The health insurance pool, that is.
The current health insurance pool has proven to be unbalanced and unmanageable. Health insurance companies are unable to recoup their losses, and consumers are seeing significant rate increases.
But the White House has released a new proposal, grabbing the net to scoop out some of the mess. It will affect short-term health insurance policies and special enrollment periods (SEP). Wednesday’s announcement may have been a surprise to some but to others, the existence of longer short-term policies and SEP misuses have destabilized Affordable Care Act (ACA) health insurance plans. Here’s a breakdown of what’s happening, why and how it will affect you.
What Sparked the Proposal?
The risk pool is not stable. First, for many health insurance companies losses are mounting fast, some in the billions of dollars. A few companies are even resorting to suing the federal government, claiming they are owed millions to help offset these losses.
In order to stay in business, health insurance companies need healthy people to even out healthcare costs. This unbalanced pool may have contributed to UnitedHealthcare’s exit from the public health insurance exchanges, along with other carriers. But the instability isn’t only affecting insurance companies. Consumers are also feeling the effect of these losses in the form of increase premiums—some rate proposals would have consumers paying 60% more.
What’s Happening with Short-term Health Insurance?
If you use a short-term health insurance plan, you have to undergo full medical underwriting. Those who qualify tend to be extremely healthy. Fewer healthy people are falling into the ACA pool because they are instead enrolling in short-term plans.
Currently, short-term health insurance plans can be purchased for one- to 12-month periods. After the initial plan expires, they can be renewed. Although they aren’t designed to replace traditional health insurance plans, the lower cost of short-term health insurance plans are attracting consumers. Some people are even using short-term plans as permanent solutions to receiving coverage despite the tax penalty. In fact, insurance companies have seen a dramatic increase in sales (some up to 150%) since 2013.
The new proposal would limit the maximum period for short-term health insurance plans to three months rather than 12 months. It would also restrict the plans from being renewed and require insurance companies to tell consumers a short-term plan will not prevent them from paying a tax penalty. These changes would help improve transparency for policy holders, including detailing policy limits and lack of essential health benefits.
What’s Happening with SEPs?
The proposal aims to clarify and eliminate SEPs. Specifically, rather than any move qualifying an individual for an SEP, only a permanent move would make one eligible. The proposal would also eliminate seven events that would no longer be deemed necessary. The Center for Medicare & Medicaid Services would eliminate the following as unqualified events:
- Consumers who paid the tax penalty for not having health insurance
- Consumers who enrolled with too much in advance payments of the premium tax credit because of a redundant or duplicate policy
- Consumers who were affected by an error in the treatment of Social Security Income for tax dependents
- Lawfully present non-citizens that were affected by a system error in determination of their advance payments of the premium tax credit
- Lawfully present non-citizens with incomes below 100% FPL who experienced certain processing delays
- Consumers who were eligible for or enrolled in COBRA and not sufficiently informed about their coverage options
- Consumers who were previously enrolled in the Pre-Existing Condition Health Insurance Program
The clarification of SEP eligibility guidelines may have roots in concerns over the use of qualifying events. In short, some people have used events like temporary stays in hospitals to enroll in a plan outside of the open enrollment period.
Under the new proposal, individuals would be required to provide certain documents proving their eligibility for an SEP and signing an agreement that their information is truthful.
What’s Next?
At the moment, health insurance companies have lost billions of dollars and consumers are seeing high rate increases. The ACA’s current instability is rocking everyone’s boat.
Stability in the market would mean that consumers aren’t forced to change plans all the time and their premiums would even out. Insurance companies would be under less financial pressure, allowing competition to flourish and reducing the rate of market exits and disruption. The new proposal is one step forward to clearing the murky waters. With a clearer, cleaner insurance pool, everyone wins.
Michael Z. Stahl is Senior Vice President and Chief Marketing Officer at HealthMarkets, one of the largest independent health insurance agencies in the United States.