Back in July of 2018, the Trump Administration issued new rules that expanded short-term limited-duration insurance (STLDI) plans and association health plans (AHPs). Congress also reduced the tax penalty of the individual mandate to $0 starting in 2019, and a Federal judge found the individual mandate unconstitutional (though the Supreme Court may feel otherwise). The expansion of so-called “junk plans,” paired with an elimination of the individual mandate’s tax penalty, will have serious consequences on the ACA marketplace and consumers. These rules, specifically the expansion of STLDI plans and elimination of the tax penalty, have gutted the core tenant of the ACA: that every individual has access to an affordable, basic level of essential care. Wildly disparate regulation of STLDI plans across states paired with new incentives to purchase cheaper plans that don’t provide minimum essential coverage will drive up premiums for different groups of Americans. They will increase the number of individuals without essential coverage, drive up uncompensated care costs, and put consumers at risk. We will begin to see the negative impacts of this mass of healthcare deregulation this year.
Under President Obama, STLDI plan duration was capped at 3 months; the most recent rule expands their duration for up to 364 days, with opportunities for individuals to renew or extend plans for up to 36 months. Notably, STLDI plans are not required to comply with ACA requirements; they do not have to cover pre-existing conditions, preventative care, maternity care, or prescription drug costs. These plans may also charge higher premiums based on health status and gender, may impose annual or lifetime limits on coverage, and may rescind coverage for individuals. However, because these “bare-bones” plans offer significantly less coverage, they come at a significantly lower cost than ACA-compliant policies, making them attractive for individuals who are relatively young and healthy. When the individual mandate was still in full effect, these policies did not count as minimum essential coverage, and individuals who enrolled in STLDI plans as their primary coverage were subject to the penalty.
So, what is the usefulness of these types of plans? STLDI plans are often used to cover gaps in insurance that occur when individuals have gaps in their coverage; for example, if you have just gotten a new job, but the company’s enrollment period doesn’t start for another month. In this scenario, you can purchase a bare-bones insurance plan that will last you the month and ideally cover your basic medical expenses. In scenarios like this, STLDI plans can be a useful, and even life-saving, opportunity for many. However, the new rule puts consumers at risk by eliminating key discernable differences between ACA-compliant coverage and STLDI plans.
This rule change on STLDI plans places individuals at risk, as they may not always be able to discern the differences between these bare-bones plans and ACA-compliant plans. The new rule extends the amount of time a policy may cover an individual to 364 days, essentially a year of coverage, with the opportunity to renew the same plan. By removing the time and renewal limits on these plans, the Trump administration has made STLDI plans look very similar to individual market health plans on the surface. This striking similarity, combined with little to no critical plan information during enrollment, places consumers at risk of purchasing what they believe to be a comprehensive policy at a great price, when in fact they are purchasing what is essentially a “junk plan.” While state and local governments and nonprofits can lessen these information asymmetries by providing information concerning these new rule changes, it is unlikely these efforts will save all individuals from the harmful effects of these rule changes. Insurance is a complicated topic and plans change from state to state; it is difficult for local governments or nonprofits to take the role of the federal government and advise individuals on healthcare choices.
This is probably the largest risk of this rule change: Individuals may believe that they have coverage when they do not. If this occurs at the point of treatment, individuals may not receive the care they need. If it occurs after treatment, individuals may be on the hook for thousands, if not hundreds of thousands, of dollars. A Kaiser Family Foundation study of STLDI plans found that of plans currently on the market: 71 percent don’t cover outpatient prescription drugs, 62 percent don’t cover mental health or substance use treatment, and none of the plans cover maternity care. While some individuals may be able to go for months without needing certain services, we cannot ignore the fact that the unexpected does happen. A woman who becomes unexpectedly pregnant while using an STLDI plan will face significant obstacles to obtaining comprehensive care during pregnancy, birth, and postnatal care, endangering her health and the health of the fetus.
Increasing access to “junk plans” will drastically change the health insurance marketplace, as large numbers of individuals are expected to forgo traditional marketplace options in favor of these bare-bones plans. The CBO estimates that in 2023, 2 million people will enroll in STLDI plans. In addition, the Urban Institute estimates that the new STLDI rule will increase the number of individuals without minimum essential coverage by 2.6 million in 2019, making the total of individuals lacking minimum essential coverage 36.9 million. Of these individuals, 32.6 million will have no coverage at all and 4.3 million will have enrolled in STLDI plans. Taken together, these estimates show that rather than providing individuals with more comprehensive, quality insurance options, more individuals will be relying on “junk plans” for their healthcare coverage or going without.
The individuals projected to leave small-group or non-group plans in favor of AHPs and STLDI plans tend to be younger and healthier than those who will stay behind. These individuals may believe that they have no need for most of the minimum essential benefits required of ACA-compliant plans. The CBO projects that this mass departure will result in an average increase of 2-3 percent on premiums for small-group or non-group insurance plans. The exact increase in premiums will vary heavily by state, as different states have different regulations. According to the Urban Institute, states without prohibitions or limitations on expanded STLDI plans could witness up to an 18 percent increase in average premiums of ACA-compliant nongroup insurance plans. In states that have regulations limiting STLDI plan expansion, such as Michigan or Nevada, the increase will be slightly lower (12.2 and 15.2 percent, respectively). Previously, the individual Mandate solved this “mass exodus” problem by requiring individuals to procure ACA-compliant plans or pay a penalty. However, with the Individual Mandate defunct in 2019, there is little incentive for individuals to purchase these more expensive comprehensive plans. For younger healthier individuals, the allure of significantly cheaper STLDI plans is strong.
One overlooked impact of this exodus of individuals from ACA-compliant plans to STLDI plans is the cost outside of premium increases. As the ACA significantly increased coverage across the country, the share of hospital operating expenses dedicated to uncompensated care fell by 30 percent. Uncompensated care costs, services that hospitals provide but are not paid for, burden patients, hospitals, and states. Uncompensated care can create serious amounts of medical debt, poor credit ratings, difficulties for hospitals to maintain services, and strains on state budgets. In 2010, the total amount of uncompensated care that hospitals provided was about $40 billion. States that saw larger decreases in their uninsured population experienced even more drastic decreases in uncompensated care costs. The relationship between percent declines in uninsured rates and percent declines in uncompensated care costs as a share of hospital operating expenses was about one-to-one. The projected sharp increase in STLDI plans, and the limited coverage they provide, could reverse this trend. Individuals seeking emergency care may find that it is not covered by these “junk plans.” In addition, the sudden onset of chronic conditions, disabling injuries, and mental health issues could force individuals to seek treatment at hospitals, which are required to provide care. The projected dramatic increase in STLDI plan use has the potential to increase the number of individuals seeking care at hospitals without coverage.
These rule changes, combined with the repeal of the mandate penalty, undermine the ACA marketplace and the core tenants of the ACA. Individuals across America will no longer have access to similar levels of basic care, but must, once again, rely on their state governments to pass regulations protecting consumers from junk insurance plans. A few states, such as Massachusetts, New Jersey, and New York, have regulations mandating minimum essential coverage levels that effectively bar STLDI plans. Some states, like Hawaii, have outright banned these junk plans. Consumers in these states will face fewer risks associated with this new rule, and premiums are predicted not to increase dramatically. Other states, such as Mississippi and Texas, will feel the full impact of this deregulation of STLDI plans, as they have no additional regulations governing these types of plans. As the individual mandate goes out of effect this year, a sizable number of individuals will be enticed into buying STLDI plans, but the regulations governing their policies will vary by state, as will the risks they must assume.
On a final note, the CBO estimates that “In 2023 and years later, about 90 percent of the 4 million people purchasing AHPs and 65 percent of the 2 million purchasing STLDI plans would have been insured in the absence of the proposed rules.” The fact that the vast majority of individuals benefitting from these rules would have otherwise found coverage demonstrates that the primary goal of these proposed rule changes is to simply reduce regulation. The deregulation of AHPS, STLDI plans, and the repeal of the individual mandate are not intended to give consumers better access to healthcare policies that fit their needs but are solely ideological power grabs by politicians who have been trying to sabotage the ACA since day one.
Indeed, one of the staunchest advocates for repealing the ACA, former Illinois Representative Peter Roskam, received the largest amount of PAC and individual contributions from insurance companies in 2017-2018, approximately $393,121. Roskam, who sought wholesale repeal of the ACA, also refused to hold town halls to avoid confrontation over the popular provisions of the ACA. In addition, Roskam claimed that his Democratic challenger’s support of the ACA would cut health care plan options; this claim has been labeled as false and based on flimsy assumptions. Other notables include Kevin McCarthy (who received the second-largest share of contributions at $391,350) who spread misinformation concerning the ACA. McCarthy’s claim that “More people, almost twice as many, pay the penalty or take the waiver than signed up for it,” was completely false. The total number of sign-ups under the ACA was closer to 20 million when taking into account enrollment via exchanges and Medicaid expansion – McCarthy intentionally left out the roughly 14 million newly-Medicaid enrolled individuals to paint the ACA as a failure. It should be noted that many notable Democrats also received large contributions from insurance companies during this time but did not blatantly spread falsehoods concerning the impacts of the ACA.
The ACA was not perfect; it did not give every individual the same exact coverage at the same exact price. However, this groundbreaking policy was a solid step in the direction of fulfilling the promise of healthcare for all. The individual mandate penalty, coupled with regulations concerning STLDI plans and minimum essential coverage requirements, helped consumers navigate the complex world of insurance markets by guaranteeing a minimum level of care. Regulations kept the distinction between ACA-compliant plans and STLDI plans clear. The individual mandate kept more young and healthy individuals in the ACA marketplace than would have otherwise been there. The deregulations surrounding AHPs, STLDI plans, and the individual mandate will make purchasing and understanding insurance policies even more complicated and riskier for consumers.
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