GAO Issues Report on Private Health Coverage

WASHINGTON, Sept. 17 -- The Government Accountability Office has issued a report (GAO-20-634R) entitled "Private Health Coverage: Results of Covert Testing for Selected Offerings".

The report was sent to Sen. Robert Casey Jr., D-Pennsylvania, ranking member of the Senate Aging Committee, and Sen. Debbie Stabenow, D-Michigan, on Sept. 16, 2020. Here are excerpts of summaries associated with the report.

What GAO Found: "GAO performed 31 covert tests to selected sales representatives and stated that we had pre-existing conditions, such as diabetes or heart disease, and we requested coverage for these conditions to see if the sales representative directed GAO's undercover agents to a comprehensive Patient Protection and Affordable Care Act (PPACA)-compliant plan, or a PPACA-exempt plan that does not cover what we requested. As part of these tests, GAO gauged whether sales representatives engaged in potentially deceptive practices, such as making false or misleading statements about coverage or omitting material information about coverage.

The results of the covert tests ranged from sales representatives appropriately explaining to GAO's undercover agents that a PPACA-exempt plan would not cover the pre-existing condition the undercover agents stated that they had, to engaging in potentially deceptive marketing practices that misrepresented or omitted information about the products they were selling. Specifically, in 21 of 31 covert tests, the sales representative appropriately referred undercover agents to a PPACA-compliant plan. In two of 31 covert tests, the sales representatives did not appear to engage in deceptive marketing practices but were not always consistent or clear in their explanation of the type of coverage and plans they were selling. In the remaining eight of 31 covert tests, the sales representatives engaged in potentially deceptive marketing practices, such as claiming the pre-existing condition was covered when the health plan documents GAO received after purchase said otherwise. GAO plans to refer these eight cases of potential deceptive marketing practices to the Federal Trade Commission (FTC) and corresponding state insurance commissioners' offices for follow-up as appropriate."

Why GAO Did This Study: "Millions of Americans obtain health insurance coverage in the individual market, which consists mainly of private plans sold directly to consumers without access to group coverage. While generally regulated by states, starting in 2014, PPACA established a number of new federal requirements for the individual health insurance market. For example, PPACA prohibited insurers from excluding coverage or charging higher premiums for pre-existing conditions and required that individual market plans cover a set of essential health benefits, including coverage for mental health and substance abuse disorder services, prescription drugs, and maternity and newborn care.

Certain types of health coverage arrangements that can be sold directly to consumers do not have to comply with some or all of PPACA's individual market requirements and, as a result, may be less expensive, but also offer more limited benefits compared to PPACA-compliant plans. Recent changes to federal law and regulations could result in the increased use of PPACA-exempt health coverage arrangements as alternatives to PPACA-compliant plans in the individual market. For example, in 2018, federal regulations expanded the availability of short term, limited duration insurance (STLDI) plans, a type of PPACA-exempt arrangement. In addition, starting January 1, 2019, individuals who fail to maintain "minimum essential coverage," as required by PPACA, no longer face a tax penalty. Further, the devastating economic effects of the Coronavirus Disease 2019 (COVID-19) pandemic could create additional demand for affordable health coverage, including PPACA-exempt plans.

With these changes, and because of their lower relative costs, PPACA-exempt health coverage arrangements may be attractive to consumers, particularly those who find it difficult to afford PPACA-compliant plans. However, such arrangements generally do not need to follow PPACA's requirement that plans in the individual market be presented to consumers in defined categories outlining the extent to which they are expected to cover medical care. As a result, depending on how they are marketed and sold, PPACA-exempt arrangements could present risks for consumers, if, for example, they buy them mistakenly believing that coverage is as comprehensive as for PPACA-compliant plans.

GAO was asked to obtain insights on the marketing and sales practices of insurance sales representatives who sell PPACA-exempt plans. In this report, GAO describes the results of covert tests we conducted involving selected sales representatives, when contacted by individuals stating that they had pre-existing conditions.

In this regard, GAO agents performed a number of covert tests (i.e., undercover phone calls) from November 2019 through January 2020 posing as individuals needing to purchase health insurance to cover pre-existing conditions.

GAO also discussed the marketing and oversight of PPACA-exempt arrangements with senior officials from federal agencies, including the FTC, and Centers of Medicare and Medicaid Services (CMS) within the Department of Health and Human Services (HHS), as well as the National Association of Insurance Commissioners (NAIC)5.

GAO provided a draft of this product to FTC, HHS, and NAIC for review and comment. FTC, HHS, and NAIC provided technical comments, which GAO incorporated as appropriate. HHS provided additional written comments on a draft of this report."

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August 24, 2020

To: The Honorable Robert P. Casey, Jr., Ranking Member, Special Committee on Aging, United States Senate

The Honorable Debbie Stabenow, United States Senate

Private Health Coverage: Results of Covert Testing for Selected Offerings

Millions of Americans obtain health insurance coverage in the individual market, which consists mainly of private plans sold directly to consumers without access to group coverage. While generally regulated by states, starting in 2014, the Patient Protection and Affordable Care Act (PPACA) established a number of new federal requirements for individual health insurance coverage. For example, PPACA prohibited insurers from excluding coverage or charging higher premiums for pre-existing conditions and required that individual market plans cover a set of essential health benefits, including coverage for mental health and substance abuse disorder services, prescription drugs, and maternity and newborn care./1

Certain types of health coverage arrangements that can be sold directly to consumers do not have to comply with some or all of PPACA's individual market requirements and, as a result, may be less expensive, but also offer more limited benefits compared to PPACA-compliant plans. For example, short-term, limited-duration insurance (STLDI), which was primarily designed to fill gaps in coverage, is excluded from the definition of individual health insurance under federal law and is therefore generally not subject to PPACA's requirements for the individual market.

Recent changes to federal law and regulations could result in the increased use of PPACA-exempt health coverage arrangements as alternatives to PPACA-compliant plans in the individual market./2 For example, in 2018, federal regulations expanded the availability of STLDI plans, a type of PPACA-exempt arrangement. In addition, as of January 1, 2019, individuals who fail to maintain "minimum essential coverage," as required by PPACA, no longer face a tax penalty./3 Further, the devastating economic effects of the Coronavirus Disease 2019 (COVID19) pandemic could create additional demand for affordable health coverage, including PPACA-exempt plans.

With these changes, and because of their lower relative costs, PPACA-exempt health coverage arrangements may be attractive to consumers, particularly those who find it difficult to afford PPACA-compliant plans. However, such arrangements generally do not need to follow PPACA's requirement that plans in the individual market be presented to consumers in defined categories outlining the extent to which they are expected to cover medical care. As a result, depending on how they are marketed and sold, PPACA-exempt arrangements could present risks for consumers, if, for example, they buy them mistakenly believing that coverage is as comprehensive as for PPACA-compliant plans. Several states have raised concerns that insurance agents and brokers (hereafter referred to as sales representatives) may try to sell PPACA-exempt arrangements to consumers regardless of their suitability for the individual--for example, to those with pre-existing conditions that would not be covered--or mischaracterize the health coverage offered because of financial incentives./4

You requested that we obtain insights on the marketing and sales practices of insurance sales representatives who sell PPACA-exempt plans. In this report, we describe the results of covert tests we conducted involving selected sales representatives (as described below), when contacted by individuals stating that they had pre-existing conditions.

In this regard, we performed a number of covert tests (i.e., undercover phone calls) from November 2019 through January 2020, posing as individuals needing to purchase health insurance to cover pre-existing conditions. Specifically, we performed 31 covert tests to selected sales representatives and stated that we had pre-existing conditions, such as diabetes or heart disease, and we requested coverage for these conditions to see if the sales representative directed us to a comprehensive PPACA-compliant plan, or a PPACA-exempt plan that does not cover what we requested. The results of our covert testing are illustrative only of the sales and related behaviors we experienced during the calls and are not generalizable to any specific insurance brokerage or agency, state, or the PPACA-exempt health insurance industry at large.

As part of these tests, we gauged whether sales representatives engaged in potentially deceptive practices, such as making false or misleading statements about coverage or omitting material information about coverage. To do this, we used the Federal Trade Commission's (FTC) definition of deceptive practices to evaluate the marketing practices used during our covert tests./5 Deceptive practices are defined in the FTC's Policy Statement on Deception as involving a material representation, omission or practice that is likely to mislead a consumer acting reasonably in the circumstances./6 For example, given the scenarios we tested, a misleading statement could include instances in which a sales representative said that a plan covered a pre-existing condition when it did not. An example of an omission could include instances in which a sales representative did not disclose that the plan offered would not cover our pre-existing condition after we expressed that we wanted this coverage, among other things.

When sales representatives indicated to us that the PPACA-exempt coverage they were selling us would cover our pre-existing condition, we purchased the product to compare its benefits as described in a plan document we obtained with the benefits advertised and described during the covert phone calls.

We made the covert phone calls to representatives in a non-generalizable selection of five states (Alabama, Florida, Kansas, Pennsylvania, and Wyoming) selected for geographic and population-size variation. Given that STLDI plans--a type of PPACA-exempt arrangement--are not available for purchase in some states due to state laws prohibiting them or simply because they are not commercially available, we selected among states that offered STLDI plans.

To select sales representatives within a selected state, we performed web searches using search terms such as "affordable health insurance," and "cheap health insurance," similar to how typical consumers likely seek out and purchase insurance, in order to create a list of entities from each state. After we created a list of potential entities, we randomly sorted the list for each state and selected different entities for 20 of 31 tests while ensuring variability across the states. For the remaining 11 of 31 tests, we attempted to contact a health insurance provider directly, as opposed to going through a third-party sales representative identified via a web search./7 To do this, we identified insurance companies to select for testing using a health insurance consumer-information website that provides a listing of companies that offer STLDI plans among our selected states./8

The 2020 Open Enrollment Period (OEP) for individual health insurance coverage sold through the federally facilitated exchange/9 ran from November 1, 2019, to December 15, 2019. We performed 16 of the 31 tests during the 2020 OEP as most individuals apply for and enroll in health insurance plans offered on the exchanges required by PPACA during this time.

Performing tests during this time helped to ensure our testing closely resembled the experience most individuals have when purchasing insurance. The remaining tests (15 of 31) were conducted outside of the OEP to assess examples of marketing practices used in both time periods. For tests conducted outside of the OEP, we explained during those phone calls that we had recently moved to a new state so that we would trigger a PPACA Special Enrollment Period, and therefore, would be eligible to purchase a PPACA-compliant plan./10

Finally, to discuss the marketing and oversight of PPACA-exempt arrangements, we met with senior officials from federal agencies, including the FTC, and Centers for Medicare & Medicaid Services (CMS)/11 within the Department of Health and Human Services, as well as the National Association of Insurance Commissioners (NAIC)./12

We conducted this performance audit from October 2019 to August 2020 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We conducted our related investigative work in accordance with investigative standards prescribed by the Council of the Inspectors General on Integrity and Efficiency.

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Agency Comments

We provided a draft of this product to FTC, HHS, and NAIC for comment. FTC, HHS, and NAIC provided technical comments that we incorporated as appropriate. HHS also provided written comments, which are attached as enclosure II.

In its comments, HHS stated that it plans to conduct a review of sales representatives who we identified as engaging in potentially deceptive marketing practices to determine whether they are registered with the PPACA federal exchange and take action as appropriate. HHS also described steps it takes to validate the state licenses of sales representatives who are registered to work with the exchange and noted that these sales representatives sign agreements that prohibit them from providing misleading or false information to consumers or to the exchange. HHS also stated that STLDI plans offer another option for consumers facing rising costs of PPACA-compliant plans and noted our finding that sales representatives we identified as engaging in potentially deceptive marketing practices did not offer or sell STLDI plans. With the scope of our review, we did not evaluate HHS's efforts to validate the selected sales representatives' licenses or assess health insurance costs and other factors that may lead individuals to select STLDI or other PPACA-exempt plans.

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The text of the GAO report is available at https://www.gao.gov/products/GAO-20-634R

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