Biden Administration Finalizes Rule Cracking Down On Short-Term Plans

Dive Brief:

• The Biden administration on Thursday finalized a rule shrinking the duration of short-term health plans — bare-bones coverage that’s exempt from consumer protections — cementing the rollback of one of the Trump administration’s key healthcare policies.
• The final rule limits the length of short-term plans sold after September this year to three months, with the option of an additional one-month extension. It’s a significant cut: Since 2018, consumers could renew the plans for up to three years — a coverage window that will still apply to short-term plans issued before September.
• Regulators did not finalize proposals that would have placed additional guardrails around fixed indemnity plans, which provide cash payments for specific medical events. Concerns have been mounting that fixed indemnity plans are functioning more like traditional insurance, without the consumer protections of such coverage. The Biden administration said it would address the issue in future rulemaking.

Dive Insight:

Short-term health plans were originally designed as cheap safety-net coverage for just three months. However, in 2018 the Trump administration expanded their duration, part of a bevy of policies meant to weaken the Affordable Care Act exchanges.

It was a controversial move. Proponents of short-term plans, including free-market advocates and many Republicans, say they’re a valuable option for individuals in between plans or those seeking an alternative to pricier comprehensive coverage.

However critics, including many patient advocates, Democrat lawmakers and health policy researchers, slam short-term plans as junk coverage. The plans, which aren’t required to cover the 10 essential health benefits under the ACA, have been found to discriminate against individuals with preexisting conditions, charge women more for their coverage, routinely deny claims due to health status, retroactively cancel coverage for enrollees and generate notable surprise bills.

Another concern is unclear or deceptive marketing. Short-term plan marketers have a history of presenting the plans as comprehensive coverage, misleading consumers.

Currently, short-term plans are banned or restricted in roughly half of U.S. states.

Their extension was viewed as one Trump-era healthcare policy that President Joe Biden would reverse after taking office in 2021. However, the Biden administration didn’t propose a rule targeting the policy until July last year.

Thursday’s final rule codifies that proposed rule’s short-term plan provisions mostly as is.

Along with limiting short-term plans’ duration, the rule curbs a practice known as “stacking” — when issuers provide separate short-term policies one after the other to evade duration limits — by maintaining that a renewal or extension includes plans sold by the same issuer to the same policyholder within the same year.

The rule also requires issuers to publish notices to help consumers better distinguish short-term plans from more comprehensive coverage. The notices must be placed on the first page of the policy or insurance contract, and be included in marketing and enrollment materials.

The rule requires similar notices for fixed indemnity coverage.

However, the proposed rule included a number of provisions to prevent fixed indemnity plans from making payments related to the amount of care people receive, as opposed to a set payment per day, for example.

Paying beneficiaries for a volume or type of services has allowed the products to function more like normal insurance plans without being beholden to rules overseeing standard health insurance, according to Matt Fiedler, a senior fellow at the USC-Brookings Schaeffer Initiative for Health Policy.

The Biden administration removing those proposals is the “main surprise” in the rule, Fiedler said.

In a fact sheet on the regulation, regulators said they “remain concerned about the issues those proposals sought to address, and intend to address the issues in future rulemaking.”

Still, Democrat lawmakers and patient advocacy groups on Thursday cheered the steps to restrict the duration and marketing of short-term plans.

“The new rule will ensure that short-term health plans are used as they were originally intended: as short-term, stop-gap coverage while consumers are between other plans,” a group of 35 patient advocacy groups, including the American Cancer Society and the American Heart Association, said in a statement.

Meanwhile, right-leaning researchers slammed the Biden administration for cutting back on coverage options.

”It will not protect consumers. It will harm consumers. It will create gaps in coverage into which sick patients will fall mid-treatment,” said Michael Cannon, director of health policy studies at the libertarian think tank the Cato Institute, in a statement.

Proponents of the plans also say restricting their duration will cause more Americans to become uninsured. It’s a valid concern, researchers say. Though, if restricting their duration causes the uninsured rate to rise, it’s likely to be quite a small increase. Notably, there are no signs the 2018 extension of the coverage caused the uninsured rate to fall, according to the Commonwealth Fund.

“You could imagine scenarios where someone misses open enrollment and buys a short-term plan in March, and that wouldn’t carry them through the next open enrollment,” Fiedler said. “The question is how many people are like that. Those are the trade-offs with this rule.”