July 21, 2019 5:51PM

A Victory for Consumer Protections and Health Insurance Freedom

Last year, the Departments of Treasury, Labor, and Health and Human Services worked within federal law to expand consumer protections and restore Americans' freedom to choose the health insurance that meets their needs. On Friday, a federal court rebuffed an effort to block those protections and force Americans into ObamaCare. First, a little background.

In 1996, Congress exempted "short-term limited duration insurance" from federal health insurance regulations. Congress never defined what "short-term" or "limited duration" meant. So in 1997, the Clinton administration gave meaning to those terms by decreeing that health insurance plans qualify for the exemption so long as they have a contract term, and a total duration, that last less than 12 months. The Bush administration finalized this definition in 2004. 

When Congress enacted the ironically named Affordable Care Act (ACA) in 2010, it tied that law's copious regulation of the individual health insurance market to the same definition of health insurance Congress created in 1996. That means -- you guessed it -- "short-term, limited duration insurance" is also exempt from the ACA's costly regulations.

When the ACA began to make the cost of health insurance soar in 2014, the Obama admininstration noticed that consumers were taking refuge in the short-term market, where premiums could be 50-70 percent lower than ACA premiums. So in 2016, the Obama administration arbitrarily shortened the maximum allowable contract term of such plans to 3 months.

This had the effect of stripping protections from consumers in the short-term market. Under the 12-month rule, consumers who bought a short-term plan in January then got a cancer diagnosis in February could have continuous coverage until they enrolled in an ObamaCare plan the following January. But under the 3-month rule, those consumers would lose their coverage in April and face 9 months of medical bills without any health insurance coverage at all, because ObamaCare deliberately outlaws the sale of health insurance to such consumers until January of the following year. (Rationing, anyone?) Real people got hurt by the Obama administration's stripping consumer protections from short-term plans. Importantly, leaving people who didn't buy ObamaCare plans with less protection was the purpose of the Obama rule, which sought to force people into ObamaCare plans by making short-term plans unappealing.

In 2018, the Departments of Treasury, Labor, and Health and Human Services revisited and revised the definitions of "short-term" and "limited duration" to give these plans the maximum flexibility allowed by law. 

  • First, the departments reverted to the pre-ACA definition of "short-term" -- i.e., less than 12 months, rather than 3 months -- which Congresses and presidents of both political parties had accepted for 20 years, and which the Congress that enacted the ACA saw fit to leave undisturbed.
  • Second, they said that while the initial term of such plans could not exceed 12 months, insurers and enrollees could renew these plans up to two times, such that the total duration of such plans would match the 36-month maximum duration of COBRA coverage. In other words, for the first time, the departments gave meaning to the phrase "limited duration," rather than treat it as surplusage, as the Clinton, Bush, and Obama administrations had.
  • Third, the departments clarified that not only can consumers purchase as many consecutive 36-month short-term plans as they wish.
  • Fourth, the departments clarified that under federal law, issuers are free to combine short-term plans with a guarantee that the issuer will continue to sell the enrollee as many consecutive plans as the enrollee wishes, without new underwriting. Under such arrangements, short-term plan enrollees who develop cancer could keep their coverage while still paying healthy-person premiums.

One effect of this rule is that it will expand consumer protections in the short-term market. Another is that it can reduce ACA premiums by keeping sick people out of ACA risk pools.

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In Association of Community Affiliated Plans v. Treasury, interest groups that participate in the ACA sued to block the rule. But federal district court judge Richard J. Leon would have none of it. In a tightly reasoned opinion released on Friday, he explained the departments were well within their authority to revert to the prior definition of "short-term" and to give meaning to the separate term "limited duration." Judge Leon stressed that, contrary to the plaintiffs' claims, the Congress that enacted the ACA seemed to have no problem whatsoever with the 12-month maximum term. He further noted that the plaintiffs' insistence on a 3-month maximum term would actually reduce the very protections in the 1996 law that Congress was trying to promote.

The ruling should boost the market for renewable term health insurance by giving such plans greater regulatory certainty. Even so, the plaintiffs say they will appeal the ruling. It's hard to see how they could win, but crazier things have happened when ObamaCare comes before the courts.

Congress should moot that appeal by adopting the departments' final rule by statute. Doing so would give consumers a permanent, free-market alternative that would compete with ObamaCare on a level playing field -- something advocates of a "public option" say they want -- and could even reduce ObamaCare premiums.