Short-Term Health Plans Sold Through Out-of-State Associations Threaten Consumer Protections
The number of people buying short-term, limited-duration policies appears to have increased following the Trump administration’s move to extend the contract term of such policies to just under 12 months, up from three months. This extension has raised concerns that short-term policies may be deceptively marketed, with some sellers leading consumers to believe they are buying a comprehensive policy when they are not.
State insurance departments bear the primary responsibility for regulating short-term plans and protecting consumers. Twenty-four states have stricter limits on short-term plans than the federal floor and several more are trying to educate consumers to prevent abusive sales tactics.
However, states’ efforts may be undermined by a loophole that limits their ability to perform basic consumer protection functions. We reviewed brochures for the “best-selling” plan on ehealthinsurance.com offered by each short-term insurer in six states and found that many short-term plans are being sold through out-of-state associations that are exempt from state regulation.
Short-Term Health Plans Are Skirting State Regulation
Out-of-state associations file insurance products for approval in one state and then sell the same policies in other states. (These entities are different from associations that sponsor their own health plans under ERISA, which is now easier to do under recent Trump administration regulations. Association health plans are employment-based health plans, while these out-of-state associations selling short-term plans to individuals are created by insurance companies that typically have no relationship to an employer plan.) In the past, many states have exempted policies issued by out-of-state associations from some or all of their market standards, including benefit mandates and rate and form filing requirements. In those states, the association is then regulated by the state of approval, rather than the state in which the consumer purchases coverage.
Interviews with brokers and state regulators reveal that this regulatory loophole is now being used by associations as a vehicle for marketing short-term policies. These anecdotal reports are supported by our own review of short-term plan marketing brochures. For instance, in Florida, Iowa, and Mississippi, a short-term plan offered by UnitedHealthOne specifies that, in most cases, coverage will be determined by the policy approved under Arkansas law.
In fact, references to associations were found in 28 of the 34 short-term policy brochures we reviewed. In some instances, consumers are required to join the association in order to secure short-term coverage, though they may not understand what this means in terms of losing access to the consumer protections of their home state. Other plan brochures mention an association without noting if membership is required. There appear to be few, if any, membership requirements beyond the payment of dues. While information in these brochures is limited, the reference to associations corroborates what some state regulators are reporting: a proliferation of short-term policies in their state, which they have neither reviewed nor approved themselves.
Challenges for State Regulators and Consumers
State efforts to regulate their short-term markets may be hindered by this backdoor approach, because they either have no mechanism to monitor sales by out-of-state associations or they are constrained by state law from regulating such associations.
This creates a number of problems: regulators lose the ability to effectively monitor their market, prevent noncompliant products from being sold, ensure that premiums are appropriately set, and protect consumers who run into problems with their plans. States must depend on the states where policies are approved to ensure they comply with legal standards and to prevent fraud and abuse, but often insurers file the master group policy in states with lax standards.
Consumers who purchase short-term policies are likely unaware that their own state insurance department may not be able to help them if they have a problem getting services covered or medical bills paid. Consumers also are left to rely on brokers — some selling products online or over the phone — to adequately explain the risks of enrolling in a plan that may be outside of their state’s regulatory jurisdiction. In the end, consumers may purchase products without protections, such as mandated benefits or a right to an external appeal.
Looking Forward: What Actions Can States Take?
The short-term plan market is expanding and some consumers are expected to purchase these policies as a substitute for traditional comprehensive health insurance. Unfortunately, ambiguity in state jurisdiction has opened the door for some companies to use out-of-state associations as a tool to avoid regulatory oversight by state regulators. The result is likely to increase consumers’ exposure to deceptive marketing and, in some cases, high medical bills.
To adequately protect consumers, states need to pass legislation or clarify that they already have clear regulatory authority allowing officials to regulate all short-term plans sold to their residents, including those sold by out-of-state associations. As the market grows, state insurance departments will need greater capacity to proactively monitor the sellers of short-term plans, analyze data about their marketing practices, respond to consumer and provider complaints, and step in when they find cases of deceptive marketing, fraud, and abuse.