The Trump administration this week issued a final rule reversing federal limits on short-term health coverage, allowing such plans to become a long-term alternative to individual market coverage. Starting in October, insurers will be allowed to sell short-term plans for just under 12 months, up from the current federal limit of three months. And in a sharp break from prior regulations, insurers can renew short-term plans for up to 36 months. The rule does strengthen a consumer notice required in application materials, but the notice does not need to inform consumers of all limitations and “fine print.” Importantly, the rule does not preempt state regulation that includes shorter limits on coverage.
Short-term plans are not required to comply with the Affordable Care Act’s (ACA) consumer protections, meaning insurers that sell these policies can deny coverage to individuals with preexisting conditions and are not required to cover essential health benefits. These plans are typically marketed to healthy consumers, for whom coverage with limited benefits and a low premium may appear attractive.
In the past, many state insurance departments have had to warn residents about deceptive marketing practices sometimes undertaken by short-term plan sellers, which can lead consumers to believe they are buying a comprehensive policy when they are not. During the fall open-enrollment seasons for ACA marketplaces, these plans will be competing for consumers’ premium dollars with comprehensive coverage, introducing the possibility of still greater consumer confusion.
We surveyed the Departments of Insurance (DOIs) in the 17 state-based ACA marketplace states to understand how the market for short-term coverage is working on the eve of this policy shift. We found that most states have little information about the status of their current short-term plan markets. Additionally, inconsistencies in how states have collected and reviewed the premium rates and contracts for short-term plans will make it difficult to assess how the market is responding to the new federal rules.
Most States Do Not Have a Complete Picture of the Current Short-Term Market
With the exception of New York, which doesn’t permit short-term plans, 16 states in our survey require insurers to file for approval in order to sell short-term policies. However, once these policies are approved, few states require annual reapproval unless policies undergo significant rate or benefit design changes. Most DOIs acknowledged that insurers with short-term policies that were approved decades ago could potentially market them to consumers this fall without any additional regulatory approval.
As a first step to prepare for the Trump administration’s rulemaking, some states started to identify their approved short-term sellers and which ones are actively marketing. For example, in Maryland, the legislature directed the DOI to contact every approved short-term plan insurer to determine whether they are actively marketing. Similarly, Oregon is now reviewing advertisements for short-term products, and insurers marketing products that are at least five years old have been asked to refile with the state. However, overall, few states are aware of which short-term insurers are actively marketing. A few DOI officials also explained that with the new rule, more short-term plan insurers are likely to market within their state.
Insurers Marketing Short-Term Plans Are Generally Different Than Those Marketing Individual Plans
We compared the list of 2018 marketplace insurers to those who have been approved to sell short-term policies. Four of the 17 states (Massachusetts, New York, Rhode Island, and Vermont) in our survey have no approved short-term sellers because they require such plans to play by some or all of the same rules as traditional coverage. While the data are limited,1 it appears that 11 of the 17 states have more insurers approved to sell short-term plans than individual plans. There tends to be little overlap among the companies, although there are a few approved to sell in both the individual and short-term markets.
This separation poses a risk to individual market stability, as short-term sellers may target healthy marketplace consumers, undercutting ACA-compliant insurers. In return, ACA-compliant insurers may be incentivized to start selling short-term policies in order to shift and maintain their healthy enrollees in those plans. Indeed, the Trump administration expects that as many as 500,000 individual market enrollees will migrate to short-term plans in 2019. Because they will be relatively healthy, their departure will cause premiums in the individual market to increase by a projected 5 percent. This increase will come on top of other projected increases resulting from the repeal of the ACA’s individual mandate penalty and the expansion of association health plans.
The final rule allowing short-term policies to be sold for longer durations puts enrollees at financial risk, as they unknowingly enroll in the skimpier policies that do not meet their health needs. In turn, the shift of large numbers of healthy consumers to the short-term market will increase prices for those remaining in the individual market. As a new market of long-term short-term plans emerges, states need to understand their short-term market in order to protect consumers and maintain a stable individual market. This can begin with an assessment of which insurers are actively marketing in the state. States also may want to ensure that any short-term plan sellers seeking to offer coverage that mimics the 12-month duration of ACA-compliant coverage submit plan designs, rates, and marketing materials for review and approval, as Vermont has done recently. Doing so will allow states to have a firmer understanding of the insurance products being sold to their residents, and will better position them to reduce consumer confusion and monitor for potential fraud.