Comments from Richard Besser, MD, on Short-Term, Limited-Duration Insurance Proposed Rule
The following comments were submitted by Richard Besser, MD, Robert Wood Johnson Foundation (RWJF) President and CEO, in response to the U.S. Departments of Health and Human Services (HHS), Labor (DOL), and Treasury short-term, limited-duration insurance proposed rule.
On February 28th, the U.S. Departments of Health and Human Services (HHS), Labor (DOL), and Treasury published a proposed rule to expand the sale of short-term, limited-duration insurance (STLDI) in the individual market.1 The Robert Wood Johnson Foundation (RWJF) is pleased to have the opportunity to respond to the request for comments.
RWJF is the nation’s largest philanthropy dedicated to improving health and health care in the United States. Since 1972, we have worked with public and private sector partners to advance the science of disease prevention and health promotion, train the next generation of health leaders, and support the development and implementation of policies and programs to foster better health across the country, including high-quality health care coverage for all. We are working with others to build a Culture of Health, in which everyone has the opportunity to live the healthiest life possible. Access to comprehensive, quality health care is central to our vision of good health and well-being. Accordingly, health care coverage expansion is critical to our mission and has been an essential component of our work for more than four decades. During the last several years, we have directed much of our attention to the individual insurance market. Therefore, the proposed rule is of great interest to us.
Our comments will focus on the following topics:
1. The impact of the proposed rule on the individual insurance market;
2. Appropriate duration and potential renewability of STLDI plans;
3. The proposed consumer notice; and
4. The proposed effective date of this rule.
1. Impact on the individual insurance market
As a result of the individual market reforms created by the Affordable Care Act (ACA), millions have obtained comprehensive health insurance.2 Insurance coverage available in the ACA-regulated individual market (hereafter referred to as the individual insurance market) is comparable to the group coverage policies that most Americans receive through their employer, with features like guaranteed issue, no pre-existing condition exclusion, maximum out of pocket limits, and no benefits caps. For low income consumers eligible for Advance Premium Tax Credits (APTC), policies in the individual insurance market have been quite affordable. However, for the segment of the population that is ineligible for subsidies because their incomes exceed 400 percent of the federal poverty limit, the cost of coverage has been a challenge. This year, average monthly premiums after APTC were $153, versus $522 for customers without APTC.3 Most would agree that there is an affordability gap between low and moderate income individuals in the individual insurance market.
The recent proposed rule about association health plans (AHP) and this proposed rule are motivated by a desire to improve the well-being of the unsubsidized population by providing them with more affordable insurance options.4 However, we believe that the approach proposed here is not optimal, because (1) the STLDI products provide inferior coverage relative to ACA compliant products, and (2) the existence of STLDI products will undermine the risk pool in the individual insurance market. It is our view that the fundamental inequality that currently exists between the low and moderate income population in the individual insurance market will be worsened rather than improved by the expansion of STLDI policies proposed by this rule.
There are many types of STLDI policies, and they vary in their coverage, but they share some important features. To list a few: STLDI policies are not required to cover essential health benefits. Insurers may deny coverage or employ medical rating to exclude less healthy enrollees. They may waive coverage for pre-existing conditions. Insurers may cap benefit amounts, potentially leaving consumers (and providers) with extremely high medical bills. Insurers may also engage in post-claims underwriting, retrospectively denying claims and terminating policies, if claims are believed to be related to undisclosed pre-existing conditions.5 There are many lawsuits and consumer complaints around the country stemming from unpaid bills resulting from STLDI plans, and insurance regulators have expressed concern about potential risks to consumers and the potential for confusion.6, 7, 8, 9
Aside from the potential risks to consumers, the expansion of STLDI products is projected to adversely affect the individual insurance market. This is because, due to the characteristics described above, STLDI plans will disproportionately attract healthier consumers, with the result that the remaining risk pool in the individual insurance market will become adversely selected and therefore more expensive. This will increase average premiums in the individual insurance market. While low income consumers will be protected by larger tax credits, those who are unsubsidized will see their affordability problem worsen. The expansion of STLDI products will effectively segment the market into a less healthy and more expensive segment with comprehensive coverage, and a healthier and less well covered component.
The magnitude of this effect will depend on factors such as the volume of enrollment in STLDI plans, the extent to which this enrollment is drawn from the individual insurance market, and the degree of selectivity of enrollment in STLDI. The effect of the proposed expansion of STLDI must also be considered in the context of the elimination of the individual mandate, which was included in the Tax Cuts and Jobs Act of 2017 and is also projected to reduce enrollment in the individual insurance market when it takes effect in 2019.10 The size of this impact will also vary by state, since states have the ability to restrict and/or regulate STLDI so as to minimize their impact on their individual insurance market, and there is currently quite a bit of variation in state approaches to these products.11
There are multiple estimates of the magnitude of this impact. The Departments have estimated that the expansion of STLDI proposed by this rule would result in a migration of between 100,000 and 200,000 enrollees from the individual insurance market to STLDI products, resulting in an increase in federal APTC payments of between $96 and $168 million.12 The Urban Institute has estimated a far greater effect - a net loss of over 2 million customers from the individual insurance market, resulting in a premium increase of approximately 18 percent in the 43 states that do not regulate or prohibit STLDI.13 Citing multiple estimates, the Association of Health Insurance Plans (AHIP) has similarly argued that the expansion of STLDI, in combination with the elimination of the individual mandate, the withdrawal of cost sharing reduction payments, and the reduction of enrollment outreach and assistance will serve to reduce enrollment and increase premiums in the individual insurance market in 2019.14 Covered California released a joint analysis estimating the effect of these changes by state.15 A recent analysis conducted by Oliver Wyman specifically for the District of Columbia Health Exchange found that the combined effects of the elimination of the individual mandate, and the proposed STLDI rule would increase claims costs in the District of Columbia Health Benefit Exchange by 11.7 percent to 21.4 percent in 2019.16
While there are a range of estimates regarding the impact of the expansion of STLDI on individual market enrollment, premiums, and federal expenditures on APTCs, we can make some inferences about the nature of this effect by looking at current state experience. A major determinant of the health of current state individual insurance markets is the extent to which states create policy environments that undermine their risk pool. We have seen that states such as Iowa and Nebraska, which allowed for the continuation of large transition plans and adopted a permissive stance toward non-compliant insurance products, have had particularly poor market outcomes, such as premium increases and issuer participation problems. Tennessee, which has permitted the Farmers' Bureau to sell underwritten insurance policies, is another case in point. In general, state policies that have permitted the segmentation of the risk pool have had negative consequences for their individual insurance market.17, 18, 19
2. The appropriate duration and renewability of STLDI policies.
The three Departments ask for comments about the appropriate duration and the renewability of STLDI. To the extent to which there is any appropriate role for STLDI in today's individual market, it would be for use as a temporary bridge by a consumer who, for example, has missed open enrollment and does not have a life event that qualifies for a Special Enrollment Period. A short duration and lack of renewability would be consistent with this very transitional role for STLDI, which would limit negative consequences for the individual insurance market. The proposed rule seeks to make changes designed to encourage more consumers to choose STLDI products as alternatives to individual insurance. Increasing the ease with which STLDI can be viewed as a long term option will increase the negative impacts on the market. In the proposed rule, the federal government acknowledges this potential as they observe: "the Departments anticipate that the rule, if finalized, would encourage more consumers to purchase short-term, limited-duration insurance for longer durations..."20 We recommend the duration of STLDI not be extended. We also recommend that these policies not be renewable, and further note that the very concept of renewability is not consistent with the purported short-term nature of these products.
3. Proposed consumer notice
The agencies seek comment on their proposed new notice to consumers:
THIS COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU UNDERSTAND WHAT THE POLICY DOES AND DOESN’T COVER. IF THIS COVERAGE EXPIRES OR YOU LOSE ELIGIBILITY FOR THIS COVERAGE, YOU MIGHT HAVE TO WAIT UNTIL AN OPEN ENROLLMENT PERIOD TO GET OTHER HEALTH INSURANCE COVERAGE.
While this information is useful to consumers, we recommend that the notice include some additional points, for example: “THIS COVERAGE MAY EXCLUDE PRE-EXISTING CONDITIONS;” “THIS COVERAGE MAY HAVE DOLLAR LIMITS ON BENEFITS;” “PREMIUMS MAY BE BASED ON HEALTH STATUS.”
4. Proposed effective date of the rule
As noted above, we believe that the proposed rule will have adverse effects on the individual market that would not outweigh the benefits. Further, we believe that the timing of this rule is not optimal, since there are other major changes in the individual insurance market that are currently being absorbed by consumers, carriers, and regulators. For example, the individual mandate was eliminated in the Tax Cuts and Jobs Act of 2017, which is estimated to reduce individual market enrollment in Plan Year 2019. The elimination of Cost Sharing Reduction payments has affected premiums and distribution of enrollment into bronze, silver, and gold plans, and may impact risk adjustment calculations. There is a proposed rule about Association Health Plans that also has the potential to segment the small and individual markets. As currently planned, the effective date for this STLDI rule is 60 days after finalization, which is estimated to be in the fall of 2018. This means that issuers will be filing rates for Plan Year 2019 lacking full information, and with the potential for new STLDI products to enter their markets during the 2019 plan year. This short timeframe also provides states with inadequate time to pass legislation or create regulations to more carefully define STLDI products. Given these many changes, it would be preferable to finalize this rule at a later date, when the impact of these other factors can be better understood and thus better inform the rulemaking process. In any case, it would be better if the effective date of this rule were January 1, 2020, so that issuers are able to file rates with full information. This also provides states with time to take measures to further restrict STLDI if they choose.
We believe that the expansion of STLDI will adversely affect the individual insurance market, resulting in increased premiums and a reduction in enrollment. In light of the current opioid epidemic, this proposed rule seems particularly ill-advised as it will potentially create additional barriers to receipt of treatment for substance use disorder (SUD), by facilitating the sale of plans that do not cover SUD treatment, while increasing the cost of those that do.
The effect of this proposed rule will vary by state, and disparities between states are likely to widen. Some states may take steps to minimize impact such as requiring STLDI to meet individual market rules, restricting duration, setting minimum Medical Loss Ratio requirements, and/or imposing taxes on STLDI plans.21 The affordability of coverage for the unsubsidized in many states remains a challenging issue, yet there are alternative policy options that will increase participation and improve affordability in the individual insurance market. Among them are state or federal reinsurance, state incentives to encourage participation, auto-enrollment, and resumption of cost sharing reduction payments.
About the Robert Wood Johnson Foundation
For more than 40 years the Robert Wood Johnson Foundation has worked to improve health and health care. We are working with others to build a national Culture of Health enabling everyone in America to live longer, healthier lives. For more information, visit www.rwjf.org. Follow the Foundation on Twitter at www.rwjf.org/twitter or on Facebook at www.rwjf.org/facebook.
1. S. Corlette, J. Volk, J. Giovannelli, “Short-Term, Limited Duration Insurance Proposed Rule: Summary and Options for States,” State Health & Value Strategies, February 23rd, 2018. Available at: www.shvs.org/short-term-limited-duration-insurance-proposed-rule-summary-and-options-for-states/
2. K. Avery, K. Finegold, A. Whitman, “Affordable Care Act Has Led to Historic, Widespread Increase in Health Insurance Coverage,” ASPE Office of Health Policy, September 29th, 2016. Available at: aspe.hhs.gov/system/files/pdf/207946/ACAHistoricIncreaseCoverage.pdf
3. “Health Insurance Exchanges 2018 Open Enrollment Period Final Report,” Centers for Medicare & Medicaid Services, April 3rd, 2018. Available at: www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2018-Fact-sheets-items/2018-04-03.html, Table 4
4. “Employee Benefits Security Administration,” Department of Labor, January 5th, 2018. Available at: https://s3.amazonaws.com/public-inspection.federalregister.gov/2017-28103.pdf
5. Goe, Christina Lechner, “Non ACA-Compliant Plans the the Risk of Market Segmentation: Considerations for State Insurance Regulators”, p.16-17, NAIC Consumer Representatives. March, 2018. Available at: http://healthyfuturega.org/ghf_resource/non-aca-compliant-plans-risk-market-segmentation/
6. “Acting Insurance Commissioner Alerts Consumers of Individual Health Plans Not Compliant with Affordable Care Act,” Pennsylvania Pressroom, November 8th, 2017. Available at: www.media.pa.gov/Pages/Insurance-Details.aspx?newsid=283
7. Abelsen, Reed, “Without Obamacare Mandate, ‘You Open the Floodgates’ for Skimpy Health Plans,’” The New York Times, November 30th, 2017. Available at: www.nytimes.com/2017/11/30/health/health-insurance-obamacare-mandate.html
8. Meyer, Harris, “Risky Business: Short-term Health Plans Could Alter Insurance Landscape,” Modern Healthcare, January 13th, 2018. Available at: www.modernhealthcare.com/article/20180113/NEWS/180119957
9. Palanker, Dania et al. 2018. “Proposed Federal Changes to Short-Term Coverage Leave Regulations ot the States: To the Point: Quick Takes on Health Care Policy and Practice”. February 20, 2018. Available at www.commonwealthfund.org/publications/blog/2018/feb/short-term-health-plan-proposed-changes
10. “H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” Congress.gov. Available at: www.congress.gov/bill/115th-congress/house-bill/1
11. K. Lucia, J. Giovannelli, S. Corlette et al., “State Regulation of Coverage Options Outside of the Affordable Care Act: Limiting the Risk to the Individual Market,” The Commonwealth Fund, March 2018. Available at: www.commonwealthfund.org/publications/fund-reports/2018/mar/state-regulation-coverage-options-outside-aca
12. CMS-9924-P, February 21, 2018. Available at: https://s3.amazonaws.com/public-inspection.federalregister.gov/2018-03208.pdf
13. L.J. Blumberg, M. Buettgens, R. Wang, “The Potential Impact of Short-Term LimitedDuration Policies on Insurance Coverage, Premiums, and Federal Spending,” Urban Institute, February 2018. Available at: https://edit.urban.org/sites/default/files/publication/96781/2001727_0.pdf
14. “Factors Influencing 2019 Premiums in the Individual Market,” AHIP, February 2018. Available at: www.ahip.org/wp-content/uploads/2018/02/FactorsInfluencing2019Premiums_IssueBrief_2.7.18.pdf
15. “Individual Markets Nationally Face High Premium Increases in Coming Years Absent Federal or State Action, With Wide Variation Among States,” Covered California, March 8th, 2018. Available at: http://hbex.coveredca.com/data-research/library/CoveredCA_High_Premium_Increases_3-8-18.pdf
16. Oliver Wyman Associates.”Potential Impact of Short Term Limited Duration Plans”, April 11, 2018. Available from DC Health Benefit Exchange Authority, 1225 Eye St. NW, 4th Floor. Washington DC, 2005.
17. Hempstead, Katherine, “Marketplace Pulse: Leaky Risk Pools Sink Markets,” Robert Wood Johnson Foundation, August 16th, 2017. Available at: www.rwjf.org/en/library/research/2017/08/marketplace-pulse--leaky-risk-pools-sink-markets.html
18. Goe, op cit. p.25
19. Jost, Timothy. 2017. February 23. Administration Allows States to Extend Transitional Policies Again. Health Affairs Blog. Available at: www.healthaffairs.org/do/10.1377/hblog20170223.058912/full/
20. CMS-9924-P, page 21, February 21, 2018. Available at: https://s3.amazonaws.com/public-inspection.federalregister.gov/2018-03208.pdf
21. S. Corlette, J. Volk, J. Giovannelli, “Short-Term, Limited Duration Insurance Proposed Rule: Summary and Options for States,” State Health & Value Strategies, February 23rd, 2018. Available at: www.shvs.org/short-term-limited-duration-insurance-proposed-rule-summary-and-options-for-states/