No-go for Idaho: Back to the drawing board on state-based health plans

Mar 9 2018

That's what federal officials told Idaho regulators and the state's governor late Thursday regarding the state's plan to allow insurers to sell health plans that fall short of the Affordable Care Act's requirements.

But the letter from the Trump administration letter did offer an alternative: Tweak your plan a bit to make them qualify as "short-term" policies. These alternatives — which are exempted from ACA rules, including those barring insurers from rejecting people with preexisting medical conditions — offer coverage for a limited time.

"On the one hand, they're saying they're going to enforce the ACA," said Sarah Lueck, a senior policy analyst at the Center on Budget and Policy Priorities. But, the Health and Human Services Department also seems to say, "if you want to roll back protections for people with preexisting conditions, we have some ideas for you," she added. "And that concerns me."

Idaho's approach, announced in January, would have allowed insurers to offer "state-based" insurance plans that did not include some of the law's consumer protections. A few weeks later, Idaho Blue Cross jumped in with five "Freedom Blue" state-based plans it hoped to sell.

Regulators in other states were watching the Idaho situation. Its move was viewed either as a brazen effort to flout federal law or an innovative attempt to stabilize the market. Regardless, it meant the Trump administration had to take position: Enforce the ACA or look away.

Here are four key takeaways from the decision and how it may play elsewhere.

1. States and insurance carriers can't ignore federal law.

Although the letter commended Idaho's effort to "address the damage" caused by the ACA, it said the proposed state-based plans would violate at least eight of its provisions, including its ban on setting annual or lifetime caps, charging sick people more than those considered healthy or excluding coverage for preexisting conditions.

Thursday's letter noted that if such plans were sold in Idaho, insurance carriers might face significant financial penalties. Experts said they would be surprised if insurers wanted to take that risk.

"It's one thing for the state to take on CMS, but quite another for carriers," said Jan Dubauskas, general counsel for the IHC Group, which sells short-term health insurance nationally. "When I heard that, I thought, 'This is the end for state-based plans.’"

By midafternoon Friday, Blue Cross of Idaho had not issued any comment.

But Idaho Gov. Butch Otter, a Republican, was upbeat, saying the letter from Centers for Medicare & Medicaid Services Administrator Seema Verma "was not a rejection of our approach" but "an invitation … to continue discussing …  what can and cannot be included in state-based plans."

The timetable going forward is not immediately clear, although both federal regulators and state officials say they are willing to talk about alternatives. Getting new short-term plans on the market would also require insurers to consider their options, modify the plans and come up with new premium rates.

2. Short-term plans get another boost.

Dubauskas and others said the Idaho decision could increase interest in short-term plans.

Such policies have been sold for years, meant as a stopgap for people between jobs. They're less expensive than ACA plans, mainly because they can reject people with health conditions or exclude coverage for such conditions and have other limitations. Most of the plans don't cover mental health and substance abuse treatment, few cover maternity care, and some don't include prescription drug coverage. They generally can't be renewed, meaning consumers must reapply and answer medical questions each time their policies expire.

The Obama administration, fearing that short-term plans would suck relatively healthy people out of the ACA market, limited them to 90-day terms. The Trump administration, however, has proposed allowing short-term plans to last for up to a year. These final rules aren't expected for at least another two months.

Ironically, Idaho Insurance Director Dean Cameron had in January promoted the more robust "state-based" plans — like those the Blues insurer wanted to sell — as an alternative to short-term coverage.

After getting the CMS letter, he told the Idaho Statesman newspaper that short-term plans might be easier for the Trump administration to handle legally but could cause consumers more problems than what Idaho had proposed.

Critics fear that consumers will buy such plans without understanding their limitations.

"They might think it's health insurance like they're used to, but it's really not, it's really very bare-bones," said Lueck.

3. State reactions will vary widely, creating different rules around the country.

Even if the Trump administration proposal to extend short-term coverage to a full year is finalized, states can set stricter rules.

A handful of states already do.

New York and New Jersey require many of the same rules as the ACA, but insurers wont' sell short-term plans there.

Four states — Arizona, Michigan, Minnesota and Oregon — limit the length of the plans to 185 days, according to a survey by the Commonwealth Fund and researchers at Georgetown University.

"A small group of largely blue states have some regulation [of short-term plans], but not very many," said Sabrina Corlette, a research professor at Georgetown University’s Health Policy Institute. "It's possible that if this rule is finalized we will see more states start to step up and regulate short-term markets."

Conversely, lawmakers in other states may promote short-term coverage as a lower-cost alternative to the ACA, although people with preexisting conditions may not be able to buy such plans.

"Politically, short-term plans have some appeal because lawmakers can say now there's a cheaper option out there," Corlette noted.

4. The increased emphasis on short-term plans could increase premiums. 

Actuaries fear that short-term plans — or state-based plans like those rejected in Idaho — would help drive up costs for people who remain in more comprehensive ACA coverage.

That's because younger and healthier people might be tempted to drop their ACA coverage, leaving a remaining pool of those who are older, sicker and costlier. That, in turn, drives up premiums — affecting millions of Americans who don't receive subsidies and already struggle to pay.

But just how many people will jump to new, short-term coverage?

The Trump administration has estimated that about 100,000 to 200,000 people with existing ACA coverage would make the shift, while other experts suggest higher numbers.

Christopher Condeluci, a benefits attorney, said it's unclear which estimates are correct.

The real issue to keep in mind, he said, is that an increasing number of people who don't get subsidies are already choosing to either forgo coverage or pick an alternative, such as short-term plans.

"People are voting with their feet," he said. "That cannot be overlooked."