"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 pursuant to a contract with an issuer that has an expiration date specified in the contract … taking into account renewals or extensions.” STLDI provides gap protection during health insurance coverage transitions (e.g., job loss or change).

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

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

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

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 the plans are generally not required to report data on enrollment.”

There are also conflicting pictures 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 do include mental health, substance abuse, and prescription drugs in most states (GAO).
• Reliability. STLDI claim approvals are comparable to Marketplace plans (NAIC STLDI Market Conduct Scorecard).

The GAO notes a contrast to each. Lower STLDI 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 versus ACA plan. In addition, 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 claim approvals may be comparable, STLDI coverage requires underwriting while ACA plans cover all pre-existing conditions.

Insurance and its core functions

The core function of health insurance is to protect consumers from unexpected, high medical costs. Conversely, the core function of public, for-profit insurers — like 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 U.S. healthcare policy and coverage design — before and after the Affordable Care Act — are part of the problem.

In 2008, The Innovator's Prescription emphasized the combination of Health Savings Accounts (HSAs) with high-deductible health plans (HDHP) as "one of the most important reforms to be made in health care.” This construct “unbundles” comprehensive healthcare coverage into two parts — a defined contribution (pot of money) to pay for pre-deductible care and defined benefits to pay for addition costs and care.

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

"If cost sharing is large enough to have a meaningful impact on medical spending, it interferes with the primary function of health insurance, which is to protect people against the risk of having to pay large medical expenses."

So note the authors of the latest proposal for healthcare reform, We've Got You Covered: Rebooting American Health Care. Citing the "deep-seated rot in US health insurance coverage," Liran Einav and Amy Finkelstein propose auto-enrolled free basic coverage for all Americans paired with separate optional insurance customized and paid for by consumers — a twist on the defined contribution-defined benefit model.

Which is closer to these models: STLDI or Marketplace plans? Short-term plans don’t include free basic services, but they do combine defined benefits with defined contributions when paired with an indemnity (cash) plan. Likely consumers are healthy individuals without pre-existing conditions who don’t need most EHBs — until they do. Marketplace plans don’t offer free basic coverage either but their required EHBs and free preventive services come closer, offering more affordable and comprehensive defined benefits than pre-ACA healthcare.

An interesting gap remains for both coverage types: STLDI plans are not HSA eligible, nor are many Marketplace HDHPs that don’t also meet MOOP requirements.

Options continue to be important. As the GAO notes, “if relatively healthy individuals choose short-term plans instead of 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 Marketplace at current enrollment levels. But two other factors could: the end of expanded subsidies and mandated no-cost preventive care for Marketplace plans. Congress must renew those subsidies for them to continue past 2025 and the Fifth Circuit Court of Appeals must overturn a currently stayed 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 gaps and make coverage more affordable. Idaho, for example, offers an STLDI option with enhanced coverage that meets the benchmark for essential health benefits. Post-enactment, overall STLDI enrollment increased nearly 20% (GAO).

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