Uninsured individuals will no longer be allowed to purchase short-term limited-duration insurance (STLDI) with a term of more than 90 days, plus a one-month renewal option, beginning September 1, 2024, under a rule issued by the Centers for Medicare and Medicaid Services (CMS).
The new rule is likely to face legal challenges similar to what happened when the Trump administration introduced its rule in 2018.
Under the Trump rule, each state could allow short-term plans with terms of up to one year, with an option to renew for up to three years. The Biden administration was unambiguous as to why it reversed course.
“These regulatory amendments further the goals of the Affordable Care Act (ACA) by improving access to affordable and comprehensive coverage, strengthening health insurance markets, and promoting consumer understanding of their coverage options,” states the CMS press release on the regulation, on March 28.
‘How Insurance Used to Work’
Short-term plans are primarily attractive to individual purchasers because the premiums are a fraction of the cost of Obamacare plans and come with a variety of deductibles.
However, unlike Obamacare, the plans do not cover pre-existing conditions. Consumers buy the plans as a “safety net” to cover unlikely but high-cost medical events. A typical consumer is someone with middle income and no Obamacare subsidies who is too young for Medicare and finds premiums to continue a former employer’s group health coverage is too expensive, says Kansas State Sen. Beverly Gossage (R-Eudora), a licensed health insurance agent.
“I had a client who needed emergency gallbladder surgery,” said Gossage. “Since it was not a preexisting condition, his short-term plan covered the entire $95,000 treatment bill, less his $2,500 deductible. This is how insurance used to work before Obamacare. Agents were like underwriters and could shop plans best suited for their client’s needs, not just the one-size-fits-all ACA plans.”
New Rule Hurts, not Helps
The final rule makes government-regulated health insurance worse, not better, says Michael Cannon, director of health policy studies at the Cato Institute.
“Under the new rule, it is possible that a consumer could face up to 12 months with no insurance,” Cannon said. “In fact, the Congressional Budget Office estimates one-half million consumers would lose comprehensive insurance coverage.”
Uninsured consumers are vulnerable to crushing medical bills. In a March 14 paper, “Biden Short-Term Health Plans Rule Creates Gaps in Coverage,” Cannon provided the example of Jeanne Balvin.
In 2017, Balvin opted for an STLDI plan from UnitedHealthcare with a monthly premium of $274 a month and a $2,500 annual deductible. The cheapest Obamacare plan for a 61-year-old woman at that time was $744 with a $6,000 deductible.
Balvin developed diverticulitis, requiring several surgeries. But under the Obama administration’s rule at the time, much like the Biden rule now, Bavin’s plan ended mid-treatment.
“Balvin lost her coverage and was ineligible to enroll in an Obamacare plan for six months,” wrote Cannon. “Requiring her insurer to cancel her plan after just three months left Balvin with $97,000 in medical bills.”
‘A Reasonable Alternative to Obamacare’
STLDI is derided as “junk insurance” by supporters of government health care, but limiting the term of coverage to four months makes such policies worse, says Cannon.
“Longer contract periods and renewals increase health plan quality by increasing enrollees’ ability to pool their medical expenses with others and by enabling continuous coverage,” wrote Cannon. “By prohibiting these features, the Departments would be requiring STLDI issuers to offer lower-quality coverage.” (emphasis in original)
Cannon says the entire purpose of the joint rule from the U.S. Departments of Health and Human Services, Labor, and Treasury is to protect Obamacare, not patients.
“Their objection to STLDI is not that it is low‐quality but that it is of sufficiently high quality that millions of consumers are choosing it as a reasonable alternative to Obamacare,” wrote Cannon. “STLDI is too good, so the Departments are trying to make it bad. It is too comprehensive, so the Departments want to make it less comprehensive. The NPRM (Notice of Proposed Rulemaking) reveals the Departments’ actual purpose is to boost Obamacare enrollment by punishing consumers who make what the Departments—not Congress—believe to be the ‘wrong’ choice.”
‘Federal Regulators Lack Statutory Authority’
The STLDI rule is contrary to the U.S. Supreme Court’s decision in King v. Burwell, the 2015 case that interpreted the provisions of the ACA, wrote Cannon.
“Federal regulators lack statutory authority to implement this proposal,” wrote Cannon. “They should abandon it and reaffirm their current interpretation of the statute, including their finding that current STLDI rules can improve Obamacare’s performance. Furthermore, Congress should codify current STLDI rules, and states should exempt STLDI from all health insurance regulations.”
Cannon told Health Care News that it would be easy for Congress to make the Trump administration’s STLDI rules permanent. “Codifying the current rules, which allow short-term plans to last 12 months and allow renewal guarantees, would only require a few lines of legislative text,” said Cannon. “It would be a simple change and should be small enough substantively to insert in a larger piece of must-pass legislation.”
And that change could benefit individuals in the ACA marketplace as well as those who purchase STLDI policies, says Cannon.
“Codifying those rules would prevent future administrations from undoing them,” said Cannon. “It would eliminate the regulatory uncertainty that has prevented insurers from investing in renewal guarantees that would yield numerous benefits, including reducing Obamacare premiums.”
AnneMarie Schieber (amschieber@heartland.org) is the managing editor of Health Care News.
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