The U.S. Department of Health and Human Services is proposing to reverse federal limitations on short-term insurance, which does not have to comply with Affordable Care Act (ACA) market rules like preexisting condition protections and coverage of mental health services and other essential benefits. A new proposed rule rescinds the minimal restrictions limiting contract length to no more than three months, with no renewals. These were put in place to prevent insurers from siphoning off healthy enrollees from the individual marketplace and leaving consumers without affordable comprehensive insurance options.
If these changes are finalized, regulation of short-term policies will be left almost entirely to the states — many of which have few, if any, standards in place. To better understand the regulatory landscape for these insurance products and highlight opportunities for state policy action, we surveyed 10 states (Alaska, Arizona, Florida, Illinois, Michigan, Minnesota, Mississippi, New Jersey, Oregon, Pennsylvania) about their legal authority over these products and interviewed regulators. States were selected based on their differing approaches to regulation as well as their geographic diversity.
State Regulation of Short-Term Plans Is Limited, But Some States Provide Key Consumer Protections
In our 10-state sample, oversight of the short-term market at the state level is limited, and protections for people with preexisting conditions are largely nonexistent. All but one surveyed state, New Jersey, exempts short-term plans from some consumer protections that otherwise apply to the individual market. (Short-term plans are not sold in New Jersey.)
While regulation is minimal, there are some state-level consumer protections:
- Short-term plans are not available for sale in New Jersey because comprehensive insurance reform in the 1990s required insurers to sell only standardized health plans.
- Four states limit the length of short-term contract terms to 185 days or less and restrict renewals (Arizona, Michigan, Minnesota, Oregon).
- Five states require coverage of some individual market benefits (Florida, Illinois, Michigan, Minnesota, Oregon).
There are other ways some states protect consumers by regulating short-term coverage. For example:
- Minnesota requires an external review process for adverse claims.
- Alaska regulators extended premium rate filing requirements to short-term plans.
- Alaska requires short-term plans to comply with minimum reimbursement levels for out-of-network services.
- Michigan keeps these products a small part of an insurer’s individual market portfolio by limiting the share of individual market premiums an insurer can collect from short-term products.
Regulators See a Place for Short-Term Plans, But Some Are Concerned About Consumer Risk and Marketing Practices
Regulators in a number of surveyed states suggested short-term plans provide a legitimate coverage option for people facing short gaps in insurance or eligibility barriers to marketplace enrollment. A few regulators said they assume consumers read insurance contracts and are therefore aware of benefit limits and exclusions prior to enrollment.
However, others have received complaints from consumers unaware their plan was not comprehensive coverage or that they could be refused a policy at the end of the contract term. Regulators noted an increase in complaints about brokers using deceptive practices to enroll people in short-term plans over the phone. States such as Alaska, Indiana, Iowa, Nebraska, and Wyoming have recently advised consumers to exercise caution in purchasing short-term plans.
Looser federal restrictions will likely lead to growth in the short-term market. Some of the largest insurers in the market, including UnitedHealth and the IHC Group, are preparing to increase sales. Aetna is considering a return to the short-term market. If a significant number of healthy individuals shift to short-term policies, prices in the individual marketplace are expected to rise and plan options may decrease – making it harder for consumers to find affordable insurance that covers their health needs. While regulators in Minnesota believe their relatively strong regulation of the short-term market, such as limiting the duration of short-term policies, puts them in a better place compared to other states, regulators are still concerned with the adverse effects expansion of short-term coverage will have on individual market rates. States with few or no standards may experience greater adverse effects.
States can increase consumer protections and ensure that people are not left without coverage for mental health, substance use, maternity, and other essential services. They can ban short-term plans, limit their duration and renewability, increase oversight of the products and their marketing, and make them comply with some or all individual market standards. By taking these actions, states can help protect consumers from deceptive sales tactics, ensure a level playing field for companies selling health insurance, and help moderate premium increases in the individual market.
Updated since original publication on January 30, 2018.