The “ping-ponging” of rules on short-term limited duration health insurance (STLDI)is wreaking havoc on underwriting in the insurance markets, said panelists in a discussion hosted by the Cato Institute on October 15, 2024.
The focus of the discussion was President Biden’s new rule limiting the duration and renewability of STLDI. President-elect Donald Trump or a new Congress could reverse the rule, or it could be challenged in court.
In his first administration, Trump issued an executive order allowing states to offer the plans for one year and renewable for three years beyond that, a rule that held up in court.
In July 2024, President Joe Biden reversed the rule, limiting the plans to four months with no option to renew. The change strips the plans of any value because if someone gets sick, the policyholder can expose themselves to up to one year until they can jump onto an Obamacare plan.
Michael Cannon, Cato’s director of health policy studies led the discussion with panelists Natasha Murphy, director of health policy at the Center for American Progress, and Sal Nuzzo, executive director for Consumers Defense.
Different Standards Applied
STLDI represents a small section of the insurance market, said Cannon at the discussion. An estimated three million people are enrolled in such policies.
The plans are far more affordable than non-subsidized Obamacare plans but don’t cover preexisting conditions and things like mental health. Obamacare supporters attack the plans as “junk insurance.”
“If that sort of imperfection means a product is bad or dangerous, Congress should ban it or slap a warning label on it, but then we should apply that rule consistently, to Obamacare plans,” said Cannon at the discussion.
Obamacare plans offer little variation in coverage and have become a “race to the bottom” with increasingly narrow networks, Cannon told the audience. The rule that Obamacare plans must cover everyone, regardless of risk, becomes in effect, a “price control,” when insurers cannot charge more money to higher-risk enrollees, said Cannon.
“There has always been an incentive for insurers to skimp on care for the sick,” said Cannon. “What Obamacare’s preexisting conditions [rule] did was to take away what was once an option for insurers—to shortchange their enrollees—to now make it mandatory.”
Beefing up Obamacare
Murphy said Biden’s restriction on short-term plans intended to encourage people to enroll in Obamacare plans.
“When you take a look at some of the people enrolled in [STLDI], they can be younger, lower-income, who are price-sensitive, who find these lower premium amounts enticing,” Murphy told the audience. “We don’t want to leave people in these plans longer than they should have to [be], to protect them.”
Nuzzo said he has long been a consumer in the individual market and has enrolled in short-term plans.
“If the three-month rule was in place, I would not have considered a short-term plan,” Nuzzo told the audience.
Americans at Risk
Biden’s removal of renewability “does exactly what Congress has been trying to prevent for the 30-so years it has been regulating,” because it exposes consumers to big gaps when it is impossible to get coverage, Cannon told the gathering. The renewal feature “is a product intended to fill gaps in coverage,” said Cannon.
“I think the [Biden] rule is vulnerable to legal challenge, particularly after the recent Supreme Court ruling, Loper-Bright, because the agencies have no authority to regulate, much less ban [renewability],” said Cannon.
Loper-Bright was a landmark 2024 Supreme Court decision that limited federal agencies’ latitude in interpreting Congress’ intent.
Let’s Make a Deal
Congress could make the Trump rule permanent as a tradeoff for Obamacare subsidy hikes, Cannon told the audience.
“There will be a debate in 2025 about enhanced Obamacare subsidies,” said Cannon. “Maybe there should be a deal, a reauthorization of the subsidies for a limited time, and codify the Trump rule.”
Nuzzo said he would prefer an even playing field in the insurance market. Employers get tax incentives to provide health care when the self-employed or unemployed don’t.
Germany allows a market for health insurance with no price controls, “where insurers can risk-rate their premiums and then offer renewal markets,” Cannon said. The same approach could work in the United States, Cannon told the audience.
AnneMarie Schieber (amschieber@heartland.org) is the managing editor of Health Care News.
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