Short-term health plans spend little on medical care

For every dollar in premiums that UnitedHealthcare collected from people enrolled in short-term health plans last year, it spent less than 40 cents on patients' medical claims.

Short-term plans sold by Cambia Health Solutions, which operates Blue Cross and Blue Shield plans in four states and sells short-term plans through its LifeMap subsidiary, spent even less on medical care, paying out just 9 cents for every dollar in premiums.

These low "loss ratios"—which show the percentage of premiums spent on medical claims and were published last week in the National Association of Insurance Commissioners' 2018 Accident and Health Policy Report—are a stark reminder that short-term plans benefit insurance companies more than the patients who purchase them. The data bring into question what kind of value people receive from enrolling in a short-term health plan, insurance experts said. The Trump administration expanded access to such plans last year.

"Compared to comprehensive plans that have to comply with the ACA's rules, short-term plans' coverage limitations often result in carriers paying out far fewer claims, or paying pennies on the dollar," said Rachel Schwab, a research associate at Georgetown University's Center on Health Insurance Reforms.

The average loss ratio of the five health insurers that bring in the most premiums from short-term insurance policies was 39.2% in 2018. That means that 39 cents of every $1 collected in premiums was spent on medical care, while the rest was spent on administrative expenses or kept as profit.

In contrast, the average loss ratio among comprehensive major medical plans purchased by individuals in 2018 was about 73%, according to the NAIC report.

Short-term health plans' loss ratios are lower because they don't cover nearly as many benefits. Unlike Affordable Care Act-compliant plans, short-term plans can deny coverage to people with pre-existing health conditions and charge more based on health status. They are not required to and often don't cover the 10 essential health benefits, including maternity care and prescription drugs. Their limited coverage also makes them much cheaper than ACA plans.

While ACA-compliant plans must meet a minimum medical-loss ratio of at least 80% or else pay rebates to enrollees, short-term plans are not subject to a minimum MLR requirement.

"There's no requirement that they spend most premiums on medical care," said Cheryl Fish-Parcham, director of access initiatives at Families USA. "They can take in lots of premiums and pay very little for consumers' care."

The loss ratio for UnitedHealthcare, the leader in the short-term plan market, decreased each year to 37.3% from 50.9% in 2016, according to the NAIC annual reports. Over the same period, the company, which sells short-term plans through its Golden Rule Insurance subsidiary, has grown its premiums from those plans to $41.7 million from $26.5 million.

"Short-term, limited-duration insurance helps increase choice and coverage by providing a broad portfolio of low-cost options that meet the unique needs of individuals," UnitedHealthcare said in response to a question about why its loss ratio is decreasing. "These policies are not right for everyone and we work to ensure consumers have the information they need to make the right decision based on their circumstances."

A company spokeswoman added in an email that loss ratios can vary significantly year to year because of the shorter plan duration and changes in who buys the plans.

According to the NAIC's latest report, about 86,600 people enrolled in short-term plans in 2018, but that figure likely doesn't capture the entire market since many short-term plans are being sold through out-of-state associations exempt from regulation.

Enrollment in short-term plans is expected to grow this year in the wake of Trump administration's August 2018 rule, upheld by a federal judge last month, that allowed insurers to extend the duration of short-term policies from a maximum of three months to up to a year. That rule, coupled with the Trump administration's move to zero-out the individual mandate penalty, made short-term plans a more attractive option for healthy individuals.

The CMS expected about 600,000 additional people to enroll in short-term plans in 2019, with that figure reaching 1.6 million people by 2021 or 2022. At the time, the Trump administration said expanding access to short-term plans would allow more coverage options for people who had been "priced out" of ACA exchange coverage. But critics sounded the alarm that individuals may enroll in the cheaper, skimpier plans without understanding the risks.

"If the MLRs were higher, that would suggest people are still getting value (from the short-term plans). But when loss ratios are very low that means there's a lot of overhead built into your premium and a relatively small amount of your premium is actually going to be paid out in claims. It does raise the question of what kind of value people are getting from these plans," said Cynthia Cox, a vice president at the Kaiser Family Foundation.