HHS Can and Should Allow Short‐​Term Plans to Protect the Sick from Medical Underwriting

If you aren't paying attention to the debate over short-term health insurance plans, you should. It's a mixed-up, muddled-up, shook-up world where Republicans are pushing to expand consumer protections, Democrats are fighting to block them, and the public debate has it exactly backward.

In this morning's Wall Street Journal, I explain:

ObamaCare premiums keep skyrocketing. Rate hikes as high as 91% will hit many consumers just before Election Day. Maryland insurance commissioner Al Redmer warns ObamaCare is in “a death spiral.”

So-called short-term health plans, exempt from ObamaCare’s extensive regulations, are providing relief. Such plans often cost 70% less, offer a broader choice of providers, and free consumers to enroll anytime and purchase only the coverage they need.

But there’s a downside. When enrollees fall ill, either their premiums spike or they lose coverage, leaving an expensive ObamaCare plan as the only alternative. Markets solved that problem decades ago via “renewal guarantees,” which allow enrollees who get sick to keep paying the same premiums as healthy enrollees.

For more than two decades, Congress has consistently tried to prevent sick patients from being to medical underwriting. Yet in 2016, the Obama administration did exactly the opposite. It issued a regulation that exposed enrollees in short-term plans to medical underwriting after they got sick:

In 2016, in an effort to force people into ObamaCare plans, the Obama HHS shortened the maximum duration for short-term plans from a year to three months and banned renewal guarantees. The National Association of Insurance Commissioners complained this reduced consumer protections and exposed the sick to greater risk, including the risk of having no coverage.

The Trump administration has proposed reversing the Obama rule and allowing short-term plans to offer both 12-month terms and renewal guarantees that allow enrollees who get sick to keep paying the same premiums as healthy enrollees (i.e., no more underwriting). Both of these proposals are consumer protections that would protect the sick from medical underwriting and in some cases protect the sick from losing coverage entirely. 

Believe it or not, Democrats are opposing these consumer protections! I am tempted to say their opposition is inexplicable, but it's all-too explicable. Democrats want to prevent short-term plans from offering these consumer protections because they fear consumers will find short-term plans more attractive than ObamaCare. Democrats are literally trying to stop Republicans from expanding consumer protections because they would rather protect ObamaCare. 

Democrats want to make short-term plans as unattractive as possible because they worry that otherwise, ObamaCare's risk pools will suffer as healthy people leave ObamaCare plans for short-term plans. That was the purpose of limiting short-term plans to just three months. But back in 2016, the National Association of Insurance Commissioners explained the Obama rule's attempt to cripple short-term plans won't help ObamaCare:

If the concern is that healthy individuals will stay out of the general pool by buying short-term, limited duration coverage there is nothing in this proposal that would stop that. If consumers are healthy they can continue buying a new policy every three months. Only those who become unhealthy will be unable to afford care, and that is not good for the risk pools in the long run.

Indeed, Democrats' opposition to allowing short-term plans to offer renewal guarantees betrays a fundamental misunderstanding of how renewal guarantees work. As I explain in my Wall Street Journal oped:

Prohibiting renewal guarantees hurts ObamaCare’s risk pools by forcing enrollees who develop expensive illnesses to switch to ObamaCare plans. Allowing renewal guarantees would improve ObamaCare’s risk pools by giving expensive patients an affordable, secure alternative—just as renewal guarantees kept expensive patients out of state-run high-risk pools before ObamaCare. 

How many expensive patients could renewal guarantees keep out of ObamaCare's risk pools? More than you might think. Allowing short-term plans to offer renewal guarantees would also free insurers to sell renewal guarantees as a stand-alone product--at a cost roughly 90 percent below that of ObamaCare plans. Insurers could market these products not only to the 50 million or so non-elderly people without employer-sponsored insurance. They could also offer them, as they had just begun to do in 2009, to the 175 million Americans with employer-sponsored coverage. Renewal guarantees could thus improve the outlook of ObamaCare's risk pools by keeping potentially millions of expensive patients out of ObamaCare plans.

Presented with the opportunity to expand consumer protections in a manner that could even save taxpayers money, many administration wouldn't bother with annoying questions about whether they actually have the legal authority to do it. Fortunately, HHS has such authority, as I explain at length in comments I filed on the Trump administration's proposed rule on short-term plans. Long story short, HHS can allow renewal guarantees in short-term plans because federal law grants the agency no authority to regulate renewal guarantees, much less to ban them. 

If HHS acts swiftly to allow short-term plans to offer renewal guarantees, it can make affordable, secure health insurance options available right about when ObamaCare's next round of premium hikes will hit consumers.