Short-term, limited-duration insurance: Recent court decision and congressional investigation
Short-term, limited-duration insurance (short-term plan) is an insurance product that does not have to comply with Affordable Care Act (ACA) market reforms and consumer protection rules. Short-term plans can exclude coverage for preexisting medical conditions; charge higher premiums based on a person’s health status; exclude coverage of essential health benefits; take away or decline coverage; impose high deductibles and cost-sharing obligations beyond the out-of-pocket maximums for ACA-compliant plans; and apply annual and lifetime coverage limits.
Because short-term plans cover a lot less than other types of insurance plans, they can offer lower premiums to healthier people. Those lower premiums can take healthier consumers away from the ACA Health Insurance Marketplace, making ACA-compliant plans more expensive for people who want or need comprehensive coverage. Healthy people who choose a short-term plan are also at risk in the event they do get sick, though, because they may discover that their short-term plan does not cover the services they now need, leaving them responsible for thousands of dollars in medical costs.
The existence of short-term plans predates the ACA, and they were designed to fill in temporary gaps in coverage when a person transitions from one plan to another—for example, when between jobs and employer coverage. Due to concerns that short-term plans were being marketed and sold as primary coverage and negatively affected ACA plans, the Obama administration issued a rule in 2016 that limited short-terms plans to a duration of three months, with no renewals. In 2018, however, the Trump administration issued a final rule seeking to expand the availability of short-term plans, allowing them to have a duration of up to 12 months and to be renewed or extended for up to 36 months. The administration believed this change would expand lower-cost insurance options for consumers.
Lawsuit and court decisions
A group of patient and consumer organizations and safety net health plans sued the Trump administration over its final rule, arguing that it was inconsistent with the ACA and the Health Insurance Portability and Accountability Act (HIPAA). The lawsuit argued that the sale of short-term plans was harmful to the people they represent, many of whom have complex health needs, due to the high out-of-pocket costs and skimpy benefits of short-term plans. In July 2019 a district court ruled in favor of the Trump administration, finding that their rule was not inconsistent with the ACA or HIPAA, that the administration should be given deference in defining short-term, limited duration insurance, and that their definition was a reasonable interpretation. The plaintiffs appealed the decision, and on July 17, 2020, a three-judge panel on the U.S. Court of Appeals for the D.C. Circuit ruled 2-1 to affirm the district court’s decision. The plaintiffs have indicated that they will appeal the decision to the full D.C. Circuit.
Congressional investigation on short-term plans
Many studies have examined the financial risk and deceptive marketing practices of short-term plans, including studies from the Robert Wood Johnson Foundation, the Commonwealth Fund, Kaiser Family Foundation and the Leukemia and Lymphoma Society. In June, the Democratic staff of the House of Representatives Energy and Commerce Committee released an extensive report on the harmful impact of these insurance products on consumers. The report was the result of a yearlong investigation of 14 companies that sell short-term plans. The committee found:
- In the 2018 plan year, approximately 2.36 million consumers were enrolled in short-term plans across nine companies that the committee investigated. That number increased to 3 million consumers for the 2019 pan year, suggesting that the Trump administration’s rule on short-term plans did have an effect in increasing the availability of these products. The committee also notes that these numbers are likely an undercount of the overall enrollment in short-term plans, due to the lack of state and federal oversight and publicly available data on short-term plans.
- Insurance brokers received commissions that were up to 10 times higher for the sale of short-term plans than they were for the sale of ACA-compliant plans. This created an incentive for brokers to engage in deceptive and fraudulent marketing practices.
- Short-term plan insurers screen consumers for health status and systematically discriminate against individuals with preexisting conditions.
- Short-term plan insurers engage in discriminatory practices against women by denying women basic medical services and charging women more than men for the same coverage.
- Short-term plan insurers deny claims for medical care through post-claims underwriting. This requires enrollees to submit extensive personal medical information after a claim has been submitted; the insurer then determines whether the medical condition for which the claim was submitted was the result of a preexisting condition that is not covered by the policy.
- Most short-term plan insurers rescind, or cancel coverage, leaving consumers uninsured and with large medical bills. This often occurs when the insurer determines that the enrollee had a condition or risk factors that should have been disclosed when they applied for coverage. Some insurers also disenroll consumers and deny claims for people who develop medical conditions after enrollment.
To address these findings, the committee recommended federal legislation to make short-term plans subject to all of the ACA’s consumer protection requirements. In the absence of federal legislation, the committee recommended that states exercise their existing authority to regulate and put in place more restrictions on short-term plans that are sold in their states.