President Biden on Jan. 29 signed an executive order directing federal agencies to re-examine policies “that undermine protections for people with pre-existing conditions.” In particular, the administration is expected to consider restricting access to Short-Term Limited Duration Insurance (STLDI), out of a concern to avoid “junk insurance.”
STLDI plans have grown in popularity as a health insurance option priced in proportion to the medical risks faced by healthy Americans — successfully reducing the number of Americans who are uninsured. Yet some in Congress are concerned that STLDI plans offer inadequate coverage of chronic conditions and have recommended that the administration protect consumers by restricting the duration of plan terms. By forcing insurers to ditch enrollees who get seriously ill, this would have the opposite of the desired effect. Instead, market regulations should be changed to require insurers to indefinitely renew coverage for any policyholder who wishes to remain enrolled.
The Affordable Care Act (ACA) required plans on the individual market to be sold to individuals with pre-existing conditions at the same price as to those who signed up before they got sick. This made it rational for many people to wait until they developed elevated medical risks before purchasing plans — causing premiums to soar by 105 percent from 2013 to 2017. By 2018, family coverage on the individual market came with average premiums of $14,016 and deductibles of $8,803.
The Trump administration used a loophole in the ACA for Short-Term Limited Duration Insurance to allow enrollees to receive lower premiums in return for signing up before they get sick. Because STLDI plans are permitted to employ medical underwriting, they can be priced in reasonable proportion to enrollees’ likely medical risks. The regulatory change expanded the maximum permitted term length of STLDI plans from three months to 364 days and allowed insurers to guarantee their renewability for up to three years. The Congressional Budget Office has estimated that this reform will allow more than 1 million Americans to receive better health insurance coverage — half of whom otherwise would have gone altogether uninsured.
In June 2020, House Energy and Commerce Democrats released a reportdeeming STLDI options to be “junk health insurance” and “a threat to the health and financial well-being of American families.” The committee members expressed particular concern regarding claims denials because of pre-existing conditions, misleading marketing, and limitations on covered benefits. Among other remedies, the report called for states to restrict STLDI plan terms to 90 days and to prohibit their renewability.
Yet, the abbreviated duration of enrollment in health care plans is the root cause of much of the dysfunction in health insurance markets. As a recent Manhattan Institute report makes clear, it is because of short time horizons — which make most of the variation in medical costs foreseeable — that it is hard for insurers to pool the risks of people who are sick with those who are healthy.
Using regulation to truncate the duration of insurance coverage serves only to kick people off insurance plans when they became seriously ill. Far from protecting consumers from misleading plans, it would ensure that insurers never would be liable for costs associated with illnesses that stretched beyond three months. Given the typical duration of most chronic medical conditions such as cancer, this would increase the likelihood that medical costs would remain unpaid by insurers — either because the condition preceded the beginning of the plan term or because the treatment extended beyond it.
The more appropriate policy remedy is the opposite: Congress should protect patients by extending requirements that insurers renew STLDI coverage for enrollees who get sick. Requiring indefinite renewability would not just protect patients from the sudden disappearance of coverage when they need it most, but also prevent insurers from enticing enrollees into plans that bear little liability for the risk of serious extended illnesses. Being responsible for medical costs over extended periods of time would squeeze out STLDI plans that are junk, while forcing those remaining to improve the coverage of medical services that are most valuable to treating chronic diseases. This also would spread up-front administrative costs over longer periods of enrollment.
The most effective way for legislators to pull consumers out of junk plans is to make available better health insurance options — not by forcing insurers to make non-ACA plans junkier.
This piece originally appeared at The Hill
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