Study: Trump Administration Dramatically Underestimates Harm Short-Term Limited Duration Insurance Poses to Health Care Market
Actuaries Estimate Millions of Americans Will Be Tagged with Higher Premiums and Weaker Benefits
WASHINGTON—A new study commissioned by the Association for Community Affiliated Plans (ACAP) reveals the Trump Administration underestimates by fourfold the impact short-term limited duration insurance (STLDI) plans will have on individual policies sold in 2019 that meet the coverage standards required by the Affordable Care Act.
The Trump Administration estimated the immediate impact of rule changes it proposes for STLDIs would decrease in ACA-compliant plans, such as those purchased through HealthCare.gov, by 100,000 to 200,000 enrollees in 2019. The study, authored by Wakely Consulting Group, projects a decrease nearly four times greater, because the Administration’s estimate failed to account for the 5 million people who purchase ACA-compliant plans off the exchange, such as directly from plans or brokers. Thus, Wakely estimates enrollment levels for 2019 to be between 396,000 and 791,000 fewer enrollees.
These decreases in enrollment are driven by both the elimination of the individual mandate penalty as part of the December 2017 tax cut legislation and the recently proposed rules by the U.S. Department of Health and Human Services (HHS) allowing individuals to enroll in STLDI plans for a longer time period than permitted by current regulation. Over time, as insurance companies market STLDI plans more broadly, Wakely predicts the STLDI regulation could ultimately lead up to 1.9 million people to abandon ACA-compliant coverage in the next few years, over and above the estimated effects of the mandate penalty repeal.
HHS defines STLDI as “a type of health insurance coverage that was designed to fill temporary gaps in coverage that may occur when an individual is transitioning from one plan or coverage to another plan or coverage.” However, the proposed regulation would extend the maximum duration STLDIs can offer coverage from three months to 364 days, and make the process to renew and reapply more convenient for current policyholders. In effect, insurers could offer STLDI plans as year-round plans.
Unlike ACA-compliant plans, STLDIs are not required to cover essential health benefits, such as prescription drug or substance abuse coverage. Additionally, these plans have deductibles of up to $20,000 for three months of coverage, and many have annual coverage limits of $1 million. Without being held to market reform rules established under the ACA to protect consumers, discriminatory practices run rampant in STLDIs and allow insurance companies to charge higher premiums based on age, gender or pre-existing conditions. STLDI plans also have a high occurrence of rescissions—retroactive cancellation of policies—which often happens after patients incur substantial medical bills, leaving them on their own to pay the bills.
“STLDI plans are fake insurance. While these plans can be effective stopgaps, they are not functional as full-time health coverage products,” says ACAP CEO Margaret Murray. “You have a policy and a lower premium, but your coverage is far less meaningful. It would be a shame for consumers to find out the hard way should this proposed regulation go into effect.”
Even more alarming, the study found if the new rule is enacted, many younger and healthier enrollees are expected to abandon quality, ACA-compliant insurance in favor of lower-cost, substandard plans. Consequently, the older and sicker individuals left behind will be faced with higher premiums to cover the rising average claims costs.
The American Academy of Actuaries notes, “Noncompliant plans would likely be structured to be attractive to low-cost enrollees, through fewer required benefits, higher cost-sharing, and premiums that vary by health status.” Once the harmful effects of STLDIs have had sufficient time to weaken the ACA-compliant market, Wakely estimates that the impact of STLDIs will increase premiums as much as 12.8 percent and decrease enrollment by as much as 26.3 percent.
“Health reform should aim to increase coverage, improve the affordability of comprehensive coverage, and improve the quality of care,” says Murray. “Pushing people out of ACA-compliant plans and into STLDI plans achieves the exact opposite. Fewer will be insured, ‘fake insurance’ plans will proliferate, and ACA-compliant premiums will increase as the marketplace is destabilized. For these reasons, we will continue to oppose regulatory attempts to undermine quality health insurance for every American.”
ACAP represents 61 nonprofit Safety Net Health Plans in 29 states, which collectively serve more than 21 million people enrolled in Medicaid, Medicare, the Children’s Health Insurance Program (CHIP), and other public health programs. For more information, visit www.communityplans.net.
About Wakely Consulting Group
Wakely Consulting Group is a nationally recognized health care financial and actuarial consulting firm serving health plans, government regulators, employers, health care providers, and other stakeholders in health care, managed care, and reform markets. Wakely assists clients with product pricing, feasibility studies, predictive modeling, actuarial certifications and filings, operational analysis, compliance, and other financial and management aspects of their business. www.wakely.com.
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