“Junk Insurance” Part 2: Coverage and Its Discontents

“Junk Insurance” Part 2: Coverage and Its Discontents

Is short term limited duration insurance a viable option in a broken system?

As mentioned in Part 1, short-term limited duration insurance (STLDI) is “health coverage provided under a contract with an issuer that has an expiration date specified in the contract … subject to renewals or extensions.” STLDI provides gap protection during health insurance coverage transitions (eg job loss or change).

As of 2016, federal regulations have updated STLDI coverage terms from 12 months to three months to three years. Biden’s proposed regulations would reduce the deadline again (four months), but would not eliminate the questions: Is STLDI a viable long-term alternative to ACA coverage, and should consumers be allowed to decide?

Even the oversight agencies are uncertain. In May 2022, the General Accounting Office (GAO) reported these three findings:

  1. Data limitations hinder understanding of the role played by short-term plans [including] during the COVID-19 pandemic.
  2. Views varied greatly about the value of short-term plans to consumers compared to individual health insurance coverage.
  3. Additional data would improve understanding of the role of short-term plans and help states oversee insurer market behavior.

The National Association of Insurance Commissioners (NAIC) is also at a loss, noting: “State insurance regulators know little about the size of the market for STDLI because plans are generally not required to report enrollment data.”

There are also contrasting snapshots of the three industry pain points highlighted in Part 1:

  • Affordability. STLDI premiums can be 54-91% lower than ACA-compliant marketplace plans (GAO).
  • Access. Affordability supports access to STLDI benefits, which include mental health, substance abuse, and prescription drugs in most states (GAO).
  • Credibility. STLDI claims approvals are comparable to Market plans (NAIC STLDI Market Conduct Scorecard).

GAO notes a contrast with each. STLDI’s lower premiums may “not reflect the full cost to the consumer,” with one study showing a $24,000 cost difference for heart attack treatment under an STLDI plan versus the ACA. Additionally, the same data that showed most states offer STLDI plans with more comprehensive benefits showed that only a small percentage of plans overall do so. And while claims approvals may be comparable, STLDI coverage requires insurance, while ACA plans cover all pre-existing conditions.

Insurance and its main functions

The primary function of health insurance is to protect consumers from unexpected and high medical costs. On the other hand, the primary function of for-profit public insurers—such as UnitedHealthcare, CVS Health/Aetna, and Cigna—is to maximize value and generate profit for shareholders and owners. The two functions are often in conflict, and US health care policy and coverage design—before and after the Affordable Care Act—are part of the problem.

in 2008, The Innovator’s Recipe highlighted the combination of Health Savings Accounts (HSAs) with high-deductible health plans (HDHPs) as “one of the most important reforms to be made in health care.” This construct “breaks down” comprehensive health care coverage into two parts—one defined contribution (pot of money) to pay for pre-discounted and prescribed care benefit to pay for additional expenses and care.

The theory was that upfront personal spending would curb unnecessary medical use and encourage prevention. While HSA-HDHP uptake has increased, it has failed to curb rising health care costs. In addition, consumer cost shares have increased, leading to deferred care or medical debt.

“If cost sharing is large enough to have a significant impact on medical expenses, it interferes with the primary function of health insurance, which is to protect people from the risk of paying large medical expenses.”

So note the authors of the latest health care reform proposal, We’ve got you covered: Rebooting American health care. Citing the “deep rot in health insurance coverage in the US,” Liran Einav and Amy Finkelstein propose free basic auto-enrolled coverage for all Americans, coupled with optional special insurances customized and paid for by consumers—a twist on benefit determined by model contributions.

Which is closer to these models: STLDI or Marketplace plans? Short-term plans do not include free basic services, but they combine defined benefits with defined contributions when paired with a (cash) compensation plan. Potential consumers are healthy individuals with no pre-existing conditions who do not need most EHBs – until they do. Marketplace plans don’t even offer free basic coverage, but their required EHBs and free preventive services come closest, offering more affordable and comprehensive defined benefits than pre-ACA health care.

An interesting loophole remains for both types of coverage: STLDI plans are not eligible for HSAs, and neither are many Marketplace HDHPs that do not also meet MOOP requirements.

Options continue to be important. As the GAO notes, “if relatively healthy individuals choose short-term plans over PPACA-compliant plans, this could result in higher premiums for PPACA-compliant plans and higher federal subsidies.”

A three-year versus three-month STLDI term will not make or break the Market at current enrollment levels. But two other factors could: the end of extended subsidies and no-cost mandated preventive care for Marketplace plans. Congress should renew those subsidies so they continue beyond 2025, and the Fifth Circuit Court of Appeals should overturn a currently suspended District Court Opinion to preserve select no-cost preventive care mandates. Oral arguments begin in less than a month (March 4).

Beyond federal regulations, states continue to do their part to close loopholes and make coverage more affordable. Idaho, for example, offers a STLDI option with extended coverage that meets the standard for essential health benefits. After approval, overall STLDI enrollment increased nearly 20% (GAO).

The bigger issue is that the golden age of medicine still needs a golden age of coverage—one that protects the health of the consumer and the marketplace.

Laura Beerman is a contributing writer for HealthLeaders.

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