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Government moves to curb short-term health insurance to boost Obamacare risk pool

Healthcare
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Short-term health insurance soon could get a whole lot shorter.

Federal officials Wednesday moved to improve the financial outlook of Obamacare insurance plans by calling for limits on increasingly popular short-term health plans that are siphoning off healthier customers from coverage sold both on government marketplaces and outside those exchanges.

The government's move would limit short-term health coverage for an individual to less than three months each year and bar renewal, as opposed to the almost 12-month term that some of those non-Obamacare-compliant plans are offering, along with a chance to renew.

The proposed rule, one of several moves announced Wednesday, is designed to nudge those healthier customers now in short-term plans into Obamacare plans sold on and outside of government-run exchanges, and improve their so-called risk pool, by balancing out less-healthy customers.

That, in turn, would bring in more premium dollars from people less likely to cost the plans money in the form of benefits paid out for medical care.

Theoretically, such a move would help keep premium price increases for Obamacare plans lower than they otherwise would be. If insurance plans pay out less in benefits than they receive in premiums, they can have lower annual price increases, or even make price cuts.

However, one potential side effect of the rule is that some people now in short-term plans would decide to forgo enrolling in Obamacare plans after their short-term coverage expired.

If the proposal is adopted, it would mean that people who used short-term insurance for up to three months would not be eligible to enroll in Obamacare plans until the next open enrollment season, unless they had some kind of life event — marriage, birth of child, residence move — that qualified them for a special enrollment period. People who lose health coverage that is compliant with Obamacare rules, such as job-based insurance, can enroll during a special enrollment period.

The proposal to limit enrollment in short-term plans is subject to a 60-day public comment period after it is officially published. After that, it will be up to regulators whether to adopt the rules as proposed, make changes to them based on feedback, or abandon the proposal.

The government's proposals come as many Obamacare plans are seeking double-digit percentage increases for 2017, based in part on arguments that their risk pools are sicker than than they had anticipated.

Health and Human Services Secretary Sylvia Burwell announced the proposal related to short-term plans by the HHS, and the departments of Labor and the Treasury, during a discussion with The New York Times editorial board that was live-streamed on Facebook. Burwell called the current short-term health coverage market "a loophole" in the Affordable Care Act.

Sales of short-term insurance have risen significantly since 2014, when Obamacare began taking full effect. While many people have been using the plans to obtain health coverage, the plans do not prevent those people from being subject to a tax penalty for failing to have coverage that meets minimum standards set by the Affordable Care Act.

The short-term plans don't meet those ACA standards since they are priced according to the health status of a customer, can discriminate against customers who have pre-existing conditions and do not have to cover a set of minimum essential health benefits.

HHS in a fact sheet issued Wednesday said that some insurers "are now offering short-term limited duration plans to consumers as their primary form of health coverage for periods that last nearly 12 months, allowing them to target only the healthiest consumers while avoiding consumer protections."

"As highlighted in recent press accounts, 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 proposed rule also improves transparency for consumers by requiring issuers to provide notice to consumers that the coverage is not minimum essential coverage, does not satisfy the health coverage requirement of the ACA and will not prevent the consumer from owing a tax penalty," the fact sheet said.

"The proposed changes will help strengthen the risk pool by ensuring that short-term limited duration plans are used only as intended, to fill truly temporary gaps in coverage."

Clare Krusing, a spokeswoman for the trade group America's Health Insurance Plans, when asked about the proposal said, "We will be reviewing those details with our members."

Bruce Telkamp, co-founder and CEO of AgileHealthInsurance.com,a leading marketplace of short-term plans, said, "We hope that HHS listens to the voice of the consumer during the comment period for the proposed rule and preserves the existing options that short-term plans provide to millions of Americans who missed the Affordable Care Act enrollment period or simply cannot afford government marketplace plans."

"It is in the public interest to have a vibrant short-term market rather than have consumers face the substantial financial risks associated with being uninsured," Telkamp said.

Kev Coleman, head of research and data at the insurance price comparison site HealthPocket.com, said that, "It seems like HHS is very concerned about competition" from short-term plans for Obamacare plans, "and very worried about the 2017 rate hike."

Coleman, whose company is owned by the parent company of AgileHealthInsurance, said, "My question is how consumers are going to react to these proposals."

He said the short-term market is relatively small, and largely unknown to many consumers. "The people that are shopping [for short-term plans] are motivated by price," Coleman said. "There's a big price difference between the term market and the ACA market."

If HHS sharply limits the amount of time people can have short-term coverage, he said, some consumers will look at the higher premiums and deductibles of Obamacare plans and decided they can't afford them, or would rather not pay the higher prices.

"You're eliminating that option" — short-term coverage — "but you're not addressing the consumer issue that drove them into the market," he said of HHS' proposed rule.

Coleman added that the irony would be if HHS, which has tried to get more people health coverage, implemented a rule that led some people with short-term coverage to drop out of the health insurance market altogether by limiting their time on the plans. That would mean that they would not be added to, and potentially improving, the risk pools of Obamacare plans.

"I don't know if this is really going to solve the problem that HHS is trying to address," he said.

In addition to the proposed new rules on short-term plans, HHS announced several other actions aimed at improving the risk pools of Obamacare plans.

One targets a program designed to reimburse some insurers for the costs of covering sicker customers. HHS said it would seek to have the program more accurately reflect the cost of partial-year enrollees and to incorporate data about drug usage that gives a better picture of a customer's health status.

HHS also said it would help Obamacare customers who turn 65 transition into Medicare, the federal health coverage program for primarily senior citizens. And HHS said it would begin to fully implement a confirmation process for so-called special enrollment periods outside of the limited open enrollment sign-up season for Obamacare plans. That, the department said, will prevent "people from misusing the system to enroll in coverage only if they get sick."

Special enrollment periods have been a thorn in the side of the insurance industry, which has argued that they lead to customers ping-ponging in and out of coverage.

Krusing, the spokeswoman for America's Health Insurance Plans, called those changes "steps in the right direction," but added that "more needs to be done to verify valid special enrollment requests before a consumer signs up for coverage, rather than simply relying on verification after a special enrollment has already been granted."

She noted that a study by the consulting firm Oliver Wyman has found that "individuals enrolling in coverage through special enrollment periods amassed 24 percent more in health-care costs over their first three months of coverage in 2014 than those coming in during the open enrollment period."

"They found strong evidence that the relative cost of the enrollees signing up for coverage during special enrollment periods was even higher in 2015," Krusing said.

Burwell also said Wednesday that she would be making two other announcements this month. One would discuss efforts to work with insurers and state insurance departments to improve Obamacare coverage options, and the other would relate to outreach efforts, particularly to young adults and uninsured families, to increase enrollment for 2017, Obamacare's fourth season.

Correction: A previous version of this story misstated the date.