Expanding short-term insurance would increase premiums, uncompensated care

Premiums on the Affordable Care Act (ACA) exchanges could be in for another double-digit increase if HHS moves ahead with a proposed rule to expand the availability of short-term insurance plans which don’t comply with the ACA.

In an analysis conducted by the Urban Institute, monthly premiums would go up by an average of 18 percent in 43 states which don’t have limits on the skimpier—but less expensive—plans. The increased cost would be due to younger, healthier customers leaving the ACA risk pool and buying the short-term plans. While the proposed regulation would reestablish the pre-2016 status quo, reversing an Obama-era rule that limited these plans’ duration to three months, the difference now is customers wouldn’t face the individual mandate penalty for not having ACA-compliant insurance.

CMS Administrator Seema Verma had estimated this would result in a shift of only “100,000 to 200,000” healthy people from the exchanges’ single risk pool to the short-term plans. The Urban Institute, however, projected a far greater impact of 4.2 million enrolling in the expanded, short-term plans.

“States with the largest effects will tend to be those with high unsubsidized ACA-compliant premiums and those with low marketplace participation,” wrote institute fellow Linda Blumberg, PhD, and coauthors. “Health status and socioeconomic characteristic differences also affect the ability of state residents to enroll in (short-term) plans and their preferences for doing so.”

Some healthier customers may remain on the ACA exchanges if they qualify for subsidies, as those would shield them from premium hikes. But that means additional spending for the federal government, which the report estimated would be 9.3 percent higher due to a combination of the short-term plan expansion and repealing the individual mandate.

The analysis didn’t address several other potential impacts from the short-term plans. If the ACA markets become a de facto high-risk pool as healthier customers head for the limited, less expensive plans, more insurers could exit the exchanges and possibly leaving some parts of the country with no available exchange insurer. States may also choose to pass their own requirements limiting the availability of short-term plans or imposing their own versions of the individual mandate.

Two other impacts could more directly affect patients and providers. Since the short-term policies likely won’t be subject to the ACA’s requirements on medical loss ratio, insurance brokers can make more off commissions for selling these plans than for ACA-compliant coverage.

“As a result, brokers are likely to market these plans very aggressively, and consumers may purchase them without understanding how they differ from compliant plans” Blumberg and her coauthors wrote. “If this is the case, more people may be pulled out of the compliant market than we have estimated here, increasing the effects of the policy change.”

If customers choose these short-term plans without fully understanding their limits, they could be left unable to pay for services when an unforeseen emergency arises. This in turn could negatively impact providers with an increase in uncompensated care costs, similar to what financial analysts had warned about when Congress was discussing repealing the ACA last year.