The planned expansion of short-term health plans under a new Trump administration rule unveiled this week is on a crash course with a brick wall in California.
The Golden State’s Democrat-dominated legislature is close to banning such plans, which offer consumers lower premiums in exchange for skimpier benefits that do not meet the Affordable Care Act’s coverage requirements for other policies sold in the individual marketplace.
A bill that would prohibit the sale of short-term plans, by state Sen. Ed Hernandez (D-West Covina), has already passed the California Senate and is pending in the Assembly, where two committees have given it a green light.
“Trump’s team continues to do everything possible to destabilize our insurance market and compromise the health care of millions of Californians, but I won’t let that happen,” Hernandez said in a written statement. “This is why the California State Legislature must pass my measure, SB 910, which would keep this junk insurance out of California.”
Under the Trump administration rule, insurers will again be able to sell short-term health insurance good for one day less than 12 months. The action overturns an Obama administration directive that limited such plans to 90 days. It also adds a new twist: If they wish, insurers can make the short-term plans renewable for up to three years.
But the federal rule does not override the regulatory power of the states, which means a California ban on short-term plans would prevail.
“States do have the authority to regulate,” said Randy Pate, director of the Center for Consumer Information and Insurance Oversight at the U.S. Department of Health and Human Services. “We do think some states will move to limit them and some will embrace them.”
Before Obamacare, California had a law on the books limiting short-term plans to 185 days. It later complied with the Obama administration’s 90-day rule, but will revert to the 185-day limit once Trump’s rule is in force. If the Hernandez bill should become law, and take effect on Jan. 1, all health plans of less than 12 months would be banned in the state.
James Parker, a senior adviser to Health and Human Services Secretary Alex Azar, said that in the states embracing the Trump administration’s new rule, it will “help increase choices for Americans faced with escalating premiums and dwindling options in the individual market.”
But the plans could also raise premiums for those who remain in the Affordable Care Act marketplace — and the short-term coverage is far more limited.
“We make no representation that it’s equivalent coverage,” Parker said.
The Trump administration’s approach is expected to please brokers and insurers that offer the coverage in the states that allow it.
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“To restore these to 364 days — as originally drafted — is exactly what we are looking for,” said Jan Dubauskas, general counsel for the IHC Group, an organization of insurance carriers headquartered in Stamford, Conn.
Dubauskas, speaking before the Trump administration announced the rule, said she expects IHC to offer 12-month versions as soon as the rule goes into effect, which will be 60 days after it is published.
Administration officials estimate that premiums on short-term plans could be half the cost of the more comprehensive ACA insurance. They predict about 600,000 people will enroll in a short-term plan in 2019, with 100,000 to 200,000 of those dropping ACA coverage to do so.
Just over 14 million people are enrolled in ACA plans this year, including about 1.4 million in California’s exchange, Covered California.
Short-term plans are less expensive not only because of their thinner coverage, but also because, unlike their ACA counterparts, insurers selling these policies can reject people with preexisting illnesses or limit their coverage.
Short-term plans can also set annual and lifetime caps on benefits, and cover few prescription drugs. Most exclude benefits for maternity care, preventive care, mental health services or substance abuse treatment.
The plans “barely cover any services and give people a false sense of security,” Hernandez said.
Some policy experts, including those from the Center on Health Insurance Reforms at Georgetown University, warn that allowing increased use of the skimpier coverage offered by short-term plans could leave some patients in financial or medical difficulty.
“If you get cancer, your plan will not cover oncology drugs, which can cost an average of $10,000 a month,” and “if you are pregnant, you will have to find another way to pay for the cost,” averaging about $32,000 for prenatal care and delivery, the center said in a recent post.
Allowing short-term plans to last longer is the latest move to change regulations issued by the Obama administration. In June, the administration released final rules on association health plans, which grants greater leeway to small businesses and sole proprietors to join together to purchase insurance that doesn’t have to meet all the ACA’s requirements, although these plans are more robust than short-term plans.
In California, association health plans have been relegated to near extinction since the 1990s.
The Trump administration changes to Obama-era rules, along with other congressional actions, are expected to impact the cost of coverage for individuals in the ACA marketplace.
Premiums for the average benchmark ACA plan rose by 34 percent this year, according to a recent Congressional Budget Office report.
Factors driving the increase include medical inflation, but the CBO also cited the administration’s decision last fall to drop payments to insurers for lowering deductibles and other out-of-pocket costs for certain low-income policyholders.
The CBO report projects that premiums for ACA plans will increase 15 percent next year, in part because many consumers may be less likely to buy coverage without the threat of a tax penalty. The tax bill approved last year by Congress ends the financial penalty as of 2019.
Short-term plans, if they appeal to many consumers, could also play a role in driving up premiums.
By drawing younger or healthier consumers out of the ACA marketplace, the short-term plan expansion will lead to a premium increase of up to 1.7 percentage points next year, according to the industry lobbying group America’s Health Insurance Plans.
Short-term plans have been around for decades, meant as a stopgap for job changers, students and others who found themselves without coverage.
Under the Trump administration directive, insurers can renew the short-term coverage for the same amount of time as the original plan — maxing out at 36 months.
HHS officials said current law allows the plans to have this longer shelf life, although critics are likely to argue that a plan lasting three years cannot be considered short-term.
Some observers say the expansion of short-term plans won’t affect the ACA market as much as critics fear because the plans will mainly appeal to consumers already sitting on the sidelines, or ones who don’t get a subsidy to help pay their premiums.
“Subsidized enrollees, the heart of exchange enrollment, are less likely to be drawn away from ACA plans to short-term plans that have a narrower benefit design as well as a renewal restriction,” Kev Coleman, head of research and data at Mountain View, Calif.-based HealthPocket, said in an email. HealthPocket is a website that allows consumers to compare health plans.
Dave Fear Jr., president of the California Association of Health Underwriters, said the insurance agents and brokers who make up his organization are uncomfortable selling short-term plans that don’t provide coverage for “the big stuff.”
But Fear said his association opposes the Hernandez bill, because people sometimes need short-term insurance for various reasons. “We believe that [the bill] would remove a critical tool for coverage,” he said.