It's buyer beware for short-term health plans, as insurers await new HHS rule to expand them

The Trump administration's next swipe at relaxing Affordable Care Act regulations could come any day now. The Office of Management and Budget has been reviewing an HHS proposal aimed at making it easier for consumers to buy short-term insurance plans. It's part of the administration's overall goal of giving individuals and businesses access to cheaper health plans, albeit with fewer benefits and consumer protections. The Labor Department earlier this month proposed allowing more small businesses and self-employed workers to band together to buy insurance.

Under the HHS proposal, consumers could buy short-term plans for up to 364 days, compared to 90 days under current law.

Some experts estimate that about 500,000 customers across the country have purchased short-term individual-market plans, which do not have to comply with ACA market reform rules, including covering so-called essential benefits and pre-existing conditions.

It's expected that more people will select short-term plans if they are again sold for 364-day periods—particularly starting in 2019 when repeal of the penalty for not obtaining ACA-compliant insurance kicks in.

That worries health policy analysts, state regulators and major insurance trade groups, who predict short-term plans will siphon off healthier customers, leave the more comprehensive Obamacare plans with a sicker group of customers, and drive up premiums. They're also concerned about the prospect of association health plans growing in popularity when the Labor Department rule is finalized.

Providers fret that short-term plans can increase uncompensated care, when patients need services for uncovered benefits or preexisting conditions. Lawsuits and complaints have been filed by short-term policyholders around the country involving hundreds of thousands of dollars in unpaid bills.

"There's a lot of confusion about short-term and limited-benefit plans," said an official at the National Association of Insurance Commissioners, who was not authorized to speak for attribution. "Regulators will look at making sure agents and brokers are aware of their responsibilities to educate consumers about the limits of these plans."

States are eying stepped-up regulation, including setting tougher disclosure requirements. Currently, only New York and New Jersey effectively prohibit short-term plans.

With their limited benefits, short-term plans pay out much less of their premium revenue for medical claims than ACA-compliant plans—67.4% versus 92.9% in 2016, according to data from the National Association of Insurance Commissioners and the CMS.

"These plans are significantly less expensive for a reason," said Sean Malia, senior director of carrier relations for online broker eHealth, who advises consumers to first consider an ACA-compliant plan if they can afford it. "The most important thing is for the consumer to completely understand what they're buying."

Adding to consumer confusion, some insurers, such as American National Life, are selling products that combine features of short-term plans and scheduled-benefits indemnity plans. These hybrids include payment caps for specific services, for instance a $2,000-a-day limit for a hospital stay or a $2,500 maximum for a surgeon's fee.

"People were calling and saying they were told they could get a guaranteed-renewable short-term policy, and after asking more questions, I found out they were being offered a scheduled-benefits plan," said Mike Higgins, a broker in Phoenix who mostly sells plans to self-employed small-business owners. "Those plans are dangerous—$2,000 a day sounds great until you have a serious illness or accident, and then you're off to the poorhouse quickly."

Another complicated twist is that some insurers, including Freedom Life Insurance and National General, offer back-to-back 90-day policies. Applicants go through an initial medical underwriting process, then can enroll in a new plan every 90 days without having any new medical conditions exempted from coverage.

But they still face a fresh deductible each time. And they are exposed to financial risk if they develop a costly new condition and come to the end of their back-to-back short-term coverage.

"Do people understand the risks of short-term plans? No," Higgins said. "After 90 days, if something bad happens, where will you turn? What's your Plan B?"

Still, the plans are attractive to younger consumers like Aaron LeBato, a 35-year-old IT consultant from Katy, Texas. He bought an 11-month, short-term health plan for himself, his wife and three children after getting dropped from an ACA plan due to a payment error. He plans to keep buying short-term plans as long as he can, because he believes ACA plans are too expensive and offer inadequate provider networks. He has no qualms about relying on the ACA-regulated market as a backup if any health issues arise in his family.

Look for expanded coverage of this story in the Jan. 15 issue Modern Healthcare.