Short-term plans have little adverse effect on insurance market: study

May 16—Although a federal boost to short-term insurance plans raised alarm among hospital advocates, early evidence suggests there has been little adverse impact on the individual-insurance market.

A new analysis found premium increases for 2019 plans sold in Affordable Care Act (ACA) marketplaces mirrored the degree to which states restricted the sale of short-term plans — the opposite effect many predicted from such plans. Unlike ACA-compliant plans, short-term plans use underwriting to deny coverage to some applicants, do not have to cover preexisting conditions and are not required to offer comprehensive benefits.

Predicted adverse impacts from the spread of short-term plans included:

• Increase in ACA plan premiums
• Reduction in the number of ACA plans
• Reduction in ACA plan enrollment

Overall, ACA premiums increased by an average 3% for 2019. But an analysis found that premium increases averaged 6.7% in the seven states that banned short-term, limited duration insurance (STLDI) plans and 7.3% in three other states and Washington, D.C., each of which banned their renewal. Meanwhile, ACA plan premiums declined on average by 1.7% in the 24 states that merely restricted STLDI terms to less than a year and by 0.2% in the 16 states that fully allowed such plans.

“The most appropriate conclusion at this point is that it’s not really having any effect and that these markets are independent,” said Chris Pope, author of the analysis and a senior fellow at the Manhattan Institute.

Early results belie warnings

Those early results, which followed a 2018 Trump administration rule allowing states to make STLDI plans much more widely available, ran counter to the expected negative impacts of the plans on the ACA marketplaces.

For instance, one analysis for the Association of Community Affiliated Plans predicted the STLDI deregulation (not including the much larger impact of ending the individual-mandate tax penalty and deregulating association health plans) would increase ACA premiums by 2.2% to 6.6% and cut enrollment by between 8.2% to 15% as enrollees fled to the cheaper STLDI plans.

“This shift would result in an older and sicker individual-market risk pool,” the American Hospital Association (AHA) wrote about the STLDI rule. “As a result, premiums on the individual market would rise and fewer insurers would likely participate, potentially leading to areas of the country without access to subsidy-eligible plans.”

While 2019 ACA plan enrollment declined by about 4%, to 8.5 million people, the number of insurers selling ACA health plans increased from 3.5 per state in 2018 to four per state in 2019, according to a Kaiser Family Foundation (KFF) analysis.  

The Manhattan Institute analysis appeared to bear out the findings of a 2018 KFF rate-filing analysis of ACA health plans. Among insurers seeking to justify ACA rate increases to regulators, the median estimated increase in ACA premiums attributed specifically to STLDI deregulation was less than 1%, according to the KFF analysis, and 92 of 124 requested rate increases did not mention STLDI deregulation as a significant factor at all.

“A lot of the ‘sky is falling’ fears that were out there have just been pretty clearly refuted,” Pope said in an interview.

Positive effects not yet proven

Advocates of the short-term plans, including the Trump administration, have predicted they would generate a range of benefits, including:

• Reducing the number of uninsured
• Holding down ACA plan premiums
• Reducing uncompensated-care costs for hospitals

Pope said such positive impacts from STLDI plans are possible but remain unproven.

For instance, the administration’s projection that 700,000 uninsured will buy STLDI plans and subsequently cut hospitals’ uncompensated-care costs by $1.1 billion will remain unverified at least until official counts are issued on changes in the numbers of uninsured.

However, there is increasing anecdotal evidence that the expanded STLDI plans predominantly attract uninsured enrollees.

Blue Cross and Blue Shield of Louisiana (BCBSL) started selling STLDI plans for 2019 and found 80% of the sales went to long-term uninsured, according to Michael Bertaut, healthcare economist and exchange coordinator for the insurer. That has worked out well since BCBSL also sells ACA marketplace plans.

Pope said that echoed reports he’s heard from insurers that the uninsured have dominated new STLDI plan enrollment.

Impacts on coverage may not be detrimental

Hospitals and some insurers also were concerned that the expansion of STLDI plans would leave enrollees without needed coverage from “junk plans” that skimped on coverage in exchange for lower costs.

But the Manhattan Institute analysis looked at a 2019 ACA marketplace with good competition and fewer restrictions on STLDI plans, and found that average costs again ran contrary to expectations.

Specifically, Pope found an STLDI plan that offered Silver-level-like insurance coverage and charged a $250 monthly premium — a savings of 46% compared to the corresponding ACA plan.

Previous analyses “tried to find the worst possible plans in the market and therefore say, ‘These plans are terrible,’” Pope said. “This [analysis] tries to behave like a shopper would and say, ‘What is the best value out there and how does the best value [among STLDI plans] compare to the best-value ACA plans that have equivalent levels of coverage?’”

BCBSL bases its STLDI plan benefits on ACA plans and adds targeted cost reductions, such as a $7,500 maternity deductible and $1 million annual coverage limit. But the main savings mechanism, Bertaut said on Twitter, is upfront underwriting, which excludes about 6% to 7% of applicants. In exchange, the premiums are about 50% less than the insurer’s ACA plan.