Speaking at the Conservative Political Action Conference, President Donald Trump boasted that “we’re having tremendous plans coming out now — health care plans — at a fraction of the cost that are much better than Obamacare.” No such cheap plans have come out yet, though the administration has proposed rules that would expand the sale of less expensive insurance with fewer benefits.
Whether those plans would be “better” is a matter of opinion. For some, cheaper plans with fewer benefits would be “better” than those offered by the Affordable Care Act. For others, particularly those with medical conditions, a plan with less coverage wouldn’t be an improvement. The proposed changes also could increase the price of coverage for those who remain on the individual market and ACA exchanges.
Trump issued an executive order on Oct. 12, 2017, instructing the Departments of Labor, Health and Human Services and Treasury to consider proposing regulations to expand association health plans, short-term insurance and employer health reimbursement arrangements.
The order said, “Expanding access to [association health plans] will also allow more small businesses to avoid many of the [Affordable Care Act’s] costly requirements,” and it noted that while short-term, limited-duration plans were already exempt from the ACA’s requirements, the plans could only offer coverage for less than three months.
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Association health plans are created by a group of employers, such as those in a similar trade, and short-term plans are, as the name says, those offered for a short period of time, such as a gap in coverage.
The Department of Labor issued proposed regulations on association health plans in early January. The public-comment period ends March 6. Several agencies released proposed regulations on short-term plans on Feb. 21, with the public-comment period ending April 23. So no new health care plans are “coming out now,” as Trump said, but they’re certainly on the horizon.
We don’t yet know if they will be “a fraction of the cost,” but the reason the plans would likely be cheaper than coverage on the individual market or ACA exchanges is because they wouldn’t be required to cover certain benefits. The plans also could vary pricing based on personal factors such as age and gender more widely than the ACA permits. And short-term plans could price premiums or deny coverage based on health status.
Let’s take a closer look at the proposed rules.
Association Health Plans
Right now, association health plans, or AHPs, that are sold to employers in the small-group market must follow small-group rules, and AHPs sold to individuals, such as the self-employed, must follow individual market rules. Under the ACA, the small-group and individual market plans must cover 10 essential health benefits and can only vary pricing based on age (limited to a 3:1 ratio), tobacco use, family size and geography.
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The 10 essential health benefits include: ambulatory, emergency, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative services and devices, laboratory services, preventive care and chronic disease management, and pediatric services including dental and vision.
Under the proposed rule, association plans could instead be subject to the large employer market rules, which don’t include coverage of the essential health benefits or the rules on how plans can be priced. The association health plans could be considered a single large group employer if members are in the same line of business or profession, or if the principle place of business is in the same region. So, association health plans could be sold across state lines, one of Trump’s stated goals.
A summary of the proposed rule by the Center on Health Insurance Reforms at Georgetown University’s Health Policy Institute explains that association plans wouldn’t be able to use health status to price policies. “However, as a large group exempt from the ACA’s rating restrictions, AHPs could charge different premiums to small groups or individuals based on age, industry, gender, or other non-health factors.” And the plans wouldn’t have to cover the essential benefits. “For example, the rules appear to allow an AHP to offer a plan that covers maternity services to small employers and one that does not to self-employed individuals, because the separate classification would not be based on a health factor.”
Kevin Lucia, project director, and Sabrina Corlette, research professor, at the Center on Health Insurance Reforms wrote in a Jan. 24 article for the Commonwealth Fund that “AHPs could design cheaper, skimpier plans.” So, Trump is right that the plans could be less expensive than those now sold through the Affordable Care Act marketplaces, such as on HealthCare.gov. But, Lucia and Corlette say, those cheaper plans could then drive up the price of insurance on the ACA marketplaces and individual market. Healthy people would sign up for the cheaper association plans, leaving an individual market with a greater percentage of high-cost individuals — which then leads to higher premiums.
States have broad authority now to regulate association plans. They can require that plans cover certain benefits and meet financial and licensing standards, Lucia and Corlette explain.
“Because of this broad authority, many states are positioned to limit the potential risks, including fraud, insolvency, and market segmentation, associated with a significantly expanded AHP market,” they say. But “questions remain” about how much states would be able to do that under the proposed rule.
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We asked Lucia about Trump’s statement in January that “millions and millions and millions of people will be signing up” for these association health plans. Lucia said during a briefing held last month by the Commonwealth Fund that the popularity of the plans would “largely depend on how these final regs come out and how much latitude the associations are given to escape state law or to set up benefits that are really skimpy and low priced.”
Before the ACA, the association-plan market was “robust,” Lucia said. And there are “national issuers that are already signaling … that they are willing to play in this space.”
Short-Term, Limited-Duration Plans
Short-term plans, which don’t have to meet ACA requirements — including the essential health benefits, premium pricing restrictions, prohibitions on annual or lifetime benefit caps, and prohibitions against denying or pricing coverage based on health status — are limited to a duration of less than three months under an Obama-era rule that took effect in 2017. The Trump administration proposed rule would expand that to less than 12 months.
These plans, as the Centers for Medicare & Medicaid Services explains, are “designed to fill temporary gaps in coverage when an individual is transitioning from one plan or coverage to another form of coverage.” Under the ACA, people could buy these plans outside of the open-enrollment period for selecting coverage on the individual market, but the policies were not considered ACA-compliant plans. A person with short-term coverage would still be subject to the individual mandate penalty for not having insurance, because the plans weren’t considered to be adequate coverage.
Before the Obama administration changed the maximum duration of these plans to less than three months, they could have been as long as nearly 12 months — the same time period the Trump administration advocates. But the Tax Cuts and Jobs Act, signed into law in late December, eliminates the mandate penalty starting in 2019. So, next year those with short-term plans wouldn’t be subject to a penalty for having inadequate insurance coverage.
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The nonpartisan Kaiser Family Foundation explains in an issue brief that short-term policies have lower premiums than ACA-compliant insurance policies “because short-term policies offer less insurance protection.” Senior Fellow Karen Pollitz wrote in the Feb. 9 brief: “A review of short-term policies offered on two websites, ehealthinsurance.com and agilehealth.com, shows it is not uncommon to find the cheapest short-term policy priced at 20% or less of the premium for the lowest cost ACA-compliant bronze plan in an area.”
The Trump administration’s proposed rule acknowledges that since the short-term plans can be priced based on health status, the individuals who sign up for these plans “are likely to be relatively young or healthy.” And it says that allowing the purchase of such plans could affect “individual market single risk pools.”
A risk pool is the group of people whose combined health care expenses determine premium prices. The American Academy of Actuaries explains: “Pooling risks together allows the higher costs of the less healthy to be offset by the relatively lower costs of the healthy.” The short-term plans could siphon off healthy individuals, leaving the individual market risk pool with a higher concentration of unhealthy, and therefore higher-cost, individuals.
The administration estimates that in 2019, when there is no longer a penalty for not having ACA-compliant coverage, “between 100,000 and 200,000 individuals previously enrolled in Exchange coverage would purchase short-term, limited-duration insurance policies instead.”
It also estimates that if 200,000 people enroll in short-term plans, the average monthly premium on the ACA exchanges in 2019 would be 10.6 percent higher, compared with what would have happened with no change in this policy or the individual mandate. Most of that increase, however, would be due to the elimination of the individual mandate, the proposed rule says.
The Urban Institute estimated a much higher number would sign up for short-term plans under the administration’s proposed rule. It says in a Feb. 26 analysis that 4.2 million would enroll in the expanded short-term plans in 2019, with 2.5 million of those switching from some other type of insurance and the rest having been uninsured previously. (Overall, the analysis finds the number of uninsured would be higher under the Trump administration policies than it would have been under the ACA.)
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It also estimates a higher increase in premiums on the individual market in most states than the administration’s proposed rule. “The combined effect of eliminating the individual-mandate penalties and expanding short-term limited-duration policies would increase 2019 ACA-compliant nongroup insurance premiums 18.2 percent on average in the 43 states that do not prohibit or limit short-term plans.”
Some states may regulate and limit the availability of short-term plans. “While only a small number of states have done so thus far,” the Urban Institute report says, “more could make such legal and/or regulatory changes and thereby significantly reduce or even eliminate the effects estimated here.”
As we noted, some individuals may welcome an increased opportunity to buy cheaper insurance that doesn’t cover as many benefits as the ACA plans. They may consider a skimpier plan to be “better.” But if they do have health issues not covered by the short-term insurance, they’ll face higher out-of-pocket costs or unmet medical needs.
The administration’s proposed rule acknowledges this, too, saying that “consumers who switch to such policies from [Affordable Care Act]-compliant plans would experience loss of access to some services and providers and an increase in out-of-pocket expenditures related to such excluded services, benefits that in many cases consumers do not believe are worth their cost. … Depending on plan design, consumers who purchase short-term, limited-duration insurance policies and then develop chronic conditions could face financial hardship as a result, until they are able to enroll in [ACA]-compliant plans that would provide coverage for such conditions.”
The proposed rule asks for comments on such issues.
Overall, the president is correct that these proposals could provide cheaper insurance for some, but whether the coverage is “better” is a matter of opinion. And cheaper plans that attract healthier individuals could then cause insurance to be more expensive for others.
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