State regulators are urging federal officials to reconsider their proposal to limit short-term health plans despite the insurance industry's broad support of the draft regulation.
The Treasury, Labor and Health and Human Services departments in July proposed restricting short-term plans' duration to four months, essentially restoring regulations in place during President Barack Obama's administration. Under the draft rule, consumers would not be allowed to buy another short-term plan from the same insurance carrier in the same calendar year, although they would be permitted to purchase different short-term policies consecutively for up to 36 months.
President Donald Trump’s administration in 2018 expanded access to the products, allowing consumers to retain short-term plans for up to 364 days and renew them for up to three years.
Because short-term plans are not subject to the Affordable Care Act's consumer protections, they are referred to by some as "junk plans" since carriers can refuse to insure those with pre-existing conditions, deny claims or rescind coverage after members receive an expensive medical bill. These aspects of the plans put patients at risk, particularly if they don't understand the limitations of the coverage they are buying.
The policies are often cheaper than ACA-compliant coverage and brokers can receive high commissions for selling the products. Critics worry they contribute to rising premiums in the individual exchange market. Research has shown agents aggressively market the plans and companies spend fewer premium dollars on patient medical care.
No insurers are required to report enrollment data. The National Association of Insurance Commissioners said in 2022 that 235,775 people were enrolled in short-term plans, up 36.5% from the previous year. Insurers' short-term premium revenue grew 57.3% to $773.5 million in 2022, according to the association.
Some states have used their regulatory authority over health insurance carriers to enact consumer protections over short-term coverage. If the Biden administration’s proposal is finalized, states would be limited in how much control they have over the products.
The draft regulation violates the McCarran-Ferguson Act of 1945 that grants states official oversight over carriers' operations and will drive consumers to forego coverage, care or buy insurance in illegitimate markets, the insurance commissioners association wrote in a public comment on the proposal.
"Consumers should have meaningful choices in coverage that are tailored to the markets and consumers in the state," the group said. "Banning certain plan features at the federal level would limit currently available options for consumers in many states and could lead them to seek coverage in unregulated markets."
Local insurance commissioners have a better understanding of what consumers need in their state market and federal regulators should rethink their proposal, the association said.
New Hampshire, for example, limits short-term policies to a six-month period and allows consumers to renew them for up to 18 months, D.J. Bettencourt, state deputy insurance commissioner, wrote in a public comment. New Hampshire’s law appropriately balances consumer protections with demand for affordable insurance products, he said.
“We strongly prefer to retain the flexibility to determine whether, and under what conditions, [short-term limited duration insurance] is appropriate for New Hampshire,” Bettencourt said. “We urge a revision to the proposed rule to continue state flexibility in the regulation of these products.”
The National Council of Insurance Legislators, a lobbying group that develops model insurance legislation for states, called for the proposal to be withdrawn.
“Only Congress, as stated in the McCarran-Ferguson Act, may infringe on the states’ exercise of their authority to regulate insurance,” CEO Thomas Considine wrote in a public comment. The federal departments "clearly seek in the [Notice of Proposed Rulemaking] to infringe on that state exercise in a manner not included in the relevant Congressional acts.”
Insurance lobbying groups AHIP and the Blue Cross Blue Shield Association have taken the opposite view and support federal limitations on short-term plan coverage.
Blue Cross Blue Shield also called for federal regulators to request states collect data on how many people are enrolled in short-term policies via group trusts or individual membership associations. Out-of-state insurance companies can be approved to sell short-term policies in one state and expand their reach nationally by selling through employer associations.
“State insurance regulators are in the best position to ensure these products are not marketed in a misleading manner, and the products approved for sale in the state are appropriate for local market conditions,” the association wrote.