Biden Administration Taking Action To Limit Junk Healthcare Insurance

About half of this is original and the other half is a rewrite. Just explaining things more than the author.

What President Joe Biden is doing is repealing trumps Short Term Healthcare Coverage which today is less than 365 days. This was extended from prior 3-month coverage (maximum 4 months) when Congress failed to repeal the PPACA or ACA. President trump by executive order lengthened the 3-month coverage to one day shy of one year.

By having a junk healthcare insurance plan, people can skirt getting an ACA (PPACA) plan for a less money. The issue being, the payout is <50% as opposed to 80-something percent for an ACA plan,

Some acronyms: When the term Tri-Agencies is used, the article is referring to the Departments of Health & Human Services (HHS), Labor, and the Treasury. STLDI is Short-Term, Limited Duration (health) Insurance. HIPAA is Health Insurance Portability and Accountability Act. The rest of the acronyms have full descriptions.

Biden Administration Takes Action To Limit Junk Health Insurance, Health Affairs, Sabrina Corlette

On July 7, 2023, the Departments of Health & Human Services (HHS), Labor, and Treasury (collectively the “tri-agencies”) published a proposal to alter federal regulation of short-term, limited duration health insurance (STLDI) and “hospital and fixed indemnity” insurance; both of these insurance products are largely exempt from federal and many state-level consumer protections. The proposed rule would effectively reverse a 2018 tri-agency rule designed to expand the marketing and sale of STLDI to consumers.

The Biden administration seeks public comment on the impact of other health insurance products and arrangements, namely specified-disease coverage, such as cancer-only or diabetes-only policies, and level-funded health plans. The proposed policies were prompted by President Biden’s April 5, 2022 Executive Order directing federal agencies to consider polices or practices that make it easier for consumers to enroll in and retain coverage, understand their coverage options, and protect consumers from low-quality coverage. Comments on these proposals are due 60 days after their publication in the Federal Register.

Changes To Short-Term, Limited Duration Insurance – Regulatory Background

Federal law explicitly excludes from the definition of “individual health insurance coverage” short-term, limited duration insurance. As a result, most federal standards and rules that apply to individual health insurance, such as those under the Health Insurance Portability and Accountability Act (HIPAA), the Affordable Care Act (ACA), the Mental Health Parity and Addiction Equity Act (MHPAEA), and the No Surprises Act (NSA), do not apply to short-term plans. However, the federal statute does not define what short-term, limited duration insurance means. Rules promulgated by the U.S. Department of Health & Human Services in 2004 defined STLDI to be: “Health insurance coverage…that is less than 12 months after the original effective date of the contract.”

Pre – PPACA, STLDI plans were used by consumers to fill brief gaps in their health insurance coverage. Occurrences such as when a college student disenrolls from their student health plan over the summer months. A company hires a new employee and they wait for one month or until the end of a probationary period to enroll in their employer’s health plan.

After enactment of the PPACA’s individual market reforms, some STLDI issuers began marketing their plans to consumers for up to 364 days, just shy of 12 months. These policies were cheaper than ACA individual market plans. Unlike ACA-compliant plans, STLDI issuers can deny policies to people with pre-existing conditions. The plans set caps on benefits, excluding coverage of critical benefits such as prescription drugs, maternity services, and mental health care. Many consumers purchased these policies in the mistaken belief they were providing comprehensive coverage. In fact many of these plans covered only a fraction of the care found in a PPACA plan.

In response to concerns, the Tri-agencies issued an updated definition of STLDI in 2016. The new definition specifying the maximum coverage period for STLDI must be less than 3 months. The rules were requiring STLDI issuers to prominently display disclosure to consumers stating the coverage was not “minimum essential coverage” under the ACA. Additionally holders of such plans could face a tax penalty under that law for failing to maintain health coverage.

In 2017 Congress failed to repeal the ACA. President Trump issued an Executive Order directing the federal government to expand access to short-term plans. In response to the directive, the tri-agencies in 2018 published a new definition of STLDI.

Under those regulations, STLDI is defined as having an initial contract term of less than 12 months, and inclusive of renewals or extensions, having a duration of no longer than 36 months. These regulations also revised the language of the consumer disclosure to state that the coverage does not comply with ACA federal requirements, and to urge consumers to check their policy carefully for exclusions and limitations.

There is evidence the longer duration of STLDI under the 2018 regulations has increased the number of people enrolled in this form of coverage. The National Association of Insurance Commissioners’ (NAIC) data found the number of individuals in STLDI plans more than doubled between 2018 and 2019. The increase going from 87,000 to 188,000. However, this is likely an undercount of the total number of people enrolled in STLDI because the data is not including enrollment in STLDI sold through associations. The Congressional Budget Office (CBO) and Joint Committee on Taxation have estimated that 1.5 million people could currently be enrolled in STLDI. This projection was made before Congress passed enhanced premium tax credits for Marketplace coverage in 2021.

The Case For Revisiting The STLDI Definition: Risks For Consumers, Insurance Markets

The Tri-agencies are proposing a change to the definition of STLDI to help consumers understand the difference between a short-term plan and comprehensive, ACA-compliant plans. They also seek to protect the individual market risk pool from adverse selection and keep premiums stable.

Risks For Consumers

Numerous recent studies documented deceptive STLDI marketing practices steering consumers seeking comprehensive insurance towards STLDI products. Marketing materials often do not fully disclose that STLDI products do not cover pre-existing conditions, have essential benefits, and paying only a fraction of the actual cost of medical services. The plan leaves the  policyholders at significant financial risk if they get sick or injured. One study of the medical claims of 47 million plan enrollees found the implied actuarial value of STLDI is 49 percent, compared to the 87 percent implied average actuarial value of an ACA Marketplace plan. This means that STLDI issuers are, on average, covering only 49 percent of their enrollees’ medical costs. While this is likely highly profitable for the STLDI companies, their enrollees may not realize the financial protection they were promised is largely illusory.

At the same time, the U.S. Government Accountability Office (GAO) and other researchers have found that many insurance agents and brokers have strong financial incentives to sell consumers STLDI instead of an ACA-compliant policy. One study found that brokers’ commissions for selling STLDI are up to 10 times higher than their commissions for selling an individual health insurance policy (averaging 23 percent for STLDI and only 2 percent for an ACA-compliant individual market policy).

In their proposed rule, the tri-agencies note that the 2018 extension of STLDI to 12 months (and renewable up to 36 months) appears to be contributing to consumer confusion and increasing the likelihood that people unknowingly purchase STLDI when they actually need and want comprehensive coverage. This risk has become an even greater concern as states disenroll millions from Medicaid, many of whom will need to seek another coverage option in the commercial insurance market.

Risk Pool Issues

Because STLDI issuers can deny coverage to people with pre-existing conditions and cap benefits, they tend to enroll people with a relatively low risk of needing medical care, compared to those in ACA-compliant plans. The tri-agencies note that after the 2018 rule lengthened the duration of STLDI, studies found that healthier individuals did indeed gravitate to these products, leaving a less-healthy population in the individual market risk pool. This contributed to an increase in individual market premiums in 2020.

Proposed Precautionary Changes To STLDI and Actions

The administration is proposing to interpret “short-term” to mean a contract term of no more than 3 months. The term “limited duration” would be interpreted to mean the maximum permitted duration for STLDI is no more than 4 months in total, inclusive of any renewals or extensions. However, the duration limit on STLDI applies to policies issued by the same issuer. Once their STLDI policy terminates, consumers could purchase another STLDI policy from a different issuer.

The Tri-agencies also propose to update the disclosures that STLDI issuers must provide to consumers. Issuers would be required to prominently display the notice in at least 14-point font, on both marketing and application materials, including on websites that advertise to enroll consumers in STLDI. The proposed new disclosure language would say:

IMPORTANT: This is short-term, limited-duration insurance. This is temporary insurance. It isn’t comprehensive health insurance. Review your policy carefully to make sure you understand what is covered and any limitations on coverage.

  • This insurance might not cover or might limit coverage for:
    • preexisting conditions; or
    • essential health benefits (such as pediatric, hospital, emergency, maternity, mental health, and substance use services, prescription drugs, or preventive care).
  • You won’t qualify for Federal financial help to pay for premiums or out-of-pocket costs.
  • You aren’t protected from surprise medical bills.
  • When this policy ends, you might have to wait until an open enrollment period to get comprehensive health insurance.

The Tri-agencies are considering whether to require state-specific information on these disclosures, such as the contact information for the state-based Marketplace. They are also considering adding a description of the maximum permitted length of STLDI, to further clarify for consumers the differences between these products and comprehensive coverage. The tri-agencies are seeking public comment, particularly from representatives of underserved communities, on both the language and formatting of the proposed notice.

The administration is also seeking public comment on whether there are additional ways to help consumers differentiate between STLDI and comprehensive insurance options. The tri-agencies also note concerns that STLDI issuers may engage in the deceptive marketing of their products to consumers during the annual open enrollment windows for ACA-compliant plans, increasing the likelihood of consumer confusion. Some states have prohibited the sale of STLDI during the annual open enrollment period. The tri-agencies seek public feedback on ways to prevent or mitigate the potential that consumers will mistakenly purchase STLDI instead of comprehensive coverage during the annual open enrollment period.

Most sales of STLDI are conducted through group trusts or associations that are not related to employment. Quite often, these associations set up headquarters in a state with lax regulations and market their products nationwide. State insurance regulators have reported that that they often lack the authority needed to monitor STLDI sold through these national associations to adequately protect consumers in their states. While the tri-agencies have not proposed new policies specific to STLDI sold through associations, they seek public comment on how best to support state oversight of these marketing arrangements.

The proposed new duration limits would apply only to new STLDI policies; policies issued before the effective date of the final rule could maintain the duration specified in the 2018 rule: a contract term of up to 12 months, with a maximum duration of up to 36 months. However, the proposed new consumer disclosure requirements would be required for policies sold before as well as after the effective date. The expected “effective date” for the new STLDI definition would be 75 days after publication of the final rule.

Impact Of The Proposed STLDI Changes

The CMS Office of the Actuary (OACT) estimates that the proposed provisions regarding STLDI would increase Marketplace enrollment by approximately 60,000 people in 2026, 2027, and 2028. The administration also projects that the rules would likely result in a reduction in consumers’ out-of-pocket expenses, medical debt, and risk of medical bankruptcy for consumers that switch to comprehensive coverage.

In addition, individuals shifting from STLDI to Marketplace plans are expected to be, on average, healthier than the current Marketplace population. OACT therefore estimates that the proposal would reduce federal spending on premium tax credits by approximately $120 million in 2026, 2027, and 2028, due to a healthier risk pool.

The tri-agencies also believe that the proposal would help reduce health inequities by increasing regulation of issuers offering skimpy insurance plans and encouraging enrollment in comprehensive coverage. They seek comments on the potential health equity implications of these proposed rules.

Changes To Fixed Indemnity Insurance-–Regulatory Background

Most of the federal consumer protections and standards that apply to comprehensive individual and group market health insurance, such as those under HIPAA, ACA, MHPAEA, and the NSA, do not apply to a set of products known as “excepted benefits.” Under the Public Health Service Act, there are four categories of excepted benefits: (1) independent, non-coordinated benefits (the relevant category here); (2) benefits that are excepted in all circumstances; (3) limited excepted benefits; and (4) supplemental excepted benefits. The first category, “independent, non-coordinated excepted benefits,” includes products called “hospital indemnity” and “fixed indemnity” insurance.

To be considered an excepted benefit, federal rules establish the following conditions:

  • The benefits must be provided under a separate policy;
  • There can be no coordination between the policy and any employer group plan; and
  • The benefits under the policy must be paid without regard to whether any benefits are paid out under any employer group health plan or individual market health insurance policy.

Hospital and fixed indemnity policies are intended to be income replacement, not health insurance policies. Federal rules issued in 2004 require hospital indemnity and other fixed indemnity insurance in the group market to pay a fixed dollar amount per day (or other period) during the course of treatment, regardless of the actual medical expenses incurred. The same is true for hospital and fixed indemnity policies sold in the individual market, but carriers can either pay a fixed dollar amount per day or per service (for example, $100/day or $50/visit). As income replacement policies, benefits have traditionally been paid directly to a policyholder, rather than to a health care provider or facility, and the policyholder has discretion over how to use their benefits.

In 2014, the tri-agencies attempted to update rules relating to hospital and fixed indemnity polices for the individual market. Beginning in 2014, the ACA required individuals to maintain minimum essential coverage or pay a tax penalty (the “individual mandate”). The administration was concerned that consumers could mistakenly believe that fixed indemnity policies would qualify as the minimum essential coverage required by the ACA. They adopted a rule stating that hospital and fixed indemnity policies may only be provided to individuals who attest that they have the minimum coverage required under the ACA. However, this rule was struck down in a 2016 federal court decision, Central United Life Insurance Company v. Burwell.

The Case For Updating Rules For Fixed Indemnity Policies: Deceptive Marketing, Consumer Confusion

Although it is not known how many people are enrolled in hospital or fixed indemnity policies, several studies have documented these companies’ aggressive marketing and sales tactics, many of which lead consumers to believe they are purchasing a comprehensive health insurance policy when they are not. The tri-agencies also observe that companies are designing and packaging these policies to more closely resemble comprehensive health insurance, but without any of the consumer protections associated with that coverage.

Consumers who purchase these policies are often not aware they cover only a fraction of the cost of their medical expenses. Consumers can be left with tens of thousands of dollars in unpaid medical bills. According to NAIC data from 2021, the medical loss ratios of these types of products averaged 40 percent; by comparison, the medical loss ratio of individual market comprehensive health insurance averaged 87 percent. The deficiencies of these products, as well as STLDI, were made even more apparent during the COVID-19 public health emergency, as they often did not cover, or only covered a fraction of, critical treatment costs, and were exempted from federal mandates to cover and waive cost-sharing for COVID-19 tests and vaccines.

The tri-agencies have also obtained evidence that some hospital indemnity and fixed indemnity insurers are paying benefits directly to medical providers and facilities, rather than to the policyholder. They note that hospital and fixed indemnity policies are intended to be income replacement policies, not health insurance policies, and that making payments directly to providers obscures the differences between these products and a comprehensive health insurance plan. When issuers of these products pay benefits on a per service, as opposed to per period, basis, it can further contribute to consumer confusion over the nature of the product they have purchased.

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