The impact of the Trump administration's latest bid rolling back the Affordable Care Act likely understates the exodus to short term health plans, with much riding on how individual states interpret and execute the proposed rule.
The expansion of short-term health plans from three months to a year could also restrict access to care for people with pre-existing conditions and create lopsided risk pools, experts said.
The short-term plans, which are not required to comply with federal rules for individual health insurance under the Affordable Care Act, would open up the option of cheaper insurance for millions of people, the administration argued Tuesday.
If finalized, it would expand the market for short-term plans, which can charge individuals more if they have a preexisting condition and are not required to comply with what the ACA defined as essential health benefits, like prescription drug coverage and maternity care.
The rule would turn the clock back to before the Obama administration limited the plans to three months.
Before that, the number of people enrolled in the plans had been increasing over the years.
The administration estimates between 100,000 and 200,000 individuals would swift from ACA plans to the short-term options.
At the end of 2016, 160,000 people were enrolled in short-term policies, according to Chris Sloan, senior manager at Avalere.
But with the individual mandate effectively at zero starting in 2019 and rising premiums, enrollment in short-term plans could get am additional boost because people could enroll in short-term plans without also having to pay a penalty, he says.
"We haven't run numbers on it yet, but I use that as a lower-bound estimate given that the market was at 160,000 before this rule went into effect and that was with the individual mandate still in effect and an administration that was looking unfavorably at these sort of plans, so you have to imagine that the environment is better for these plans. It doesn't seem like an unreasonable amount, but it's probably a lower-bound estimate of the effects," Sloan said.
HHS Secretary Alex Azar wrote in a CNN column that the short-term plans are simply offering more personalization, estimating it could impact much more than the official CMS forecast, pegging it at "millions." CMS argues the plans will also be attractive to the uninsured.
"This proposal, combined with the repeal of the individual mandate tax, could benefit millions of middle-class families who can't afford the premiums of Obamacare plans," Azar wrote Friday.
Larry Levitt, senior vice president at the Kaiser Family Foundation, told The Hill that CMS' estimate appeared "very low," but warned on Twitter it is difficult to predict the full impact of the proposal.
One thing holding back short-term health insurance policies now is that they don't comply with the individual mandate, so people buying them still owe a penalty. That will change in 2019 when the penalty is repealed.— Larry Levitt (@larry_levitt) February 20, 2018
Still, Sloan warns that while he believes there will be increased enrollment in the plans, he doesn't think it will have "a major destabilizing effect on the individual market as we know it today." About 11.8 million people enrolled in ACA exchanges during the 2018 open enrollment period, almost a 4% drop compared to 2017.
"That being said, if long term these policies start to look more like normal insurance, cover more benefits, offer more comprehensive coverage, just with some benefits missing and imposing individual underwriting, then you could expect gaining enrollment going forward and impacting other markets as you have an outflow of healthy individuals. But if that were to ever materialize, that would take some time," Sloan said.
Potential state regulation
A new report from highlights the role varying state regulations could play if the Trump proposal is finalized, given there is no statutory definition of short-term insurance and the proposed rule does not include federal preemption of state regulation.
"Some states effectively prohibit these policies today by prohibiting medical underwriting, which takes away their main competitive advantage. Other states limit their duration to six months, and more states are likely to consider fair marketing rules, minimum medical loss ratios, and other means of reducing the impact of these policies in increasing rates for the larger Marketplace population," the report from law firm Manatt states.
Joel Ario, a managing director at Manatt Health who previously served as director of the Office of Health Insurance Exchanges at HHS says that many states may look at prohibiting or shortening the duration of short-term plans.
"Another area for state regulation is the lower 'medical loss ratio' for short term plans over marketplace coverage. The cheapest products often generate the most consumer complaints and when insurers spend less than the 80 cents per dollar on claims costs that they are required to pay for Marketplace coverage, consumer protection at the state level merits a careful look by regulators," Ario said in a statement.
Sloan pointed to state regulations around short-term insurance as potentially having increasing importance if the Trump proposal goes into effect. "States still regulate these plans, so states in many cases have restrictions on sales of these plans above and beyond the federal standards, that's not going to change," he said.
For example, California and Minnesota already limit short-term plans to 185 days and have restrictions on renewals, according to a report by the Georgetown University Health Policy Institute.
What do the major insurers think of the plan?
Most health insurers have some sort of presence in the individual market today, Sloan says. But for an insurer like UnitedHealth, which effectively pulled out of the individual market, short-term plans present an opportunity.
"Generally the plans that are in the individual market today don't like this. I think that's the line that you can draw. If you have an individual market presence today and that's a market that you are offering plans in, healthy individuals leaving that market and going into short-term policies is a bad thing," Sloan said.
UnitedHealth Group CEO David Wichmann has publicly backed President Donald Trump's plan to lighten insurance regulations, saying it would lead to more insurance market stability broadly.
“We have a great deal of experience in the area covered in the order, short-term policies, association plans and expanded use of HRAs,” Wichmann previously said during the company's Q3 call.
However, America's Health Insurance Plans, which UnitedHealth Group left in 2015, cautioned that the proposal could have ill effects following the proposed rule's release.
"While we are reviewing the proposed rule to understand its impact on the people we serve, we remain concerned that expanded use of short-term policies could further fragment the individual market, which would lead to higher premiums for many consumers, particularly those with pre-existing conditions," Kristine Grow, SVP of communications at AHIP, previously said.
Critics blast plan as costly step backwards
But critics say the proposal sabotages the individual market and threatens access to healthcare for millions of people.
"Only the sick will be covered under plans with full ACA protections, driving up the costs of those plans and potentially making them unaffordable. By allowing the sale of plans that offer only the illusion of coverage, more Americans will face unmet health care needs and many will face medical bankruptcy when they get sick and their plan does not cover the care they need," Eagan Kemp, Public Citizen health care policy advocate, said in a statement.
CMS itself admits the proposal would cost between $96 to $168 million annually in increased spending on premium subsidies. Comments on the proposed rule are due by April 23.