Pushing the Needle Forward on Health Insurance Protections and Fighting Junk Plans

The Biden administration recently issued a proposed new rule to restrict the sale of “junk insurance” plans — including short-term limited duration insurance and fixed indemnity policies — which many people have mistaken for comprehensive health coverage. The administration is also signaling its intent in the future to protect coverage for small businesses, and prevent them from enrolling in “level-funded” arrangements that may not actually provide financial security.

Strong regulations the administration is proposing in the junk insurance market would do the following:

• Make “short-term limited duration insurance” truly short-term: Short-term policies don’t have to cover essential benefits or cover pre-existing conditions. They omit coverage for vital services like mental health, substance use disorders, tonsillectomies, pregnancy, and many prescription drugs. A Trump administration 2018 rule allowed short term plans to be sold and then renewed to last for up to three years. The proposed rule would reverse that and instead ensure that short-term policies are truly short term, lasting no more than four months to cover people through an unavoidable coverage gap. It would also improve notices so that people considering these plans would see where to buy more comprehensive coverage.
• Protect people buying “fixed indemnity policies,” and stop confusing those policies with health insurance: Fixed indemnity policies pay cash to people who have a health event – for example, they might pay a fixed dollar amount a day for a hospitalization or during an illness. Such policies may help people replace income they have lost during an illness, for example, but they are not designed to pay the bulk of their health care expenses. They are not regulated as health insurance and should not be confused with health plans that pay for medical services. The administration proposes conditions that must be met for fixed indemnity policies to be exempted from the rules governing comprehensive health insurance policies.
• Take comment on possible future rules about “level-funded” arrangements: These are arrangements in which an employer (often a small employer) self-insures and buys a stop-loss policy to cover claims if they exceed a certain amount. Problems with these arrangements include the lack of regulatory oversight, and the fact that they don’t cover all of the health benefits required for small businesses under the Affordable Care Act: employees could be left on the hook for a great deal of money. Future regulatory action on level-funded arrangements would protect the financial interests of small businesses owners and their families.

While the administration is taking positive steps to protect families from junk insurance plans, the House of Representatives is going in a different direction. Several House health insurance proposals would particularly harm people who work for small businesses, work part-time, or are self-employed. If enacted, these policies would leave many families with a false sense of coverage. We’ve come too far to let these proposals undermine protections that were hard-won in the Affordable Care Act.

The new Congressional threats to our health coverage come in the form of three bills: HR 2868, HR 2813, and HR 824. Two of these bills (HR 2813 & HR 2868) have now passed the House of Representatives as part of the CHOICE Arrangement Act, HR 3799. Supporters of these bills claim they will reduce the cost of coverage and provide more health care options for small businesses and working-class individuals yet they create only a façade of coverage and undermine the very interests they are claiming to protect. These bills, under the guise of “increasing the affordability of healthcare,” have attracted support from both the Democratic and Republican sides of the aisle. Far from increasing health care affordability, enacting these bills would not only increase the prevalence of substandard plans that do not cover the basics of health care (e.g., emergency room visits, hospitalizations, women’s health services, prescription drug costs, etc.), but ultimately would increase the costs for families who need these services. Above all, these bills do nothing to address the root cause of high healthcare costs they claim to be targeting and instead are making comprehensive insurance less affordable for families.

Simply put, this proposed legislation is a red herring, detracting from the greater systemic problem everyday people face.

Below are descriptions of the three House bills and how they would hurt individuals and families:

1. HR 2868 (Title I of the CHOICE Arrangement Act) would proliferate low-value association health plans (AHPs) by allowing small employers to group together, regardless if they’re from the same industry or trade, and form their own health plans. These plans might initially offer low, attractive premiums but over time the plans would raise rates and/or not be able to pay claims as workers got older or sicker. AHPs have a history of fraud and mismanagement resulting in an inability to actually pay workers’ claims. State insurance departments have long been concerned that they cannot adequately oversee AHPs finances, and will not be able to protect workers in small companies that buy these plans if AHPs expand. These plans also would not be required to meet critical consumer protections such as the requirement to cover essential health benefits. The bill is also poorly worded: one section says these plans could not discriminate or deny coverage based on pre-existing conditions, while another says the plans can charge higher premiums to a small employer based on the health risks of the employees and their families. Allowing small employers and self-employed parties to form their own AHPs would mean even more people would end up in risky, substandard plans, and employers who continue to offer high quality plans would see their costs go up.
2. HR 2813 (Title III of the CHOICE Arrangement Act) would allow more small employers to avoid consumer protections by making level-funded plans (that is self-insured plans with “stop loss” policies) an easy substitute for better health insurance. This bill would make stop loss policies (the policies that cap a self-insured employer’s out-of-pocket costs and then cover expenses beyond that threshold) more available to employers by limiting state regulation. This bill would allow employers seeking to cut costs to use “stop loss” policies to become “self-insured” in lieu of offering comprehensive health insurance. Employers then would not have to offer coverage that meets minimum essential health benefit requirements and other protections required by state regulations. As a result, many employers—particularly those with healthy workers– might choose to offer low quality insurance and pay less for the coverage of their employees, while employers who offer high quality coverage, would end up in a smaller pool of employers with older, sicker employees—and would end up paying more for the coverage people need.
3. HR 824, as reported by the House Committee on Education and Workforce, promotes stand-alone telehealth plans in lieu of comprehensive coverage by allowing employers and insurers to offer plans that only cover telehealth services. Individuals in these telehealth-only plans would receive coverage to speak to some providers, but the patient could be on the hook for 100 percent of the costs of any additional care—including things as basic as physical examinations, prescription drugs, laboratory work, treatment for chronic conditions, or surgical procedures, and more. Furthermore, these plans would be exempt from ACA and Mental Health Parity protections.: For instance, they would not have to cover people with pre-existing conditions and could decide to cover little or no mental health care. Part time workers would be put particularly at risk as employers may offer these telehealth plans as a “benefit”, creating the illusion of coverage for individuals who may otherwise seek more comprehensive options. Large employers were allowed to offer telehealth-only plans during the pandemic as a temporary emergency measure, but these plans cannot replace comprehensive health coverage that families and individuals in America need and deserve.

(To learn more about these bills, see Families USA’s statement for the record from the Education and Workforce committee markup in June 2023.)

Health care is not a luxury. It is a necessity. Having meaningful health care coverage requires both strong laws and strong regulations. As advocates, now is the time to set the record straight and focus on solutions that truly make health care more affordable for our nation’s families.

Comment on the Administration’s proposed rules are due September 11, 2023.

For questions, please contact Cheryl Fish-Parcham at cparcham@familiesusa.org