Trump administration makes way for cheaper but riskier health plans

The Trump administration has further opened the door for insurers to market short-terms plans intended to be available at cheaper costs but without the protections now covered by Affordable Care Act.

The administration unveiled a new proposed rule from the U.S. Departments of Labor and Treasury on Feb. 20 that would expand short-term plans from the current three-month limit to a full year.

The proposed regulations come in response to an Oct. 12, 2017, executive order signed by President Donald Trump, said Seema Verma, administrator for the Centers for Medicare and Medicaid Services, or CMS, which oversees the government's health insurance programs.

The short-term policies, sometimes called "skimpy plans" or "junk insurance" by opponents, would be free of the ACA's mandates requiring 10 essential health benefits, including preventive care, prescription drugs and hospitalization, which in turn could prompt patients to cut back on medication or postpone surgeries and other treatment.

Several groups in fall 2017 had warned that opening up the much cheaper, but riskier, short-term plans would siphon off younger, healthier Americans from the individual market, leaving those with chronic or serious illnesses in an unsustainable insurance pool, resulting in fewer choices and higher premiums.

The administration in its proposed rules acknowledged that the short-term plans would be unlikely to include the pre-existing condition protection included in the ACA and that participants could face annual or lifetime coverage caps.

It also admitted that consumers who purchase the short-term plans and then develop chronic conditions could face financial hardship as a result until they are able to enroll in ACA-compliant plans.

Plans must prominently display in their contract and their application materials that the policy is not required to comply with federal requirements for health insurance, including those prescribed under Obamacare rules, Verma told reporters during a Feb. 20 briefing.

The CMS estimated that the proposed rules would result in 100,000 to 200,000 additional people shifting from ACA-compliant individual market plans to the short-term plans in 2019, Verma said.

"And the shift will have virtually no impact on individual market premiums," she said.

Impact on monthly premiums

The proposed rule, however, states that the shift of those individuals "would cause the average monthly individual market premiums and average monthly premium tax credits to increase, leading to an increase in total annual advance payments of the premium tax credit" in the range of $96 million to $168 million.

The administration said that only about 10% of the people who seek the cheaper but riskier plans would have been eligible for ACA subsidies if they had maintained their exchange coverage.

The Trump administration is seeking comments on its calculations and said it welcomed other estimates of the increase in enrollment in short-term, limited-duration insurance under its proposal and the health status and age of individuals who would purchase the policies.

Health and Human Services Secretary Alex Azar said the proposed rules were a "step in the direction of providing Americans with health insurance options that are both more affordable and more suited to individual and family circumstances."

"In particular, we need to be opening up more affordable alternatives to the all too often unaffordable Affordable Care Act health insurance policies," Azar said.

He insisted that the "status quo is failing too many Americans who face skyrocketing costs and fewer and fewer choices."

The administration argued that consumers who would be likely to purchase short-term, limited-duration insurance for longer periods than the current three months allowed would benefit from increased insurance options at lower premiums — basing that assumption on fourth-quarter 2016 rates of $124 per month, versus $393 for an unsubsidized ACA-compliant plan.

Verma gave no timeline for finalizing the administration's proposals but noted that the public had 60 days to comment and that after a review of that input, officials would work as quickly as possible to release the final rule.

A parallel insurance market

Larry Levitt, senior vice president at the nonpartisan, nonprofit Kaiser Family Foundation, said expanding the short-term health insurance plans was "part of a strategy to create a parallel insurance market that does not comply with the ACA's rules."

"Short-term insurance plans will cherry-pick healthy people, leaving ACA-compliant plans to cover a sicker pool with higher premiums," Levitt said in a series of tweets on Twitter.

While low-income people would be protected from higher premiums by subsidies under the short-term proposal, "middle-class people with pre-existing conditions will feel the full brunt of higher premiums," Levitt said.

"Middle-class people buying their own insurance without any subsidies have seen their premiums rise significantly in recent years in parts of the country, so the impulse to do something to provide them with less expensive insurance is understandable," he said.

How attractive the 12-month, short-term health insurance plans would be is unclear, Levitt said. But he noted that in many states Americans already can simultaneously buy four three-month policies.

One thing holding back short-term health insurance policies now is that they do not comply with the individual mandate, so people buying them still owe a tax penalty, he said.

But Levitt noted that will change in 2019 because Congress repealed the ACA penalty under the Republicans' tax cut bill.

"With repeal of the individual mandate penalty and an expansion of short-term insurance plans, we're moving towards less pooling of sick and healthy people," Levitt said. "Yet, the ACA's protections for pre-existing conditions and premium subsidies are still in place."

"The expansion of short-term insurance plans is another wound to the structure of the ACA, but with the premium subsidies in place, the law is likely to persevere," Levitt insisted.