California, Illinois and other states have begun pushing back against efforts by the Trump administration to expand the availability of junk health insurance plans, which would undermine the Affordable Care Act's consumer protections and marketplace stability.
In Sacramento, the California Senate last week approved a measure that would completely outlaw short-term health plans, which it defines as any plan with a term of less than 12 months. Authoritative ACA tracker Charles Gaba reports that California might become the first state to forbid short-term plans entirely.
On Friday, the Illinois Senate passed and sent to the House a bill that would limit short-term plans to six-month terms and render them nonrenewable. The bill also would require that the policy and marketing materials for such plans declare in bold type that they don't offer the consumer protections of ACA plans.
These initiatives aim to counter what may be the Trump administration's most insidious attack on the Affordable Care Act: a proposal to expand the availability of short-term health plans. As we've reported, these are bare-bones plans that the ACA limits to maximum nonrenewable terms of 90 days. They're not designed as substitutes for real health insurance but merely as bridges for individuals or families making a transition from job to job or coverage to coverage.
Trump has proposed to allow such plans to remain in effect for up to a year and to make them renewable. As is true of so many of Trump's proposals, this one looks like a consumer boon only on the surface. Short-term plans aren't subject to ACA rules forbidding annual or lifetime benefit limits and requiring coverage of "essential health benefits" such as maternity care, prescription drugs, hospitalization, or mental health and substance abuse services. They can upcharge or reject applicants with preexisting medical conditions.
As an example of how junky these plans can be, we reported last month on a typical plan marketed in Illinois and 12 other states by UnitedHealth Group. The plan excludes pregnancy and provides for a lifetime maximum benefit of only $250,000. It won't cover hospital room, board or nursing services for patients admitted to a hospital on a Friday or Saturday, unless for an emergency or for necessary surgery the next day. (In other words, if you get sick, make sure you do so early in the week.)
Obviously, any plan with those exclusions is useful only as a short-term bridge. Those offers don't resemble legitimate health coverage in any way. The danger they pose to the ACA marketplaces is that their lower premiums could lure healthy and younger applicants out of the overall insurance pool, leaving sicker and more costly members behind, driving up premiums.
The allure of short-term plans may have increased with the elimination of the ACA's individual mandate penalty, which was reduced to zero as of Jan. 1, 2019, by the Republican tax cut bill enacted in December. Under previous rules, buyers who opted for short-term plans would have had to pay the penalty because the plans aren't considered ACA-compliant insurance.
The danger these plans pose to consumers is that buyers may not recognize the breadth of their exclusions until it's too late — say when they suffer an injury or fall ill with a condition that isn't covered. Then, because they've skipped the annual open enrollment period for legitimate plans, they may have to wait for as long as a year to obtain coverage.
Just last week, Medicare's own chief actuary, Paul Spitalnic, estimated that expanding short-term insurance would suck as many as 800,000 consumers out of the ACA market, driving premiums higher by 3% in the first year and up to 6% a year by 2022. The higher premiums would translate into $39 billion in additional federal spending on premium subsidies over 10 years, Spitalnic calculated, because government subsidies increase as premiums rise.
Spitalnic's figures painted a far more dire picture of the policy's impact than that offered by administration mouthpieces such as Seema Verma, administrator of the Centers for Medicare and Medicaid Services. Verma has claimed that fewer than 200,000 customers would leave the marketplaces, producing "virtually no impact on the individual market premiums."
These consequences illustrate why California and Illinois lawmakers have been joined by legislators in Hawaii and Maryland in moving recently to put a collar on the short-term marketplace and erect a bulwark against Trumpcare. New York, New Jersey and Massachusetts also prohibit short-term plans that are medically underwritten — that is, plans that can surcharge or reject applicants for preexisting conditions or medical histories. They've taken advantage of ACA rules that leave such specifications to state law. They have shown a willingness to make the ACA work for their residents, so they're properly concerned about federal policies that would tear down what they've built.
California has "embraced the Affordable Care Act" to the point where the uninsurance rate is only 6.8%, the California measure's sponsor, Sen. Ed Hernandez (D-Azusa), said in a position statement. Since "California has been enacting policies to rid the individual and small group markets of junk insurance even before the ACA, … there is no reason to allow these noncompliant products to remain in the market."
Hernandez's measure would take effect on Jan. 1 if it's passed by the Assembly and signed by the governor. The bill passed on a 27-10 vote, with Sen. Anthony Cannella (R-Ceres) joining the Senate's Democrats. Two Republicans, Janet Nguyen of Garden Grove and Scott Wilk of Santa Clarita, didn't cast votes.
The Illinois measure must pass the full state Senate and the Assembly as well as obtain the approval of Gov. Bruce Rauner, a Republican. In Hawaii, a bill forbidding the sale of a short-term plan to anyone eligible to purchase an ACA-compliant health plan — which is almost every legal resident of the state — was passed by the Legislature on May 1 and awaits the signature of Gov. David Ige, a Democrat. And Maryland last month enacted a law limiting short-term plans to three months and forbidding renewals.
7:46 p.m.: This post has been updated to add New York, New Jersey and Massachusetts to the list of states that bar short-term plans.