The Affordable Care Act was designed, in large part, to ban cruddy health insurance. Before the law was passed, shoppers often tried to save money on their coverage by purchasing plans with meager benefits that didn’t help much if they got sick with cancer or needed an expensive prescription or were badly injured in a car wreck. Obamacare sought to end that by requiring health plans to cover a standard package of services, no matter who bought them.
The Trump administration is now bringing cruddy back. In yet another aggressive move to undermine the Affordable Care Act, it issued a new regulation on Wednesday that will make it easier for companies to sell inexpensive insurance plans that are not required to offer basic benefits and can discriminate against Americans with pre-existing conditions.
Worse, the decision could ultimately drive up the price of insurance on Obamacare’s exchanges by creating a parallel, lightly regulated market for cheap coverage that siphons off healthier customers.
The new rule will allow companies to offer longer-lasting versions of what the industry calls “short-term, limited duration” health policies. Under old regulations put in place by the Obama administration, these plans could last no more than three months at a time before customers had to reapply for them. Going forward, they will be able to last as long as 36 months.
Short-term health plans are often dismissed as junk insurance, and for good reason. They were originally meant as a temporary option for people who found themselves with a brief break in their coverage, such as after losing a job. Unlike the coverage sold on Obamacare’s exchanges, they are not required to offer a minimum-benefits package; they can leave out things like maternity care, mental health, or prescription drugs. They can cap coverage and impose higher deductibles. Carriers also underwrite them, meaning they are permitted to charge customers more—or reject them outright—based on their health.
Because they can offer skimpy benefits to a narrow group of healthy customers, these plans are naturally attractive to people without much in the way of immediate medical needs. (Of course, when those people get sick, they may feel differently.)The Obama administration clamped down on the plans in 2016 by limiting their duration, after it realized that they were drawing younger, healthy adults away from market Affordable Care Act’s market. This was happening despite the fact that the policies plans did not count as health insurance for the purposes of fulfilling the law’s individual mandate, meaning people who relied on them still got stuck paying a tax penalty. Such was the allure of dirt-cheap insurance.
By letting insurance companies offer these plans for up to three years, the Trump administration is basically taking the “short” out of short-term. Because Republicans also eliminated the individual mandate as part of the tax law they passed last year, there’s also no longer a financial incentive to buy comprehensive coverage through the exchanges instead of a “limited duration” plan. Between those two moves, Trump and his GOP allies are essentially legalizing the very bare bones coverage Obamacare was designed to wipe out.
“For all intents and purposes, this is a separate, ACA-non-compliant market,” Chris Sloan, a director at the health care consulting firm Avalere, told me. “They’re not short-term plans when they’re 36 months long.”
Some people will no doubt benefit from this move. As Trump administration officials point out, Obamacare premiums have been rising drastically. While this hasn’t affected Americans eligible for subsidized coverage, it has certainly priced out some who don’t receive any financial aid from the government. These short-term plans will give them a cheaper option. The administration points out that the average short-term plan cost $124 per month at the end of 2016, as opposed to $393 for the average unsubsidized Obamacare plan.
“We continue to see a crisis of affordability in the individual insurance market, especially for those who don’t qualify for large subsidies,” CMS Administrator Seema Verma said in a statement. “This final rule opens the door to new, more affordable coverage options for millions of middle-class Americans who have been priced out of ACA plans.”
What the administration fails to mention, of course, is that Obamacare premiums are rising thanks largely to the White House’s own attempts to sabotage the law, which, judging from data on patient expenses and premiums, had finally started to stabilize in 2017. And as the administration itself has admitted, expanding the market for short-term insurance could make premium hikes worse. Routing young, healthy insurance shoppers away from the Obamacare exchange will skew that market further towards sick, unprofitable patients, forcing carriers to raise their prices in order to make a profit.
I don’t want to over-exaggerate the magnitude of this change. Short-term policies were permitted to last for a full 12 months during the early years of Obamacare, before the administration moved to cap them. And after 2016, some companies found ways around Obama’s regulations by offering customers “four packs” of consecutive 3-month policies. The difference now is that customers will be able to buy a policy that lasts for an initial period of one year, then automatically renew it for another 24 months. That will make them less of a hassle, and easy to market. But it’s not as if these policies were entirely banned before.
But with the individual mandate gone, it stands to reason that these kinds of policies will be more popular than before, and could potentially do more to destabilize Obamacare. The good news is that states don’t have to sit there and watch their health insurance markets devolve. A handful already ban the sort of short-term insurance policies the White House wants to unleash, and more could move that direction. Trump is opening the flood gates for junk coverage. States could shut them back down.