Jesus Mesal, Health Payer Specialist, July 14, 2023
The Biden administration’s proposed restrictions on short-term private health plans aim to protect consumers, but they raise questions about the future value potential of a thriving market segment and do little to quell the controversy about insurance criticized by some as “junk.”
Short-term plans offer flexible coverage periods, such as 30 days or three years, and cost 50% to 80% less than individual market coverage. They are not regulated to the same extent as plans offered in the Affordable Care Act insurance marketplaces and can, for example, exclude pre-existing conditions or limit the number of visits or coverage amounts.
The proposal from the Department of Health and Human Services, the Labor Department’s Employee Benefits Security Administration, and the Internal Revenue Service would restrict them to three months, or to four months at a maximum.
These “misleading insurance products” can “trick consumers into buying products that provide little or no coverage when they need it most,” says a joint statement from the agencies.
The plans, devised as a way for consumers to plug short-term gaps in coverage, have remained a source of political contention since the ACA was enacted in 2010. In 2016, the Obama administration limited their coverage period to three months to address concerns that consumers might choose these plans over comprehensive coverage under the ACA.
Two years later, former President Donald Trump reversed the rule, arguing that consumers should have choice. He extended the allowable duration of short-term plans to a year, with option for consumers to renew them for up to three years. Unlike the ACA’s once-a-year open-enrollment period, these plans are accessible at any time during the year.
Since the policy swing, the short-term health insurance market has emerged as a thriving segment experiencing significant growth. The firm Persistence Market Research reports that its value reached $41.1billion in 2022, with the Trump administration rule change playing a substantial role in this expansion.
Democratic lawmakers have long advocated for measures to limit the impact of short-term plans. They argue that these lower-cost plans provide minimal coverage and have the potential to lure Americans away from more-comprehensive ACA plans.
The proposed rule could increase ACA marketplace enrollment by an estimated 60,000 individuals in the years2026, 2027, and 2028. Enrollment in ACA plans hit 16.3 million people this year, according to HHS.
“They are called ‘junk’ plans for a reason,” said Diana Zuckerman, president of the National Center for Health Research. Zuckerman questioned why the Biden administration took so long to take this step and does not agree with the argument that having one of these plans is better than having no coverage at all. Short-term plans end up being more expensive for Americans because many people cannot afford the bills they receive when they do not have coverage for emergencies, she said.
“When more people have high-quality health insurance, we are all better protected. These plans do not provide the 10 essential health benefits required by the ACA,” she told Health Payer Specialist. “People claim they have a choice, but what we have observed is that due to misleading marketing, many customers do not fully understand what they are purchasing, and it ends up costing millions of dollars for all Americans.”