The Trump administration should look to roll back the regulation that reduces the maximum duration for Short-Term Limited Duration (STLD) plans and bans them from guaranteeing renewability of coverage.
The collapse of the Better Care Reconciliation Act leaves the Medicaid program essentially unreformed, but it need not force us to put up with the dysfunctional insurance market that the Affordable Care Act established.
Last month, 14 senators wrote to Health and Human Services Secretary Tom Price to request the reversal of a 2016 regulation which devastated the "Short-Term Limited Duration" (STLD) insurance market, a well-functioning alternative to the ACA's exchanges. These plans offer similar benefits to major medical plans, but at much better prices for consumers. Reviving the market for these plans would better serve millions on the individual insurance market, while allowing exchange subsidies to be better-focused on guaranteeing coverage to low-income people with pre-existing conditions.
Yet this crisis is entirely limited to the ACA-regulated market. Premiums for employer-based plans increased by less than 3 percent last year, while STLD plans remain available for a third of the price of the cheapest Obamacare plans. According to eHealth, in 2016 the average STLD monthly premium for an individual was $110, compared with $321 on the ACA-regulated market, with deductibles at similar levels.
STLD plans had traditionally been used mostly by individuals between jobs, but are able to offer far more reasonable premiums because they are exempt from the ACA's rating regulations. But, not being considered "qualifying health coverage," those purchasing them have still been subject to the individual mandate penalty.
Nonetheless, these plans had been embraced by 650,000 to 850,000 Americans as an affordable, robust alternative to the expensive plans with limited access to providers which characterize the exchanges. The individual market is much-defined by the churn of individuals between employers, and so short-term plans align well with the needs and priorities of those seeking coverage.
On October 31, with the intent of driving STLD enrollees onto the exchanges, Obama's HHS issued a regulation reducing the maximum duration for STLD plans from 364 days to 3 months, and banning them from guaranteeing renewability of coverage. As 90 percent of beneficiaries had terms longer than this duration (with an average of 5 to 6 months), this executive action had a devastating effect. As a result, two of the largest carriers have pulled out of the market, and those remaining anticipate a two-thirds decline in business.
The National Association of Insurance Commissioners noted that, as healthy individuals could still always purchase new coverage every 3 months, the benefit to the exchange's risk pool of restricting STLD plan terms and outlawing guaranteed renewability would be dubious – serving only to force those who develop costly conditions to move onto the exchanges.
STLD plans offer an insurance product well-tailored to the needs and risk preferences of specific individuals. The exchanges, no matter how well financed, are fundamentally ill-structured on this point. Rather than treating insurance as a product to protect individuals from risks they can't bear out of pocket, it's become a web of mandates, transfers, and taxes whose efficiency is impossible to ensure. Taxpayers find themselves providing open-ended subsidies to all enrollees, not just the subset of low income individuals with pre-existing conditions.
As the Trump administration seeks to reconstruct the individual market, they should look to roll back last October's regulation. Congress can support these efforts by eliminating the individual mandate penalty, requiring states to allow affordable STLD plans as a condition of getting subsidies for the exchange, and extending "guaranteed renewability" protections to the STLD market. Doing so would fix the biggest problem with Obamacare and create political room for Republicans to accept additional bipartisan patches to bolster the exchange.
This would allow most of the 52 million individuals currently uncovered by employer health plans or public entitlements to find coverage at a price proportionate to the modest health risks they face. But it would also bolster the protections established by the ACA for individuals with pre-existing conditions, as subsidies would automatically expand to support those who truly need them, and exchange plans would become better-tailored to the specific care needs of individuals with chronic conditions.
The problem with the ACA's exchanges has been the instability of its risk pool resulting from quixotic attempts to coerce individuals into purchasing plans that offer appalling value. When properly compensated, insurers are more than willing to cover a stable pool of high-risk individuals.
This piece originally appeared in the Washington Examiner