Short-Term Health Plan Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

HHS Finally Releases the Long-Awaited Final Regulations on Short-Term Health Plans

Set aside for a moment all of the arguments that short-term health plans provide inadequate coverage. And try – if you can – to block out all of the “noise” on both sides (ACA supporters and Democrats claiming “sabotage,” and Republicans and long-time ACA opponents asserting that short-term health plans restore much-needed choice in the market). I ask this of you because I want to try to have an objective discussion on how the new, short-term health plans might impact the “individual” market.
- Analysis: But first, what did the final short-term health plan regulations say? Prior to the enactment of the ACA, the standard duration for a short-term health plan was up to a year (e.g., 364 days). However, not long after the ACA became effective, the previous Administration shortened the duration to only 3 months. Sooo, did the recently released final regulations simply go to back to the old rule (i.e., allowing a short-term health plan to last for up to 364 days)?? Well, sort of. The final regulations ALSO add in the ability to “renew” a short-term health plan. That is very different than just allowing short-term health plans to go back to 364 days. It is really this change – the “renewability” option – that is the most noteworthy change in the final rules, at least from a legal and practical perspective. Because – from a “legal perspective” – short-term health plans can actually last more than 364 days. Specifically, short-term health plans can now last for up to 3 years (this would include the initial duration of 364 days, plus a “renewal” option for 2 additional years, whereby the short-term health plan must expire at the 3-year mark). Why do you want to be a short-term health plan for up to 3 years? Answer: Because a short-term health plan is NOT considered “health insurance,” which is why short-term health plans avoid the ACA’s requirements. In other words, because short-term health plans are NOT subject to the ACA – because, as stated, they are not considered “health insurance” – short-term health plan carriers can deny someone coverage if a person has a pre-existing condition, they can develop premiums based on a planholder’s health status, and they can impose lifetime and annual limits on benefits).

Will 3-Year Short-Term Health Plans Be Prevalent In the Market?

From a “practical perspective,” it is unclear whether insurance carriers selling short-term health plans will actually allow planholders to “renew” their coverage for up to 1 year, let alone 2 additional years (remember, a short-term health plan can have an initial duration of 364 days, plus a “renewal” option for up to 2 additional years, so the plan lasts for up to 3 years total). This question: Whether carriers will offer a “renewal” option is a relevant one to ponder because the final regulations do NOT require that short-term health plans be “renewable.” The “renewability” option is just that – it’s optional.
- Analysis: So, if very few – or no – insurance carriers opt to “renew” their short-term health plans, then this aspect of the final regulations – while noteworthy – may not amount to much. And if this aspect of the final rule does not amount to much, then people are just wasting their breath either deriding or celebrating the “renewability” option. But let’s say there are insurance carriers willing to offer a “renewable” option. According to the final regulations, these carriers can pick and choose what planholders they offer the “renewable” option to. In other words, because insurance carriers are NOT required to offer a “renewable” option – unlike the ACA’s reforms that require “guaranteed renewability” for an ACA-compliant “individual” market plan – carriers can opt against offering a “renewable” option to a particular short-term health planholder, while offering a “renewable” option to other short-term health planholders. Obviously, the decision to “renew” – or not to “renew” – will depend on a planholder’s health. That is, if the planholder is healthy, the greater the likelihood that a carrier will offer them the “renewable” option. Sooo, before we can start casting dispersions on the short-term health plan rule – or alternatively, heralding this change in the law as an achievement – we first have to see (1) whether insurance carriers will even offer a “renewable” option and (2) how wide-spread the offers of the “renewable” option will be for short-term health planholders. To me, this situation is somewhat similar to “association health plans” (AHPs). What I mean is, for all of the wringing of hands over the AHP rules – as well as the cheers for the new flexibility – it remains unclear how many insurance carriers are going to be willing to under-write AHP health coverage. I am of the opinion that a number of carriers WILL step forward to under-write AHP coverage. BUT, because the AHP rules are so new, the carriers need some time to understand what the AHP market may look like (and the business opportunities associated with under-writing AHP coverage). Same is true in the short-term health plan market. Carriers need some time to figure out whether they will offer a “renewable” option at all, let alone to whom. Lastly, we will have to wait and see whether carriers will “renew” a particular planholder’s short-term health plan without premium increases and/or without re-setting pre-existing exclusion waiting periods. Why? Because the final regulations do NOT set forth any Federal requirements – or guardrails – for “renewing” the short-term plan coverage. Instead, carriers have the ability to determine their own terms for “renewing” the coverage, which could include some form of additional under-writing or exclusions from coverage upon “renewal.”

States Have a Say In This As Well

Like the AHP regulations, nothing in the final short-term health plan regulations inhibits – or usurps – a State’s ability to further regulate short-term health plans. As a result, if a State so chooses, the State can shorten the 3-year duration that now is available for short-term health plans. New Jersey and California have already shortened short-term health plans to 3 months. It is likely that other States will follow suit.
- Analysis: But, it is important to remember that to shorten the new duration for short-term health plans, a State Legislature must first pass legislation limiting these plans. AND, the Governor has to sign the legislation into law. We know that in some States, getting such a change through the Legislature and the Governor might be relatively easy. But, in many other States, the politics may not be conducive for effectuating a State-based rule that limits the new Federal rule on short-term health plans. Stay tuned. If States cannot limit the new Federal duration for short-term health plans, States could enact various requirements – or guardrails – that carriers selling short-term health plans must abide by. For example, a State could limit a carrier’s ability to re-under-write a short-term health planholder upon “renewal.” In addition, a State could enact general standards that say short-term health plans cannot impose annual and lifetime limits and/or carriers cannot impose a waiting period for coverage for people with pre-existing conditions. I am not sure if States would do this because the better route is just to limit the duration of short-term health plans back to 3 months. But, if limiting the duration is unrealistic politically, maybe a compromise is enacting certain requirements – or guardrails – that carriers selling short-term health plans in the State have to follow. Stay tuned. But, maybe limiting the duration of short-term health plans is not so unrealistic in a number of States. If some of the recent responses to the AHP regulations is any indication, it would appear that a number of States will come out guns-blazing against short-term health plans. By way of example, Pennsylvania (PA) recently told the Department of Labor (DOL) the State will NOT follow the new final AHP rules. Instead, PA said it will apply its own State laws, which will, among other things, force independent contractors to remain in the “individual” market. In addition, it appears that PA will apply HHS’s “look-through” rule to fully-insured AHPs regardless of whether the fully-insured AHP is sponsored by a “bona fide group or association of employers” or not. Unlike short-term health plans, PA’s response to AHPs is 100% ripe for an ERISA preemption challenge. Not from the DOL, but from organizations sponsoring an AHP. In my opinion, PA’s regulation of AHPs amounts to regulation of the AHP “plan,” which CAN be preempted by ERISA. Unlike AHPs, however, short-term health plans are NOT governed by a Federal law that can preempt State regulation of short-term health plans. So, if and when States try to enact State laws limiting short-term health plans – or the State decides to enact specific requirements that short-term health plans must follow – this type of State regulation CANNOT be preempted, so this limiting regulation would stand.

How Will Short-Term Health Plans Impact the “Individual” Market?

Let me first say this: Personally, I do not see very many consumers who are currently enrolled in an Exchange plan and receiving a premium subsidy shifting to a short-term health plan. In my opinion, the premium subsidy is so significant for virtually every Exchange planholder that the cost of a comprehensive ACA-compliant plan (with consumer protections that any person could ask for) will be so low that there is NO incentive for these Exchange planholders to drop their subsidized coverage for a short-term health plan.
- Analysis: Yes, in some limited cases, Exchange planholders between 300% to 400% of the Federal Poverty Level (FPL) may be receiving a lower premium subsidy amount that results in their out-of-pocket spending on the remaining premium to actually be greater than the cost of a lower-costing short-term health plan. BUT, around 80% to 90% of Exchange enrollees have incomes below 300% of FPL. As a result, the premium subsidy amount for most Exchange planholders will be so robust that the cost of their Exchange plan will equal or be lower than the cost of a short-term health plan. So – again, in my opinion – very few of the current 9 million or so subsidized Exchange planholders are going to migrate to a short-term health plan. Then who is going to shift to a short-term health plan? I think it is well-accepted that consumers in the “un-subsidized” individual market are the most likely candidates to shift to short-term health plans. I believe it is also well-accepted that the cohort of people in the “un-subsidized” individual market that are going to shift are going to be on the healthier side. BUT, how many consumers are in this healthy cohort? It is really tough to quantify. But, Kaiser recently released some numbers that may help, at least a little bit. Kaiser is out with a new study that finds that the “un-subsidized” individual market has shrunk significantly since 2015. That should come as no surprise because the BIG premium increases for individual market plans started in 2015, due to many implementation decisions made by the previous Administration, as well as Republican efforts to limit the ACA’s risk mitigation programs (e.g., the “risk corridor” program). Overall, Kaiser found that in 2015, there were about 17 million consumers in the individual market (this includes the Exchange market AND the “un-subsidized” market). But as of the 1^st quarter of 2018, Kaiser says there are only 14.4 million consumers in the overall individual market. Kaiser also tells us that there are about 10 million Exchange enrollees, which means there are about 4 million consumers in the “un-subsidized” market, which is about 38% less than what this number was back in 2017. A strong argument can be that that the reduction in “un-subsidized” consumers is likely higher than 38% if you were to go back to 2015. Regardless, we at least know there are only about 4 million consumers in the “un-subsidized” individual market. But the problem is that we do NOT know how many of this 4 million are healthy, and thus, more likely to leave the “un-subsidized” market for a short-term health plan. BUT, we can take a guess that the healthy consumers that are likely to migrate out of the “un-subsidized” individual market will NOT have a significant impact on the individual market overall. How? Because the insurance carrier community has projected that premiums would increase by only 1.7% on account of the availability of short-term health plans. I say “only” because – at least in my opinion – 1.7% is not that significant, although others may disagree. Last comment: Are there other consumers out there who are likely to enroll in a short-term health plan? Yes, the 2 to 3 million who have exited the individual market between 2015 and now. There may be even more consumers who have been “sitting on the side-lines” all along, who may now find at least some type of health coverage – albeit on the inadequate side – they can finally afford. Only time will tell how many consumers will take-up short-term health plans. But, I think it is reasonable to suggest that the introduction of short-term health plans that can last for up to 3 years will NOT have a significant impact on the individual market, although again, I am sure there are others who will disagree with me.