Dear Health Reporters: Prep for Biden’s Proposed Rule on Short‐​Term Plans

Michael F. Cannon

The Office of Management & Budget (OMB) has announced its approval of a proposed rule on so‐​called “short‐​term limited duration insurance” health plans (STLDI). The administration could release the proposed rule at any time.

Health reporters need to keep in mind when covering Biden’s proposed STLDI rule: just about anything the administration proposes would eliminate consumer protections and throw sick people out of their health plans. If the proposed rule shortens STLDI contract terms, limits the number or duration of renewals, and/​or prohibits renewal guarantees, it will gut consumer protections and throw sick patients out of the health insurance that is protecting them and their families.

Some background. Congress exempted STLDI plans from all ObamaCare regulations. Current STLDI rules, which the Trump administration put in place in 2018, allow the initial plan contract to last 12 months and allow consumers to renew the initial contract for up to 36 months. Longer contract terms and renewals protect patients. They shield patients both from losing their coverage and from reunderwriting (read: higher premiums) after they get sick. Current STLDI rules even extend those consumer protections beyond 36 months by recognizing that federal law imposes absolutely no restrictions on insurers selling standalone “renewal guarantees” that allow sick patients to enroll in a new STLDI plan without reunderwriting after 36 months.

The U.S. Court of Appeals for the District of Columbia rejected an attempt by ObamaCare insurers to strip these consumer protections from the STLDI plans with which they compete. (A cheeky move even by DC lobbyist standards.) The court wrote that, were the government to grant the ObamaCare insurers’ request, STLDI enrollees “could be ‘subject to re‐​underwriting’ every three months, could see a ‘greatly increased’ premium, [and] could be denied a new policy ‘based on preexisting medical conditions.’” The court further held, “Nothing in [federal law] prevents insurers from renewing expired STLDI policies.”

We don’t know the content of Biden’s proposal to change current STLDI rules, but OMB writes:

This rule would propose amendments to the definition of ‘short‐​term, limited‐​duration insurance’ under section 2791(b)(5) of the Public Health Service Act. The rule’s proposals would be designed to ensure this type of coverage does not undermine the Affordable Care Act, including its protections for people with pre‐​existing conditions, the Health Insurance Exchanges, or the individual, small group, or large group markets for health insurance in the United States.

That is the ideologically charged, smokescreen rhetoric that ObamaCare supporters use when they want to protect ObamaCare insurers from competition by stripping consumer protections from patients in STLDI plans.

First of all, ObamaCare is the junk coverage here. Economic research shows ObamaCare’s preexisting‐​conditions “protections” have eroded coverage at a cost to sick patients of thousands of dollars per year, and even “currently healthy consumers cannot be adequately insured.” ObamaCare has caused individual‐​market provider networks to narrow significantly since 2013, when network breadth reflected consumer preferences. ObamaCare premiums are skyrocketing to the point where Congress is offering subsidies to households earning $600,000 per year. STLDI plans offer more flexibility and choice, protect conscience rights, offer broader provider networks, cost up to 70 percent less than ObamaCare plans, and can even reduce ObamaCare premiums by improving ObamaCare’s risk pools. ObamaCare supporters criticize STLDI for charging actuarially fair premiums. But federal law allows STLDI plans to do so. Moreover, ObamaCare’s risk‐​adjustment program literally tries to emulate actuarially fair premiums because actuarially fair premiums minimize insurers’ incentives to avoid or shortchange the sick. If actuarially fair premiums are as bad as ObamaCare supporters say, why are ObamaCare supporters trying to emulate them?

The important thing for health reporters covering the proposed rule to know, however, is that just about any way Biden proposes to limit STLDI plans would in fact strip actual consumer protections from actual sick patients. That includes:

Shortening STLDI contract terms
Limiting the number or duration of renewals
Prohibiting renewal guarantees

Any one of these steps would cause sick patients to lose their coverage and likely leave them unable to purchase an ObamaCare plan. (STLDI plan termination does not trigger an ObamaCare special enrollment period.) We know what happens when restrictions on STLDI plans eliminates these consumer protections, because it happened to Jeanne Balvin. It isn’t pretty.

If Biden tries to eliminate standalone renewal guarantees, he may trigger a lawsuit. The Public Health Service Act grants the federal government no authority at all to regulate those novel insurance products.

Additional resources:

Comments by Michael F. Cannon on Short‐​Term, Limited Duration Insurance — CMS-9924‑P (April 2018; cited several times in the final rule)
Michael F. Cannon, “A Chance to Overcome ObamaCare: HHS may soon restore consumer protections for short‐​term plans,” Wall Street Journal, May 28, 2018
Michael F. Cannon, Short‐​Term Plans Would Increase Coverage, Protect Conscience Rights & Improve ObamaCare Risk Pools, Cato at Liberty blog, July 2018 (cited in the final rule)
Michael F. Cannon, “Obamacare is now optional,” Washington Examiner, August 01, 2018
Michael F. Cannon, “Californians deserve access to short‐​term health insurance,” San Gabriel Valley Tribune, September 2018
Michael F. Cannon, “First, Do No Harm (to ObamaCare): Senate Democrats vote to take away insurance from people with pre‐​existing conditions,” Wall Street Journal, October 11, 2018
Michael F. Cannon, “Callous Ideologues: Illinois Legislators Pass Law to Punish Patients with Preexisting Conditions,” Cato at Liberty blog, November 2018
Amicus brief by Michael F. Cannon et al., in Association for Community Affiliated Plans v. U.S. Dept. of the Treasury, January 2020
Michael F. Cannon, “In a Win for Consumers, a Court Ruling Affirms the Legality of Short‐​Term Health Insurance Plans,” The Hill, July 2020
Michael F. Cannon, “Obamacare Makes Discrimination against those with Preexisting Conditions Even Worse,” Washington Examiner, December 7, 2020