with me via Twitter or email.