Last week, the Trump administration’s Department of Health and Human Services (HHS) published its final rule to revise regulations for Short-Term Limited-Duration (STLD) Plans in the non-group, private insurance market. It was one small step for some individuals, but far from one giant leap ahead across the entire marketplace.
Image via Twenty20
The slam dunk part of the regulatory change involved restoring the longstanding rule that such plans would be defined as involving insurance policies whose initial period of coverage (including renewals and extensions not at the option of the issuer) lasts fewer than 12 full months (i.e., even as long as 364 days, or perhaps 365 days during Leap Years!). At least since the 1996 Health Insurance Portability and Accountability Act (HIPAA), such insurance had been defined under federal law and in state regulatory practice as distinct from “individual insurance,” which is subject to a more restrictive set of federal rules and regulations, including those imposed by the Affordable Care Act (ACA). But in October 2016, the Obama administration tried to lock the regulatory doors on potential individual exchange market customers who might want to stray and find more affordable coverage elsewhere without Obamacare’s mandated benefits and regulatory burdens. It changed the rules and limited STLD coverage to a maximum period of three months, with no further opportunity to renew and extend it. The hope of Obama administration regulators was that curbing the length of STLD options would reduce the competitive threat they posed to the ACA’s regulatory scheme for exchange-based individual insurance market coverage.
Like many other desperate measures, the October 2016 rule change did not work out according to plan. In 2017, premiums rose, insurers exited, and coverage dropped — particularly for individuals potentially searching for non-group insurance but lacking the benefit of income-related, premium tax credit subsidies in the ACA exchange market. Average monthly enrollment for the latter declined 20 percent between 2016 and 2017. Average monthly enrollment in all individual market plans decreased 10 percent during the same period, while premiums increased 21 percent. Of course, other economic and policy factors were involved, but the 2016 STLD rule change hurt overall individual market coverage far more than it helped ACA exchange markets hold on to “captive” insureds.
The basic operating rationale for restoring previous STLD options in 2018 is to provide more affordable consumer choices to individuals who would otherwise lack them. These types of short-term plans are not subject to the ACA’s mandates (essential health benefits, guaranteed renewability, and guaranteed availability) and prohibitions (exclusions for pre-existing conditions, annual and lifetime dollar limits on coverage). As noted before, the “bargain” here is that customers who are willing and able to accept less (in terms of covered benefits, long-term insurance security, or protection against future changes in health status) can also pay less. For them, something may be better than “nothing” — coverage that they cannot afford or do not need.
The more interesting regulatory policy questions involve how to handle renewals of such coverage beyond its initial “short term” of less than one year. The new final rule sets a maximum duration for STLD plans of 36 months.
First, the Trump HHS officials are hamstrung in what the new rule can allow, but not mandate. Permitting the possibility of mutually agreeable renewals of such insurance contracts could open up a more attractive alternative market for some insurance customers and issuers, particularly those wishing to minimize or eliminate the burdens of ACA rules for not only its exchange plans, but also other “individual insurance” plans in the rest of the market. However, those officials lack both the legal authority and the political motivation to require that STLD plans be guaranteed renewable regardless of health status. Doing so also would undercut the argument that such matters should be left to willing buyers and sellers, or at least state insurance officials instead of federal ones. Hence, the new rules largely delegate determinations of not only the initial contents of STLD coverage, but also the terms under which it may be renewed, to insurers and state officials. Such policies could be medically underwritten, both initially and upon renewal, or not. Those issues initially are left up to marketplace choices, but, secondarily, to the political judgments of state officials.
Second, HHS officials appeared to be concerned that allowing even voluntary renewability of the same initial insurance contract for more open-ended periods (potentially, to “infinity and beyond?”) would contradict their self-described “limited duration” status. The final rule published last week resorted to the perhaps-necessary fiction that federal rules for the maximum duration of COBRA continuation coverage — 36 months — set an outer limit for limited duration insurance. However, this purportedly maximum COBRA period applies only in certain circumstances (death, divorce, or separation involving the primary worker previously covered by an employer group plan) and for certain parties (spouses and other dependents). A different maximum COBRA period of up to 29 months applies when the previously covered worker is disabled. The typical COBRA beneficiary who qualifies for regular extended coverage gains a maximum period of only 18 months. (Theoretically, employers even could agree to extend such coverage beyond those periods, but they are not required to do such under the COBRA law and regulations.)
However, the legal authority for such COBRA coverage options is provided by a 1986 federal statute (the Consolidated Omnibus Budget Reconciliation Act of 1985), and they only relate to employer group coverage. Adapting such time limits for new STLD plan renewability rules in the non-group market is more than a bit of a legal stretch. And suddenly discovering a legal necessity to distinguish between the initial term and the maximum duration of a STLD plan contract seems odd, given that the issue never came up previously during the two decades since the 1996 HIPAA statute formally excluded such coverage from the definition and rules for “individual insurance” under federal law.
On the one hand, Trump HHS officials still have the regulatory authority, and opportunity, to differentiate ACA-regulated individual insurance from STLD coverage by defining the latter by its separate contract terms, the maximum duration of its initial policy contract, and contractual notice requirements for potential purchasers. On the other hand, they can only set maximum permissible periods of STLD coverage that remains exempt from ACA requirements. They still cannot require issuers to offer and extend such coverage without their consent. State officials also can choose to define STLD coverage with shorter maximum initial terms or shorter maximum durations.
The new rule also attempts to create an attenuated distinction between an initial STLD insurance contract (which can be extended or renewed for up to 36 months) and two separate contracts for such coverage that “run consecutively.” Its limited treatment of this issue remains unconvincing.
Of somewhat more hypothetical interest, the rule clarifies that other sorts of options contracts providing guaranteed availability of STLD coverage (or even individual insurance) at some future date, regardless of health status, for a pre-negotiated price are not prohibited by federal law. Some proponents of so-called “health status insurance” contracts have viewed this step as potentially transformational, but substantial practical barriers to this development remain. A closer and more skeptical look suggests that the near-term market for such products remains limited at best to healthier and wealthier customers lacking access to the relative advantages of premium tax subsidies and guaranteed issue rules in ACA exchange markets for individual coverage, or the tax exclusion and group insurance risk rating rules in the employer market. The very limited example of UnitedHealth Continuity, a product briefly offered for sale about a decade ago (pre-ACA), suggests the low ceiling for such ventures.
In late 2008, UnitedHealth began to offer for sale in at least 25 states a product offering the right to buy an individual health policy at some point in the future even if you become sick. The new product faded away once the 2010 ACA guaranteed the legal right to purchase individual insurance (at least during annual open season enrollment periods) regardless of health status. In any case, potential purchasers of a UnitedHealth Continuity contract first had to pass a medical review and then pay 20 percent each month of the current premium of an individual policy offered by UnitedHealth — in order to reserve the right to gain insurance under that plan at some point in the future, if they ever needed it. Moreover, future premiums, and the option’s ongoing monthly fees, would increase over time. Any particular insurance plan involved also would be repriced in the future based on its underlying claims experience.
The limited market for such insurance options contracts is obvious. Only individuals passing medical underwriting screens are likely to proceed further. The alternative “put” option of guaranteed issue coverage in ACA exchanges, as well as income-related premium subsidies, will remain more attractive to most other riskier potential customers. The size of the likely cohort of pre-Medicare-eligible workers desperate to exit employer-sponsored insurance also tends to be exaggerated by individual insurance market enthusiasts.
Market coordination hurdles also remain in the way of broader portability features for would-be health status insurance contracts. Meanwhile, many consumers remain reluctant to sign up with the same insurer for life, preferring the option value of someday being with the one they love than having to love the one they’re with.
On balance, the new STLD rule offers modest progress toward alleviating the coverage availability and affordability woes of a particular subset of individual insurance market customers whose plight was worsened by the ACA. Despite the mutually reinforcing, exaggerated claims of diehard ACA defenders and critics, respectively, the uncertain business prospects for newly-expanded STLD plans remain bounded by the offsetting attractions of tax subsidies and regulatory protections in other portions of the insurance market, as well as the regulatory discretion of state officials. The public policy component of the playing field remains tilted, and the hypothetical protections to consumers that might be offered in expanded STLDs to make the latter more attractive will increase their costs. Of course, opening the legal door to new competitive market pressures on willing buyers and sellers, on the margin, could always surprise. But in the meantime, for those no longer able to tread water as their remaining insurance alternatives sank away, any lifeboat will do!