This Executive Summary sets forth our comments on the Proposed Rule by the Departments of the Treasury, Labor and Health and Human Services (“Departments”)1 (ID: IRS-2016-0021-0001) that, among other things, restricts short-term, limited duration health insurance.
If implemented without modification, the Proposed Rule would severely reduce competition and limit availability of affordable health insurance options for those with a durational gap in coverage under the Affordable Care Act (“ACA”).
Originally Posted July 29, 2016 IHC Specialty Group
Short-Term Medical (“STM”) Provides Meaningful Coverage
The Proposed Rule states: “The Departments recently have become aware that short-term, limited-duration insurance is being sold to address situations other than the situations that the exception was initially intended to address. In some instances individuals are purchasing this coverage as their primary form of health coverage and, contrary to the intent of the 12-month coverage limitation in the current definition of short-term, limited-duration insurance, some issuers are providing renewals of the coverage that extend the duration beyond 12 months. The Departments are concerned that these policies, because they are exempt from market reforms, may have significant limitations, such as lifetime and annual dollar limits on EHBs and pre-existing condition exclusions, and therefore may not provide meaningful health coverage.”
STM is limited duration health insurance coverage similar to other categories of health insurance. In our opinion, for people under age 65 who are outside of open and special enrollment periods and in need of some medical coverage, STM is the closest product available with benefits similar to “major medical insurance”. It provides benefits that address core medical needs such as doctor and specialist visits, lab tests, x-rays, emergency care, and hospitalization.
While the Departments express concern that STM does not provide meaningful coverage, the STM policies provided by our carrier partners utilize broad healthcare provider networks, which supply access to top doctors and hospitals at negotiated rates. Under many STM policies, provider access is often unrestricted so even if an out-of-network doctor is used the plan will still pay reimbursement for covered medical services. This network breadth and flexibility stand in contrast to the growing trend of narrow networks where no reimbursement is provided to out-of-network doctors except in the case of medical emergencies.
Further, STM was specifically considered and determined to be permissible under the ACA, as long as policies are less than 365 days in duration. STM is regulated by each state department of insurance. Our carrier partners sell STM in 42 states, each of which has reviewed and approved the policy forms and rates with state specific restrictions. Depending on the state, STM policies provided by our carrier partners last from one to just under 12 months, and many offer a lifetime maximum benefit up to $2 million. Of course anyone who purchases an STM plan will have the option of purchasing an ACA plan with no lifetime limit during the next open enrollment period.
STM Provides an Affordable Alternative in Many Transitional Situations
The Proposed Rule states “Before enactment of the ACA, short-term, limited-duration insurance was an important means for individuals to obtain health coverage when transitioning from one job to another (and from one group health plan to another) or in a similar situation. But with the guaranteed availability of coverage and special enrollment period requirements in the individual health insurance market under the ACA, short-term, limited-duration insurance is no longer the only means to obtain transitional coverage.”
We agree that one of the key achievements of the ACA was providing guaranteed availability of coverage and special enrollment period requirements in the individual health insurance market for those who did not qualify for other types of coverage. With respect to persons eligible for a special enrollment, they can now obtain an ACA plan; whereas, in the past they might have been eligible for COBRA (if leaving an employer group plan) or to purchase a STM policy or they might not have had any coverage options. The Proposed Rule would be a step back in that it would limit consumer choice and reduce competition. Under the Proposed Rule, anyone with longer than a three month transition period would be forced to either purchase a more expensive ACA or COBRA plan or risk being uninsured after their three-month STM expired.
The Proposed Rule disadvantages people who fail to sign up for an ACA plan during Open Enrollment because it does not provide expanded Special Enrollment Period opportunities for these insureds. Today, in many states, a person who fails to sign up for an ACA plan has a fall back plan. They can purchase a STM policy for almost an entire year and then sign up during the next Open Enrollment for the following year. The Proposed Rule leaves people in this circumstance with only three months of coverage; they would be uninsured for the remaining 9 months, which is a significant step backwards in the goal to reduce the number of uninsureds.
STM Plans Do Not Adversely Impact the Risk Pool
The Proposed Rule states, “Further, because these policies can be medically underwritten based on health status, healthier individuals may be targeted for this type of coverage, thus adversely impacting the risk pool for ACA-compliant coverage.”
A closer look at the numbers not only fails to support destabilization of the market for ACA plans, but also demonstrates that STM plans act as important “gap” fillers for consumers seeking coverage for a limited period of time. In reviewing 2015 data from the carriers we represent, only 8 percent of such carriers’ total STM sales volume occurred during the 2015 Open Enrollment period when a purchaser could have elected to purchase either an STM or an Obamacare plan. This means that 92 percent of the STM policies we sold were purchased outside of Open Enrollment when the consumer could only enroll in an Obamacare plan if she had a Special Enrollment Period (“SEP”).
Since another of the proposed rules from the Departments would limit the ability of consumers to enroll for coverage during a SEP, it seems that limiting consumers’ opportunity to find coverage outside of Open Enrollment is counter intuitive. One of the goals of Obamacare was to broaden coverage and reduce the cost to providers that are not reimbursed for providing services to people without insurance. Whether consumers inadvertently fail to sign up for coverage during Open Enrollment or have unanticipated expenses and are forced to prematurely drop coverage, STM plays a critical role in reducing the number of uninsured. So are consumers destabilizing the market by purchasing STM in lieu of an ACA plan or are they buying the only plan that is available to them at the time they decide to purchase? The fact that 92 percent of our carriers’ sales were outside of Open Enrollment strongly supports the latter. The average duration for an STM plan underwritten by our carriers is just over four months, which demonstrates that the vast majority of consumers are not purchasing an STM policy with the expectation that it would serve as a replacement for an Obamacare plan.
The Proposed Rule is Anti-Competitive
As discussed above, the Proposed Rule seeks to limit the duration of STM policies because the Departments’ believe that consumers are choosing STM plans over the more expensive ACA plans. President Obama issued an Executive Order on April 15, 2016 (the “Order”) entitled “Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy.” We fail to see how the Proposed Rule furthers that goal. The Order states that “[c]ompetitive markets also help advance national priorities, such as the delivery of affordable health care …” Section 2 of the Order states, Executive departments and agencies … shall, where consistent with other laws, use those authorities to promote competition, arm consumers and workers with the information they need to make informed choices, and eliminate regulations that restrict competition ….” By its very design, the Proposed Rule is meant to reduce competition and restrict the ability of consumers to make informed choices. As noted above, STM is “consistent with other laws,” as it is specifically contemplated under the ACA. We believe the Departments need to explain why the Proposed Rules do not violate the Order.
Limiting STM to 3 Months Does Not Align with the Intent of ACA
The Proposed Rule states that it “address[es] the issue of short-term, limited-duration insurance being sold as a type of primary coverage, the proposed regulations revise the definition of shortterm, limited-duration insurance so that the coverage must be less than three months in duration, including any period for which the policyholder renews or has an option to renew with or without the issuer’s consent.” It goes on to state, “This change would align the definition more closely with the initial intent of the regulation: To refer to coverage intended to fill temporary coverage gaps when an individual transitions between primary coverage. Further, limiting the coverage to less than three months improves coordination with the exemption from the individual shared responsibility provision of section 5000A of the Code for gaps in coverage of less than three months (the short coverage gap exemption), 26 CFR 1.5000A–3. Under current law, individuals who are enrolled in short-term, limited-duration coverage instead of minimum essential coverage for three months or more are generally not eligible for the short coverage gap exemption. The proposed regulations help ensure that individuals who purchase short-term, limited-duration coverage will still be eligible for the short coverage gap exemption (assuming other requirements are met) during the temporary coverage period.”
We must first point out that STM is not renewable coverage so a policyholder never has an option to renew. We do not agree with the argument that the Proposed Rule “improves coordination with the exemption from the individual shared responsibility provision of section 5000A of the Code.” STM can be purchased on a monthly basis and in our experience a very large number of policies are already purchased for durations of three months or less. We do not see how banning policies of over three months improves coordination with 5000A of the Code.
Disclosure that STM is Not Minimum Essential Coverage
The Proposed Rule also provides that “a notice must be prominently displayed in the contract and in any application materials provided in connection with enrollment in such coverage with the following language: THIS IS NOT QUALIFYING HEALTH COVERAGE (“MINIMUM ESSENTIAL COVERAGE”) THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE AFFORDABLE CARE ACT. IF YOU DON’T HAVE MINIMUM ESSENTIAL COVERAGE, YOU MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES.”
We favor this proposal. While many states already require disclosure like this, the carriers we represent are in favor of full and fair disclosure of what STM covers and what it does not. We are in favor of providing consumers with an educated choice.
STM Does Not Automatically Renew
The Proposed Rule states, “In addition to proposing to reduce the length of short-term, limited-duration insurance to less than three months, the proposed regulations add the words “with or” in front of “without the issuer’s consent” to address the Departments’ concern that some issuers are taking liberty with the current definition of short-term, limited-duration insurance either by automatically renewing such policies or having a simplified reapplication process with the result being that such coverage lasts much longer than 12 months and serves as an individual’s primary coverage but does not contain the important protections of the ACA.”
Again, Respondent believes that the Departments have a fundamental misunderstanding of STM policies. We are not aware of any STM policy that automatically renews. With respect to the Departments’ criticism of “having a simplified reapplication process,” we fail to see how this is a negative. We believe that those who have experienced purchasing an ACA policy through a public exchange would appreciate the ease with which they can purchase a STM policy with an immediate effective date.
Thank you for the opportunity to comment on the Proposed Rules regarding short-term medical plans and other excepted benefits, as proposed by the Departments. The Proposed Rules regarding STM would severely limit the ability of consumers to fill gaps in coverage between health plans through the purchase of STM plans. STM policies, which are permitted under the ACA, provide affordable coverage to qualified individuals for limited periods and are currently available and regulated by many states. The Proposed Rule overlooks many aspects of STM. First, STM does provide affordable, meaningful benefits during gap periods that may extend longer than three months, because the consumer can make an informed decision that STM is the best policy for their particular circumstance or because the consumer inadvertently missed purchasing an ACA plan during Open Enrollment or let the plan lapse due to financial circumstances. Second, STM does not provide renewable coverage so that the duration limitations are secure. Finally, while we embrace additional disclosures, most if not all state departments require many disclosures about STM already.
The Proposed Rule states that the Departments are concerned that STM plans may be destabilizing the market because they are keeping young and healthy consumers out of the pool of ACA members. Our data suggests this is not the case. STM is a very limited market – we estimate it to be approximately 2% of the all individuals covered by health insurance in the United States. In our experience, STM is not competing with ACA plans during Open Enrollment; instead, it is providing a much needed temporary gap coverage, which is further supported by the fact that many consumers who purchase STM go on to purchase an ACA plan when it is next available.
In conclusion, STM is still an important means for people to obtain affordable health insurance during transitional periods, which is why Congress specifically contemplated it surviving passage of the ACA. The Proposed Rule would violate the Order by lessening competition while doing little to nothing to stabilize the ACA market.
David Kettig, President & CEO IHC
Specialty Benefits, Inc.