Risky business: Short-term health plans could alter insurance landscape

Two years ago, Aaron LeBato of Katy, Texas, bought an 11-month, short-term health plan for himself, his wife and three children after getting dropped from an Affordable Care Act plan due to a payment system error.

Even though the plan doesn't cover prescription drugs or guarantee future coverage if he or a family member gets injured or sick, LeBato loves the much cheaper monthly premium of his National General Insurance plan—about $700 versus nearly $1,500 for an ACA-compliant plan.

But the 35-year-old independent business IT consultant hates having to reapply every 90 days, due to an Obama administration rule that took effect last April limiting the duration of such plans in hopes of reducing attrition from the ACA marketplace.

He's eagerly awaiting a federal rule expected to come out soon that would again allow consumers to buy these less-regulated plans for up to 364 days. President Donald Trump issued an executive order in October instructing HHS and other federal agencies to issue the rule within 60 days. At deadline, the rule was still under review at the Office of Management and Budget.

"I'm fairly young, my family is in pretty good health, and it made a lot of sense for me," LeBato said. "I don't think about pre-existing conditions. They're covered on the (ACA) marketplace, and that's where I would go if anything happened."

Some experts estimate that 500,000 to 1 million customers across the country have purchased short-term individual-market plans, which do not have to comply with ACA market reform rules. Consumers are drawn by premiums that are much lower than for ACA-compliant plans. In addition, deductibles and coinsurance levels often are comparable to ACA plans, with a $5,000 deductible being common.

Short-term carriers charge less because they don't have to sell plans to people with pre-existing conditions or cover such conditions after customers buy policies. They use medical underwriting questionnaires to screen people for pre-existing conditions such as diabetes and heart disease.

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 takes effect.

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 newly expanded association health plans recently proposed by the Trump administration.

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

Exacerbating these fears is that insurers and brokers typically advise short-term plan customers that if they do get injured or sick, they can return to the ACA's guaranteed-issue marketplace at open-enrollment time and buy a plan that covers their condition. That threatens to create even greater risk segmentation between the two markets.

The growth of the short-term market also increases the potential for consumer confusion, because people don't necessarily realize the limits of noncompliant plans, which can saddle them with large, unforeseen costs for uncovered conditions and services. States are eying stepped-up regulation, including setting tougher disclosure requirements. Currently, only New York and New Jersey effectively prohibit short-term plans.

"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."

Still, larger insurers such as Anthem and Aetna may consider joining UnitedHealth Group's Golden Rule Insurance unit in the short-term plan market, some analysts predicted. Already, Anthem and some not-for-profit Blue Cross and Blue Shield plans, such as Blue Cross and Blue Shield of Arizona, collaborate with a smaller insurer, the IHC Group, to offer short-term products.

"With the individual mandate going away, we could see growth in this market because people won't have to do the math and decide whether they can pay the penalty and still save money with the lower premium," said Shaun Greene, a senior vice president at Agile Health Insurance, an online broker selling short-term plans.

Short-term plans generally offer broader networks and are priced much lower than ACA-compliant plans because they typically exclude coverage for prescription drugs, maternity care, mental healthcare, elective outpatient care, preventive services and other ACA-required benefits. Total policy payouts can be capped as low as $250,000. And they deny benefits or even rescind policies if enrollees file claims for what insurers deem pre-existing conditions.

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."

The national average monthly premium for short-term plans sold through eHealth in 2017 was $109 for individuals and $264 for families. That compares with the 2017 average unsubsidized monthly premium for ACA-compliant plans sold through eHealth of $378 for individuals and $997 for families.

Not surprisingly, short-term plans attract younger consumers. Sixty percent of individuals buying short-term plans through eHealth in 2017 were between the ages of 18 and 34 compared with 27% of ACA exchange customers. According to the online broker, 121,000 consumers applied for short-term plans in 2016, compared with 140,000 consumers applying for ACA-compliant plans.

Shoppers for short-term plans need to be careful. The policies generally say claims can be denied for a condition even if that condition had not been diagnosed at the time the plan was purchased, as long as a reasonably prudent person should have known about the condition. Carriers have been accused in lawsuits of improperly refusing to pay claims on this basis, which is known as post-claims underwriting.

To protect against such complaints, American National Life records phone conversations with purchasers to document that they were told the limitations of the short-term plans they bought, said Jim Stelling, senior vice president of health operations for the company.

"These plans live in the old, pre-ACA environment, where everything is challenged and insurance contracts are difficult to understand," the NAIC official said. "Now there could be greater confusion because people have gotten used to the ACA-regulated market and haven't had to worry about this."

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.

Limited-benefit indemnity plans generally are offered on a guaranteed-renewal basis, while short-term plans are not, which is not always made clear to consumers.

"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?"

LeBato, the Texas IT consultant, said 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.

But Timothy Jost, a Washington and Lee University professor emeritus and health law expert, argued that the growth of short-term, bare-bones plans, combined with the repeal of individual mandate penalty, erodes the social compact established by the Affordable Care Act. The deal was that healthier people would help pay for sicker people, with the guarantee they would have good coverage when they needed it.

Now healthier people will be able to buy cheap, lean insurance, no longer cross-subsidizing the sick, who will have to pay more. Yet they'll still be able to get comprehensive coverage when they develop medical problems.

"Once they repealed the mandate, Congress essentially said, 'We don't believe in that social compact any more,' " he said. "It's everyone for themselves."