On Friday, July 19, a federal district court judge in DC sided with the Trump administration in its defense of a rule expanding short-term, limited duration health insurance plans to twelve months with the option to renew the coverage for up to three years. The plans had been limited to three months under the Obama administration, which thought they could weaken the individual markets, but, as Modern Healthcare explains, Judge Richard J. Leon believed the potential benefits outweighed the potential harm. He writes in his decision that “Not only is any potential negative impact from the 2018 rule minimal, but its benefits are undeniable.”
The Association for Community Affiliated Plans (ACAP) sued after the Trump administration issued the new rule on short-term plans last August, claiming that these plans would create adverse selection in the individual market. According to an article in the Health Affairs Blog, Judge Leon “acknowledged that the goal of the final rule was to allow short-term coverage to be sold ‘side-by-side’ with ACA coverage and that the final rule would undermine the ACA markets” but disagreed with the plaintiffs’ argument that this would prove to be significantly destabilizing.
Interestingly, as Health Affairs points out:
- “Congress delegated authority to the federal government to define short-term, limited duration insurance under HIPAA in 1996.”
- “It was defined as up to 12 months for nearly 20 years—from 1997 through 2016.”
- The Affordable Care Act “did not alter this definition,” and the definition was not changed until 2016, two years after the ACA marketplaces were created.
This history is detailed in the court’s decision.
Good News for Your Clients!
While ACAP has promised to appeal this decision, the good news is that short-term plans remain as an affordable alternative for individuals who are unable to afford (or unwilling to pay the high price for) an ACA metallic plan, and the fact that the individual mandate penalty has been eliminated makes these plans an even more attractive option.
Still, short-term plans are not without their critics. To help clear up some of the confusion and to help you address your clients’ questions about this option, below is some information reprinted from an earlier post about short-term plans.
Pros and Cons of Short-Term Plans
- Less costly alternative: For comparable deductibles and out-of-pocket limits, short-term plans are usually less expensive than ACA metallic plans because they do not include some of the ACA protections for people with pre-existing conditions (most STM plans exclude pre-existing conditions) and because they allow the carrier to underwrite and decline coverage.
- Could reduce out-of-pocket exposure: While the ACA attempted to cap people’s out-of-pocket exposure, that out-of-pocket limit continues to increase. In 2019, the out-of-pocket maximum on an ACA-compliant plan is $7,900 for individuals and $15,800 for people with family coverage. Short-term plans allow clients to select coverage with lower out-of-pocket exposure than the typical individual plan. They also allow people who really want to lower their premium to select plans with an even higher out-of-pocket limit than the statutory maximum.
- Limited preventive care: Unlike ACA metallic plans, short-term plans are not required to cover preventive care on an up-front basis with no cost sharing. Most provide no preventive care at all so be sure to know the details of the plans you present.
- No coverage for pre-existing conditions: Short-term plans are designed to protect against unforeseen illnesses and injuries, but they do not provide coverage for any pre-existing conditions the client already has. For that reason, this solution really is designed for a select group of clients. Those with a pre-existing condition should consider an ACA plan.
- Do not cover all essential benefits: The Affordable Care Act requires that all “essential benefits” be covered by individual health plans, including maternity and mental health. Short-term plans are not required to cover all essential benefits.
- Limited drug coverage: Few short-term plans cover prescription drugs, and those that do put an annual cap on coverage. While the cap may vary, many have a limit of $500 per year. This is a big disadvantage of short-term plans. While individuals may not take any prescriptions at the time they purchase the short-term plan, if they develop a condition while covered that requires an expensive specialty drug, they could quickly be out of pocket thousands of dollars per month.
- Annual caps: The Affordable Care Act does not permit annual or lifetime dollar limits on essential benefits, but that rule does not apply to short-term plans. Most short-term health plans have an annual cap, sometimes $1 million, sometimes less than that.
Are these junk policies?
Recognizing that short term medical plans do have limitations, are they really “junk policies” like some people say? It really depends on who you ask. For someone with a pre-existing condition, or someone who is prescribed an expensive medication while covered under a short-term plan, an argument could certainly be made that these plans are inferior compared with ACA-compliant metallic plans. . Short-term plans might be the only coverage some of your clients can afford, and they will likely be a very popular solution going forward.
For More Information
Please contact AHCP if you’d like to learn more about the STM plan options that you can offer to your clients. You may also want to take a look at our recent post that discusses whether it’s better to spend the extra money on a twelve-month term policy or just buy back-to-back six-month policies.