The Obama administration on Wednesday moved to sharply limit short-term health insurance plans, which a growing number of consumers have been buying even though they offer less coverage than what the Affordable Care Act decreed all people should have.
The plans, designed for people in between jobs or in need of temporary insurance until they secure a regular policy, are cheaper than regular insurance plans. But they also can lack features that the health law requires for other policies, such as coverage for preexisting medical conditions, maternity care and prescription drugs. In addition, insurers are allowed to refuse to sell short-term plans to people they think will run up large medical costs, and insurers can also cap the maximum amount they will pay. Both practices are banned for regular policies under the health law.
The Department of Health and Human Services said under its proposal, short-term health policies could be written for no longer than three months, instead of up to a year as is currently allowed. In addition, consumers would not be able to renew the policies. The department said it plans to require insurers to clearly tell consumers that the plans do not qualify as coverage under the health law and that they may still face a tax penalty if that is the only insurance they have.
“People buy these policies probably not fully understanding that they’re not getting comprehensive coverage, and then they have to pay the penalty, and if anything serious goes wrong, they have very limited coverage,” said Timothy Jost, a law professor at Washington and Lee University who has studied the ACA.
The government said these changes were necessary both to ensure that consumers have “meaningful health coverage” and that the short-term plans would not siphon away healthy people from other insurance plans that comply with the ACA. An exodus of healthy people could lead to increasing premiums for the remaining people in plans sold on healthcare.gov and on state marketplaces.
“It’s important for the stability of the risk pool that people be encouraged to buy coverage whether they’re healthy or not healthy,” Jost said.
Clare Krusing, a spokeswoman for America’s Health Insurance Plans, said these policies are a small segment of the insurance market, but consumers’ purchase of them “does highlight the fact that consumers are voting with their feet.
“Affordability is a top priority for consumers, and that means providing health plans with greater flexibility to design the coverage options that best fit those needs,” she said in an email.
Simultaneously, the government announced refinements to the methods by which it gauges financial risk of insurance populations. It plans to begin factoring in people who held plans for part of the year and also include prescription drug use. The government will take those costs into account when the government redistributes money from insurers with people who tend to be sicker to plans filled with healthier people.
Caroline Pearson, a senior vice president at Avalere, a Washington consulting firm, said the change would direct more money to plans with patients who use more expensive specialty drugs. “Plans are actually losing money on some patients that take high cost medicines,” she said. “This will remove any disincentive for covering high cost medicines.” She said the change should allay concerns that insurers must otherwise limit access to those drugs in their benefit designs.
The department further announced that it planned to take a more active role in getting marketplace customers to sign up for Medicare when they turn 65. People who do not sign up on time for Medicare B, which covers outpatient care and doctor visits, could end up paying higher premiums when they eventually enroll. They also will likely lose their subsidies for the marketplace plan after they are eligible for Medicare. The government will begin this summer contacting people enrolled in commercial plans to advise them on how to transition to Medicare.