Renewable short-term plans pose new challenge for ACA market

As open enrollment begins for individual health coverage in 2019, insurers are moving cautiously to take advantage of a new Trump administration rule allowing them to sell short-term plans that last up to 364 days and are renewable for as long as three years.

LifeShield National Insurance Co. may be the first out of the box with a 364-day plan sold in Alabama that can be renewed twice, according to Shaun Greene, senior vice president at AgileHealthInsurance, a brokerage that sells LifeShield and other short-term plans.

A key plan feature is that if consumers choose the renewability option and pass LifeShield's medical underwriting process for determining insurability, they are not rescreened when they renew the plan for the second and third years. That means the carrier will cover medical conditions that arise during the period of coverage, without limitation.

Such pre-existing condition protection, along with the extension of coverage from 90 to 364 days, could make short-term plans more attractive to consumers and significantly expand the market. Those gains could come at the expense of standard individual-market plans, which, unlike short-term products, must comply with Affordable Care Act rules and offer comprehensive benefits and stronger consumer protections.

Other carriers, including some Blue Cross and Blue Shield plans, also have expressed interest in offering renewable plans, though many are still conducting actuarial analyses and won't roll them out until sometime next year, said Sean Malia, senior director of carrier relations for eHealth, an online brokerage. Medical Mutual of Ohio has filed for approval of a renewable 364-day plan in its home state, which it hopes to start selling later this year.

These new plans, which would redefine the meaning of short-term coverage, are testing state insurance regulators, who are struggling to develop rules that allow the sale of leaner, cheaper plans while guarding consumers from costly gaps in coverage that they didn't understand or expect.

But insurers are wrestling with how to design and price renewable short-term products, which could be 50% more expensive than non-renewable plans. Brokers say insurers will retain the option not to renew them, raising questions about the meaning of renewability. Understanding what these plans do and don't offer will be difficult for consumers, which could sow confusion during open enrollment.

"This was always a fringe market," said Larry Levitt, a senior vice president at the Kaiser Family Foundation who co-authored a new analysis of why short-term plans have lower premiums than ACA-compliant plans. "But all of a sudden it's a very prominent alternative to ACA plans for people who are healthy. It's taken on much bigger regulatory and political significance and presents difficult issues for regulators."

At least 17 states have limited the duration of short-term plans to periods ranging from 90 days to 11 months. Four states, including California and New York, have essentially barred short-term plans entirely, according to Georgetown University's Health Policy Institute.

Even states that are encouraging alternatives to ACA plans have established guardrails. For instance, Iowa recently barred short-term plans lasting more than 90 days from including any pre-existing condition exclusions, which has discouraged insurers from selling there. Some states don't allow short-term plans to waive pre-existing condition exclusions.

"We have definitely seen some states limit both the duration and renewability of these products, with the view that these are supposed to be short-term," said Sabrina Corlette, a health policy professor at Georgetown University. "If someone wants a longer-term product, that's called health insurance and they can buy it."

In August, the CMS finalized a rule effective Oct. 2 giving states authority to allow short-term plans lasting up to 364 days and letting carriers renew that coverage for up to 36 months. That reversed an Obama administration rule issued in 2016 that limited short-term plans to 90 days. The renewability provision was surprising and controversial, since it was not contained in the administration's original proposed rule.

The stated goal of the CMS, which also recently allowed expanded sales of association health plans, was to give consumers access to cheaper plans that don't have to comply with ACA rules on essential benefits and protections for people with pre-existing conditions.

Insurance, provider and advocacy groups sued in September to block the rule, arguing that it violates the provisions of the Affordable Care Act by creating a parallel market in which plans can engage in prohibited practices, including discriminating against people with pre-existing conditions.

The Kaiser Family Foundation recently found that insurers may be able to offer short-term plans at premiums 54% lower than ACA plans because they can screen out people with pre-existing conditions and provide less comprehensive benefits.

Brokers say extending the duration of short-term plans from 90 to 364 days and repealing the tax penalty in 2019 for not buying an ACA-compliant plan will increase sales. The ability to renew a short-term plan without having to go through another screening for pre-existing conditions will further boost demand, they add.

"Renewability will make it easier for companies to market short-term plans as substitutes for traditional major medical insurance," Corlette said.

"A lot of people" are calling his company to buy the option of three renewable 12-month plans, Greene said.

But much depends on how insurers price the renewability feature, which could bring the premium closer to that of an ACA plan. Carriers say they must charge more for the added risk of insuring people for a longer period, during which enrollees are at increased risk of incurring medical costs.

HealtheDeals, an insurer currently offering non-renewable 364-day short-term plans in 22 states, is weighing whether to front-load the added cost of renewability to the premium for the first year, with more modest premium increases in years two and three, or to more evenly spread it out for each year, said Jan Dubauskas, the company's chief government affairs officer. It's looking at launching renewable products by mid-2019.

"If it's front-loaded, I would guess fewer people will buy renewable plans," she said. If that's the case, her company will eschew renewability and continue screening people each time they re-apply for a short-term plan. "We'll learn about what the market will bear."

Another cloud on market appeal is that insurers aren't necessarily guaranteeing that consumers selecting the renewability option can renew. Malia said carriers will be looking for ways for customers who develop significant medical conditions to "transfer seamlessly" into ACA plans during the open enrollment period.

He foresees renewable short-term plans developing into a distinct market that falls in between those for short-term plans and ACA plans in terms of price, benefits, and pre-existing condition rules.

"The carriers we've talked to say they'll market these renewable plans completely separately and haven't even given them a name yet," he said. "They're still trying to figure it out."