‘Junk’ health insurance becomes latest target for White House efforts on patient protection

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“Junk insurance” is the latest target for federal health care regulators who say they want to protect consumers from deceptive policies and unexpected medical debt.

President Joe Biden and federal agencies hope to close legal loopholes relating to short-term, limited-duration insurance (STLDI).

That form of insurance “is designed to fill temporary gaps in coverage when an individual is transitioning from one source of coverage to another,” according to the U.S. Centers for Medicare & Medicaid Services (CMS). However, legally it falls outside the federal Public Health Service Act (PHSA), which eliminates consumer protections and does not cover requirements for comprehensive coverage required by the federal Affordable Care Act (ACA).

“Folks, that’s not health insurance. That’s a scam,” the president said in remarks on July 7. Biden announced the plan with CMS, and the U.S. Departments of Health and Human Services (HHS), Labor, and Treasury, which are seeking public comments on new rules for STLDI. Those departments have published draft rules in the Federal Register explaining the changes.

Short-term coverage

STLDI is a form of health insurance “primarily designed to fill temporary gaps in coverage that may occur” when patients are transitioning from one health insurance plan to another, such as when they change jobs, according to the federal agencies.

The PHSA does not legally define “short-term, limited-duration insurance.” Because it is not individual health insurance coverage, policies are not subject to consumer protections and requirements, including:

• Prohibition of exclusions for pre-existing conditions
• Discrimination based on health status
• Prohibition on lifetime and annual dollar limits on essential health benefits

“Thus, individuals who enroll in STLDI are not guaranteed these key consumer protections under federal law,” according to the federal agencies. “This feature of STLDI is especially problematic when it is not readily apparent to consumers deciding whether to purchase STLDI or comprehensive individual health insurance coverage.”

STLDI policies can last up to 36 months, including renewals and extensions. The new rule would shorten that to four months. It also would eliminate “stacking” policies by which issuers sell multiple consecutive STLDI policies to the same patient to “evade duration limits.”

Patient numbers

The federal agencies cited estimates that 1.5 million to 1.9 million people could be enrolled in STLDI. A study by the House of Representatives’ Energy & Commerce Committee estimated it could be up to 3 million consumers as of 2019.

Rep. Frank Pallone, D-New Jersey, the ranking member of that committee, blasted the administration of President Donald J. Trump for extending the time limits for STLDI. The former president’s rule also allowed plans to be sold alongside insurance that meets requirements of the federal Affordable Care Act.

“The Trump Administration purposefully deregulated these junk plans and allowed them to rip off consumers while generating enormous profits for health insurance companies,” Pallone said in a news release. “It was a clear effort to undermine the Affordable Care Act and the historic progress we’ve made in expanding access to high-quality, affordable health care.”

Fixed indemnity coverage

The new rules also would make it easier for patients to distinguish between comprehensive health insurance and fixed indemnity excepted benefits coverage. The fixed indemnity coverage pays flat amounts of cash to patients, to serve as income replacement for a health-related event, such as hospitalization or illness, according to the federal agencies.

“This means that plans would need to make clear that people signing up for these plans would get a defined benefit, like $100 per day of illness, instead of thinking that they have comprehensive insurance,” according to the White House.

No surprises

The president also announced plans to crack down on abuse of the “in-network” designation that can lead to greater costs for patients. Health care services must be out-of-network and subject to the federal No Surprises Act that prohibits unexpected costs due to insurance coverage, or lack of it; or in-network and governed by consumer protections rules of the Affordable Care Act.

Facility fees

Health care providers also must disclose information about facility fees charged for care outside hospitals. The White House announcement specifically mentioned a doctor’s office in its example of fees that “are often a surprise for consumers.”

Medical debt

The U.S. Consumer Financial Protection Bureau, with HHS and Treasury, is seeking information about a growing practice of using medical credit cards and loans to pay for health care. Those financial products may have teaser rates or deferred interest that actually leads to greater costs to patients, even when low-cost or no-cost alternatives may be available, according to the White House.

Those credit cards and loans “may complicate insurance coverage and availability of financial assistance,” and be confusing for patients, the president’s announcement said.