‘Short-Term’ Health Plans No Longer Short-Term

On August 1, the Trump Administration released a final rule that will allow insurance companies to offer cheaper “short-term limited duration” health plans for longer periods of time.

Short-term plans are cheap for a reason. The plans don’t comply with the Affordable Care Act (ACA), meaning they aren’t required to cover essential benefits and protect people with preexisting conditions, and they don’t have to adhere to community rating standards. Thus, while short-term plans have been available for years and may be appropriate for certain circumstances like when people are between jobs and don’t qualify for a special enrollment period, they are not a replacement for comprehensive health coverage.

However, the new rule will likely drive many people to sign up for these lower-cost plans without fully understanding their impact. While only about 160,000 people were enrolled in these plans in 2016, the Administration estimates that the new rule will drive 1.6 million more people to short-term plans.

New Rule Won’t Protect Older Adults and People with Preexisting Conditions

The new rule allows insurers to start offering short-term plans that last up to a full year and allows renewals of up to three years. While the Administration says this move will improve consumer choice and affordability, the reality is that these plans are likely to prove harmful for many older adults.

As discussed in a previous AARP Public Policy Institute blog, short-term plans don’t have to protect people with preexisting conditions, many of whom are older adults. These individuals could see their premiums skyrocket or be denied coverage altogether under the new rule. Short-term plans also don’t have to comply with the ACA’s community rating or age rating protections, meaning they could charge older adults more than three times as much as younger adults for the same coverage. A previous AARP Public Policy Institute report found that loosening age rating limits would mean big premium hikes for older adults.

Not a Good Deal for Anyone

Research also indicates that the final rule will increase premiums for everyone in the individual market. That’s because people who are healthier will leave the individual market, opting for cheaper short-term plans because they don’t think they’ll need extensive benefits. Notably, these individuals could find themselves with bills they can’t afford if faced with unexpected health issues not covered by their plan.

For those left in the individual market, including many people with preexisting conditions, premiums could rise dramatically. A previous AARP Public Policy Institute analysis found that premiums could increase by an average $2,000 for 60-year-olds who purchase a typical silver plan. Some states – like Nebraska and Wyoming – could see double that increase.

What Can Be Done?

Despite the new federal rule, states still have the authority to protect consumers by restricting short-term plans. Massachusetts, New Jersey, and New York already ban such plans entirely, and several other states have implemented restrictions. For example, states can restrict the maximum duration of short-term plans to three months or prohibit their renewal. They can also require plans to be more transparent by fully disclosing what they do and do not cover. In the coming year, we are likely to see more states implementing these types of restrictions and bans on short-term plans. To read more about state options that could help reduce the negative impact of short-term plans, see two informative pieces—a blog from the Center on Budget and Policy Priorities and a brief from Georgetown University’s Center on Health Insurance Reforms.

 

Dean, Olivia

 

Olivia Dean is a policy analyst with the AARP Public Policy Institute. Her work focuses on public health, health disparities, and private coverage issues.

 

 

 

 

Jane Sung is a senior strategic policy adviser with AARP Public Policy Institute. Her work focuses on health insurance coverage among adults age 50 and older, private health insurance market reforms, Medicare Advantage, Medigap, and employer and retiree health coverage.