The Obama administration is seeking to limit short-term health policies that include features largely banned under the Affordable Care Act, a proposal that could crimp a profitable and growing business for some insurers.
Under a proposed rule released Wednesday, insurers would only be able to offer short-term health policies that last less than three months, and the coverage couldn’t be renewed at the end of that period. The proposal seeks to close a gap that has let healthier consumers purchase short-term plans that could last for nearly a year, sometimes using them as a cheaper substitute for ACA plans.
The proposal and other initiatives released Wednesday by the Department of Health and Human Services aim to reduce the upward pressure on health-insurance premiums for ACA plans by bolstering the presence of healthier, less-expensive consumers in the health-law marketplaces’ insurance pools.
The short-term plans often lack the benefits included in full ACA-compliant health coverage, and typically don’t cover pre-existing health conditions. To get them, consumers generally have to fill out forms attesting that they are healthy. The short-term plans haven’t been considered individual health insurance, so they have been exempt from the ACA’s coverage standards.
The short-term policies also don’t spare consumers from the health law’s penalties for lack of coverage. But despite those growing penalties, sales of the short-term plans have surged since the law’s major coverage provisions came into effect in 2014, according to insurance agencies.
EHealth Inc. has said the number of people applying for short-term policies on its site last year was nearly 147,000, slightly down from 2014 but more than double the figure for 2013, before the ACA took full effect.
The short-term plans can be far less expensive than ACA plans because of their thinner benefits, and because enrollees tend to have fewer health costs. Those low costs also mean the products can generate much higher profit margins for insurers, partly because they don’t have to meet ACA rules that require a large share of premiums to go for health-care expenses.
But the short-term plans’ popularity created a challenge for the ACA’s marketplaces, siphoning off healthy people who were needed to help make the ACA insurance business work. Those consumers could then add to the costs of ACA plans if they bought the fuller coverage only when they developed significant health needs.
In announcing the new proposed rule on short-term coverage, the Obama administration pointed to an April Wall Street Journal article that detailed the growing sales of short-term policies and the implications of their use as a substitute for ACA plans. “By keeping these consumers out of the ACA single risk pool, such abuses of limited duration coverage increase costs for everyone else, and they could have a greater impact over time if allowed to become more widespread,” the Department of Health and Human Services said in its announcement.
The new proposal would make it very difficult to use short-term policies as a realistic alternative for full ACA plans, said Raj Bal, an insurance industry consultant. The short-term plans were “a back-end substitute,” he said. “It’s going to close that hole.”
The proposal would likely hurt sales of the short-term plans, he said, and the ones that lasted for more months generated more revenue for insurers.
Sam Gibbs, executive director of AgileHealthInsurance.com, a unit of Health Insurance Innovations Inc., a seller of short-term plans, said “the short-term market is growing, and it’s serving a need, and we need to make sure the rule doesn’t have adverse effects on consumers.” He said some people need temporary coverage to plug a hole that is longer than three months.
UnitedHealth Group Inc., which has previously said its short-term plans aim to fill gaps in coverage, said it was reviewing the proposal. EHealth, which sells short-term plans from various insurers, including some under its own brand, also said it was reviewing the proposal.
In addition to the proposal on short-term plans, the Obama administration said it intended to propose changes to the way plans compensate each other for taking on a sicker-than-average population, in a system known as risk adjustment.
The federal regulator also unveiled the details and timing for implementing a previously announced initiative that will boost the requirements for people who enroll in ACA plans outside the annual fall open-enrollment period.
The department also said it will start contacting consumers who have plans on the health law’s exchanges as they near the age of 65 to give them information about enrolling in Medicare.