Proponents of short-term health plans are set against a Biden administration proposal to restrict the coverage, arguing the rule limits consumer choice and could raise the uninsured rate at a time of unprecedented flux for the U.S. coverage landscape.
But whether the regulation will increase the number of Americans without coverage depends on how stakeholders weigh the possibility that people will shift out of short-term plans into being uninsured, versus switching to plans on the Affordable Care Act marketplace, according to health policy experts.
“My perspective is that the shift into the individual market is probably going to be quite a bit larger than the shift into uninsured,” said Matt Fiedler, a senior fellow at the USC-Brookings Schaeffer Initiative for Health Policy. “But ultimately, there’s room for debate here. You do need to think about both sides of the tradeoff.”
Short-term plans
Short-term health plans, which aren’t required to cover the 10 essential health benefits under the Affordable Care Act, were originally designed as cheap safety-net coverage for just three months.
In 2018, the Trump administration expanded the duration of the policies to a maximum of three years, sparking backlash from insurance researchers and patient advocates.
The plans — which are banned or restricted in roughly half of U.S. states — have been found to discriminate against individuals with pre-existing conditions, routinely deny claims due to health status, retroactively cancel coverage for enrollees and generate surprise bills due to a lack of in-network providers, according to independent research and an investigation conducted by House Democrats in 2020.
In July, the Biden administration proposed a rule to restrict the duration of short-term health plans to three months, with a potential extension of one more month.
Under the proposal, consumers would not be allowed to buy another short-term plan from the same insurance carrier in the same calendar year.
Free-market advocates and Republican lawmakers say the restrictions would result in coverage too brief to help consumers who find it valuable, and could lead to people eschewing coverage altogether.
“I think [the Biden rule] would reduce enrollments. It reduces enrollments at the expense of having people with some type of coverage ... It’ll shrink the short-term medical markets, but increase the number of people who are technically uninsured,” said Jeff Smedsrud, the founder of two of the largest marketers and manufacturers of short-term medical and fixed indemnity insurance products, Pivot Health and Healthcare.com.
Roughly 3 million people are on short-term plans, according to one congressional estimate from 2019, and could experience disruption as a result of coverage restrictions — though a lack of comprehensive data on short-term plans complicates efforts to determine the effect of changing regulations.
Proponents of the plans say they’re valuable for a number of consumers who are unlikely to turn to the ACA exchanges.
Those include people who lose their jobs at small companies and aren’t eligible for COBRA coverage, but don’t have a high enough income to qualify for a subsidy on the ACA exchanges; or people on a probationary period before they can sign up for employer-sponsored insurance.
Short-term plans are also helpful for people in states that haven’t expanded Medicaid for those who fall into the coverage gap; and for consumers who live in rural areas, where the only ACA plan options might have narrower networks, according to Brian Blase, president of the right-leaning Paragon Health Institute.
“Ballpark, you’re probably looking at between half a million and probably one-and-a-half to 2 million more people that won’t have health insurance because of the rule,” said Blase, who worked on the 2018 rule expanding the plans while advising the White House.
One Congressional Budget Office report from 2019 estimates that roughly 500,000 people would become uninsured as a result of more stringent restrictions on short-term plans.
ACA alternatives
Researchers said it’s possible the rule could increase the uninsured rate, but it depends on how many consumers pivot to the ACA exchanges versus those who choose to forego coverage.
The majority of people who leave short-term plans will end up in the marketplace, Fiedler predicted.
"My perspective is that the shift into the individual market is probably going to be quite a bit larger than the shift into uninsured. But ultimately, there’s room for debate here. You do need to think about both sides of the tradeoff."
Matt Fiedler
Senior fellow at the USC-Brookings Schaeffer Initiative for Health Policy
The two groups of people who will be affected by short-term plan limits include healthy enrollees with incomes too high to qualify for large subsidies, and healthy enrollees who qualify for large subsidies, he said. (Chronically ill people are unlikely to be covered by short-term plans, which charge more based on health status and often don’t sell to sick individuals).
The latter group is likely to shift onto ACA plans, since they typically offer better coverage at lower premiums, Fiedler said.
If the former group shifts onto marketplace plans, they might pay higher premiums, but marketplace premiums overall would fall as a result of more healthy individuals joining the exchanges, according to experts.
The Biden administration projects premiums for ACA coverage would decline by 0.5% each year in 2026, 2027 and 2028 if healthy people join the marketplace as a result of the rule. That would save the federal government roughly $120 million over that time.
High-income individuals also could go uninsured, which is a bad outcome if their previous short-term plan was offering meaningful coverage.
But it’s not likely, given wealthier people tend to be willing to pay more for insurance, according to Fiedler.
“The group that these plans make sense for is healthy people who have incomes high enough that they don’t qualify for meaningful subsidies,” Fiedler said. “The question is, what happens to those people? We don’t have perfect data on it ... My guess is that most of these people, particularly in a world where there are subsidies at higher income levels, will end up shifting into the ACA compliant market.”
One current draw of ACA plans is that they can be much more affordable than in past years, as a result of more generous financial subsidies that Congress extended through 2025.
Now, short-term plans can cost hundreds of dollars more per month than marketplace plans, with significantly higher cost-sharing, health policy experts said.
The Biden administration expects ACA enrollment will swell if the proposed rule is finalized. The regulation estimates its provisions regarding short-term coverage would increase ACA marketplace enrollment by 60,000 people each year in 2026, 2027, and 2028.
Increasing ACA enrollment is the point of the rule, at the expense of consumer choice, argues Sally Pipes, President and CEO of the free-market think tank the Pacific Research Institute.
“I think it takes away choices because President Biden wants to move more and more people onto the exchanges,” Pipes said.
But more consumers moving onto the exchanges is a good thing, given those are comprehensive plans, according to Justin Giovannelli, project director at Georgetown University’s Center on Health Insurance Reforms.
Giovannelli thinks the proposed rule won’t raise the uninsured rate, both due to availability of affordable ACA plans, and the fact that individuals covered under short-term insurance are already legally viewed as uninsured.
Relief legislation passed on a bipartisan basis during the pandemic, including the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act, both define uninsured individuals as those without comprehensive coverage.
Short-term products don’t fall under that bucket, so individuals in the coverage are already considered uninsured, Giovannelli said.
In addition, there’s a lag time in the proposed rule, so no individual currently on short-term plans would be moved off the coverage if the rule is finalized as proposed, according to experts.
“I think it takes away choices because President Biden wants to move more and more people onto the exchanges."
Sally Pipes
President and CEO of the Pacific Research Institute
Directing people to the best coverage for them is imperative as the U.S. undergoes a massive coverage transition and states check eligibility for Medicaid for the first time in three years, experts said. Millions of Americans could lose coverage as a result.
Researchers stressed that many consumers end up on short-term plans who would be better served on other coverage due to misleading marketing — something the Biden administration rule also seeks to address.
Misleading marketing of short-term plans has continued during Medicaid redeterminations, illustrating the need to clearly differentiate between comprehensive health insurance and limited benefit products, according to a secret shopper survey conducted in June by the Georgetown Center on Health Insurance Reforms.
“I would hope that people looking for coverage are in a position to be able to evaluate their options and make the choice that provides the kind of financial security that you have with comprehensive coverage,” Giovannelli said. “The administration is trying to get this product and some other similar products back to the functions that they were designed to do.”
