Short-term health insurance: A cure or Band-Aid for rising prices?March 13, 2018
A recently announced federal government proposal is seeking to change the rules for how short-term health insurance can operate. The proposal, which came out in late February, aims to lower costs and increase choices for those who need to purchase health insurance on their own— two goals that Blue Cross and most stakeholders support.
Under current law, short-term insurance plans – which typically cost less per month than year-round coverage – are limited to 90 days. This new proposal would extend the definition of “short term” to nearly a year.
Sounds like a great solution, right?
Once you start taking a closer look at the details, it becomes clear that these types of plans come with significant risks—both for the individual consumer and the overall marketplace.
We sat down with Scott Keefer, vice president of public affairs, to understand how these proposed alternatives, known as short-term limited duration policies (STLDs), could affect Minnesotans.
What is short-term limited duration coverage?
A short-term limited duration plan(STLD) is a type of insurance policy for individuals that provides health coverage for short period of time. Historically, these types of plans were popular among people facing transitions like being between jobs or recently graduating from school.
They were more common before the Affordable Care Act provided guaranteed access to health coverage. Because the ACA eliminated pre-existing condition exclusions and waiting periods—and allows people to enroll in an individual health plan outside of the open enrollment period if they meet certain criteria, such as getting married or losing a job— the market for these plans was no longer necessary. In fact, Blue Cross stopped offering them at the end of 2015.
What is being proposed?
Last fall President Trump issued an executive order stating his objective to create additional types of health insurance coverage.
The new proposal aims to extend the maximum length of STLD policies from three months to 12 and potentially allow them to be renewed. That would reverse a post-ACA rule that limits short-term policies to three months.
If the proposal were to move forward, it’s very important that these new federal standards do not replace limits already established under Minnesota state law. In Minnesota, there is a longstanding law limiting short-term policies to no more than 185 days (about six months) in duration. Any federal action that would extend short-term policies beyond 90 days should be subject to that six-month limit here.
What problem is this trying to solve?
Concerns about the cost and lack of availability of health insurance options (particularly in greater Minnesota) are two of the issues driving this. Rising medical costs, individual market instability and fewer people with individual health plans has many people and organizations seeking alternatives to fix the cost pressures.
The reality is, however, that short-term policies are not a viable solution. They would only move people around. The result would be a system that would not address underlying costs but divide people into groups of “more sick” and “less sick”, an unfortunate situation that would be a step backward.
It is expected that if these policies can last for a year or more, healthier individuals may choose to purchase short-term coverage for the lower premiums, leaving only those with high medical needs to purchase individual plans. This would cause premiums to skyrocket to cover anticipated costs for the smaller population remaining.
Are these plans less expensive than individual and family plans?
They are, but this is a classic case of if it sounds too good to be true, it probably is.
Short-term policies are different than individual health plans. While individual health plans are subject to regulation and consumer protections, including those established by the ACA, these are not.
This lack of regulation affects consumers in several ways. For one, coverage for pre-existing conditions would be unpredictable. In fact, historically, these types of policies generally included broad exclusions for pre-existing conditions, which is why they are so much more affordable. In addition, they can include lifetime and annual dollar limits on services and drugs and exclude some types of benefits.
Consumers need to be aware of all of this before deciding to purchase one these plans.
What are the potential implications for Minnesotans?
While these short-term policies may provide more options at a lower price for a few individuals, they would create a parallel or “segmented” market that the vast majority of Americans want to avoid. While people with short-term plans might initially see a benefit, in the longer term, any benefit would at the detriment of the overall market.
Simply put, this has the potential to destabilize the entire market. While there is a place for this type of short-term “gap” coverage, there need to be clear rules if these types of plans exist in the marketplace.
What needs to be done next?
Reverting to the pre-ACA market of underwriting and pre-existing condition exclusions will not meet the goals to provide more affordable coverage to those shopping in the individual market. Instead, we need to focus on reducing health care costs and getting more people covered. That should also be a priority for everyone, including those insured through their employer.
Also, people buying insurance on their own don’t receive the tax advantages people who get coverage through work, so adequate funding of tax credits and cost-sharing reduction reimbursements is very important to help reduce the cost burden for the farmers, entrepreneurs and the self-employed who are purchasing insurance on their own. We talked about this in an earlier blog post.
Ultimately, we need to move beyond the debate about the future of the Affordable Care Act and get to work on a different path – one that focuses on making health care less expensive and provides coverage for more people.
About the Future of Health Reform series
This post is part of our Future of Health Reform series.
The Future of Health Reform is an ongoing series focused on the many changes taking place throughout the health insurance industry. Through this series, Blue Cross looks at various policy issues that are rapidly shaping the transformation of health care across Minnesota and the nation.
Previous posts in this series include:
- The end of the mandate to buy health insurance: Five questions with Scott Keefer
- Future of Health Reform: Minnesota reinsurance program is a model to follow
- Future of Health Reform: A need for a path toward middle ground
- Future of Health Reform: A prescription for individual market stability
- Future of Health Reform: What’s needed next
- The Future of Health Reform: The individual market