The Biden administration on Friday said it is reining in “junk” health-insurance plans that offer bare-bones coverage and can leave consumers with surprise medical expenses.
A new rule proposal announced by the administration Friday would largely reverse the Trump administration’s expansion of short-term limited-duration health-insurance plans, which are generally exempt from the consumer protections established under the Affordable Care Act. Unlike ACA-compliant plans, for example, the short-term plans may exclude coverage for pre-existing conditions, omit essential benefits like prescription drugs, or impose annual or lifetime dollar limits on services.
People who thought they were buying insurance that would provide them with coverage in many cases have been saddled with thousands of dollars in medical bills due to coverage limitations hidden in the fine print of short-term plans, President Joe Biden said at a White House event Friday. “That’s not health insurance. That’s a scam.”
Under the proposed rule, issued by the Department of Health and Human Services along with the Labor and Treasury departments, short-term health plans would be limited to three months, or a maximum of four months if extended. Federal rules adopted in 2018 extended short-term plan coverage from three months to one year and allowed plan renewals to extend the total coverage period to up to three years. Under the new rule, existing policies would be grandfathered in, the administration said, so people won’t lose coverage that is already in effect.
“The regulation sends an unequivocal message: Junk insurance is no substitute for the real thing,” Margaret Murray, CEO of the Association for Community Affiliated Plans, a trade group for nonprofit safety-net health plans, said in a statement Friday. Short-term plans “offer a false sense of security that threatens consumers’ physical and financial health,” Murray said.
House Ways and Means Committee chair Jason Smith, a Missouri Republican, said in a statement Friday that “an affordable insurance option for many Americans is now under attack” by the Biden administration, adding that limiting short-term plans would stifle competition and drive up costs.
But with enhanced subsidies for people buying their own healthcare coverage through ACA marketplaces in effect through 2025, many people qualify for a zero-premium policy that comes with all the ACA protections, Karen Pollitz, senior fellow at health policy nonprofit KFF.
The impact of short-term health plans isn’t fully understood because of a lack of data on these plans. Last year, when the U.S. Government Accountability Office tried to study short-term plans and the role they might have played for people who lost employer-sponsored health coverage during the COVID-19 pandemic, the agency mostly came up empty-handed. The GAO “found that limited and inconsistent data hinder understanding” of the plans and how they’re used, according to the report. State insurance regulators know little about the size of the market for short-term health plans because the plans generally are not required to report enrollment data, according to the National Association of Insurance Commissioners. A 2020 report by the House Committee on Energy and Commerce found that there were about 3 million people enrolled in short-term limited-duration plans across nine insurers in the 2019 plan year, up from 2.4 million in 2018.
Biden was introduced at the White House event Friday by Cory Dowd, a consumer who purchased a short-term health plan after finishing a stint in the Peace Corps in 2018. “I wanted to be responsible and protect myself against the worst-case scenario,” Dowd said at the event. But after he had emergency surgery to remove his appendix a few months later, he was stuck with a $37,000 hospital bill, Dowd said. “Buried in the fine print, my plan put limits on how much they would pay for certain expenses, even emergency surgeries,” he said.
“For me there was both a financial and emotional cost,” Dowd said. “I’ve always considered myself a responsible person, but this really took a toll on my self-esteem and my identity.” After his story got national news attention, he said, the insurance company ultimately covered the bill, “but not everyone is so lucky.”
Research has shown that consumers shopping for individual coverage can be bombarded by confusing and misleading marketing messages from plans that don’t offer the ACA’s protections. The administration will be seeking comment on additional ways to ensure that consumers understand what they’re buying, particularly during ACA open-enrollment periods when there’s brisk competition among plans, a senior administration official said on the call with reporters Thursday.
“Often, consumers think they’re buying insurance that provides some decent coverage, not realizing these junk plans can limit what they cover and how much they cover,” White House domestic-policy adviser Neera Tanden said on the call.
“Insurance is seriously confusing,” KFF’s Pollitz said. “If someone is marketing you a policy and telling you it’s such a great deal, people get taken in by that.”
Short-term health plans were traditionally aimed at people experiencing brief gaps in coverage, such as when changing jobs. But the 2018 expansion of the plans, combined with the 2019 elimination of the requirement that people have minimum essential health coverage or pay a penalty, opened the door for consumers to rely on short-term health plans rather than signing up for comprehensive health coverage. That prompted some states to establish limits on the sale of short-term plans, according to the NAIC.
Short-term plans are sold by UnitedHealth Group Inc’s
UnitedHealthcare, Healthcare.com’s Pivot Health and other insurers. Jeffrey Smedsrud, co-founder of Pivot Health, said in a statement Friday that the proposed rule “goes too far” in limiting the plans to three or four months, adding that a six-month limit would better protect people who encounter coverage gaps. More aggressive oversight of marketing practices, he added, “is proving effective in limiting the number of bad actors and bad products.” UnitedHealthcare did not respond to a request for comment on the rule proposal and White House comments.
Plans that are designed to replace lost income when people get sick, known as fixed-indemnity plans, would also have new disclosure requirements under the proposed rule. These plans will be required to make clear that enrollees are getting a defined benefit, such as $100 per day of illness, rather than comprehensive insurance coverage, the administration said.
The American Hospital Association in a statement Friday cheered the administration’s “proposal to protect consumers from skinny ‘health plans’ that often fail them.” If finalized, the hospital association said, the rule “will go a long way in protecting patients from unexpected coverage denials.”