“Garbage Insurance” Part 2: Coverage and its frustrations

“Garbage Insurance” Part 2: Coverage and its frustrations

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 … taking into account renewals or extensions.” STLDI provides protection from gaps during health insurance coverage transitions (eg job loss or change).

Beginning in 2016, federal regulations 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 the role of short-term plans [including] during the COVID-19 pandemic.
  2. Views vary widely on the value of short-term plans to consumers and compared to individual health insurance coverage.
  3. Additional data would improve understanding of the role of short-term plans and help states control insurance 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 STDLIs because plans are generally not required to report enrollment data.”

There are also conflicting pictures of the three industry pain points highlighted in Part 1:

  • Accessibility. 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).
  • Reliability. STLDI claim approvals are comparable to Marketplace plans (NAIC STLDI Scorecard for Market Conduct).

GAO notes a contrast with each. Lower premiums for STLDI may “not reflect the full cost to the consumer,” with one study showing a $24,000 cost difference to treat a heart attack in STLDI versus an ACA plan. In addition, the same data that show most states offer STLDI plans with more comprehensive benefits show that only a small percentage of plans do so overall. And while claims approvals may be comparable, STLDI coverage requires a signature, 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, high medical costs. In contrast, the primary function of public, for-profit 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 policy and coverage design—before and after the Affordable Care Act—are part of the problem.

In 2008 The innovator’s prescription 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 construction “splits” the overall health coverage into two parts—defined contribution (pot money) to pay for pre-deductible and certain care Benefits to pay for additional costs and care.

The theory was that upfront out-of-pocket costs would limit unnecessary medical use and promote prevention. Although HSA-HDHP uptake has increased, it has failed to contain rising health care costs. Additionally, the share of consumer spending has increased, leading to deferred care or medical debt.

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

So, note the authors of the latest health care reform proposal, We’ve Got You Covered: Rebooting America’s Health Care. Citing the “deep-seated rot in US health insurance coverage,” Liran Eynav and Amy Finkelstein propose auto-enrolled free basic coverage for all Americans, combined with separate, optional insurance customized and paid for by consumers—a twist on the defined-contribution model.

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

An interesting gap remains for both types of coverage: STLDI plans are not HSA-eligible, and neither are many Marketplace HDHPs that are also MOOP-eligible.

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

STLDI’s three-year versus three-month term will not make or break the Marketplace at current enrollment levels. But two other factors could: the end of extended subsidies and mandatory free preventive care for Marketplace plans. Congress must renew these subsidies to continue beyond 2025, and the Fifth Circuit Court of Appeals must reverse a now-retired district court opinion to preserve select mandates for free preventive care. Oral debates begin in less than a month (March 4).

In addition to federal regulations, states continue to do their part to close gaps and make coverage more affordable. Idaho, for example, offers an STLDI option with enhanced coverage that meets the essential health benefits standard. Since enactment, total STLDI enrollment has increased by nearly 20% (GAO).

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

Laura Bierman is a contributing writer for HealthLeaders.

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