Pulling the Plug (Again?) On Short-Term, Limited Duration Health Plans, Part I

On July 12, the Biden administration issued a proposed rule to substantially shorten the maximum length of short-term, limited duration (STLD) insurance plans. A volley of regulatory shots involving those alternatives to more regulated (and mostly taxpayer-subsidized) individual market insurance plans under the Affordable Care Act (ACA) began in 2016, with similar efforts by the Obama administration to restrict their length to only three months. However, a Trump administration rule in 2018 restored STLD plans to last as long as 364 days and potentially be renewable for up to three years.

The comment period on the latest proposed rule ended on September 11. I joined with a number of colleagues in filing comments recommending its withdrawal, or at least substantial reconsideration and revision. There are many well-reasoned arguments behind our recommendations, including some market evidence of past coverage, insurer participation, and premium effects, as well as longstanding legal limits on returning to the Biden and Obama rules. However, these arguments alone fall short in explaining fully what is really going on here, in terms of raw power dynamics and ideological compulsions.

The architects and advocates of the ACA's original plans for health insurance regulation had far more ambitious goals for a brave new world of near-universal compliance with even more sweeping uniform rules (starting with the individual insurance market). But things did not work out in practice according to that plan over more than a decade. Political accommodations and practical adjustments had to be made. A rising tide of taxpayer dollars still lifted many coverage boats. Inertia later kept them afloat. (Surviving incumbent insurers and other health-sector interests fared pretty well, too).

Nevertheless, a surviving remnant of potential ACA-compliant customers always remained outside the federal regulatory tent. This continued to stick in the craw of those who could not imagine why anyone would settle for the "junk insurance" of such STLD plans. Hence, persistent lobbying pushed to use tighter regulation to shrink this market residual even further. Well into the third year of the Biden administration, it finally culminated in the proposed rule released on July 12.

The official rationale for the latest rule is to avoid consumer confusion and, secondarily, to limit the pernicious effects of STLD insurance options on the cost and availability of ACA-approved insurance plans sold through the program's state-based Marketplace exchanges. The measurable evidence for those effects is rather slim. Even the proposed rule drafters concede that we do not know much about how large, or small, the remaining STLD insurance market is (see p. 44638 in the proposed rule). Most of this insurance probably is marketed to or through associations that are harder to monitor and measure through conventional insurance regulation. Although more enthusiastic proponents of STLD insurance once saw it as not just a bypass around ACA regulation but as a springboard toward a more robust form of renewable health-status insurance in the private individual market, that potential market evaporated in the face of more generous and comprehensive taxpayer subsidies for ACA individual plans and Medicaid coverage in recent years.

The thin and sketchy regulatory impact analysis provided for the proposed rule concedes that those expanded subsidies already resulted in such increased enrollment in the ACA exchange's individual market that any immediate effects from the new rule would be limited in 2024 and 2025. Even the tiny annual coverage increases (60,000) projected for STLD plans at the expense of ACA plans, beginning in 2026, were premised mostly on the politically unlikely expiration of those enhanced subsidies after 2025 (see footnote 261 on p. 44644). One must strain hard to find much credible evidence elsewhere for the effects of less-regulated STLD insurance in increasing ACA premiums and federal spending in later years.

Indeed, ACA Marketplace enrollment apparently reached record highs in early 2023, even though those reported figures should be placed in context with others showing a smaller total of overall individual market coverage. The enrollment patterns of recent years do not indicate that whatever remains of the STLD market is taking away customers from ACA Marketplace plans. One might wonder why the Biden administration labors to make this difficult case, even while it minimizes or ignores the plight of those individuals who would be left behind without subsidized or otherwise affordable coverage (except for STLD insurance), particularly between open enrollment periods.

The answer is that the Biden proposed rule falls well short of reasoned analysis for changing regulation because it does not want to admit its real reasons for doing so. Part II will explain the law, economics, and politics of this latest bungee jump in ACA regulation.

Learn more: Doing Better, Still Feeling Worse | Comment Letter on the Short-Term Plan Rule | Using ERISA as a Sword, Not a Shield: Part III | Using ERISA as a Transparency Sword, Not a Shield: Part II

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