In October 2018, Ashley Lawley saw a chiropractor in her home state of Alabama. During that visit, the chiropractor examined a suspicious lump on her neck and advised her to consult a surgeon about having it removed.
But she needed to make sure her insurance covered her. She called a health insurance broker, one she had previously spoken with on the phone. The broker — given the alias “Justin” in a class-action lawsuit this year — told her she’d need to purchase a new major medical plan. He allegedly assured her that her lump would not be considered a preexisting condition and that any procedure would be covered.
She bought the plan, saw a doctor, and scheduled her surgery, but not before confirming again with her insurance agent that she would only need to pay $500 for the procedure. The lump was removed, and Lawley paid her copay.
Then the bills started coming. She received a form from her insurer telling her that no benefits would be paid. It was only then she learned she had been sold a short-term health insurance plan, not the major medical insurance that she believed it to be. She faced $20,000 in unpaid medical bills.
Lawley’s story isn’t unique. In a lawsuit filed on behalf of Lawley and other patients in May, her insurer and its affiliates were accused of selling policies that “left patients with little or no insurance for comprehensive care, excluding coverage for preexisting conditions and prescription drugs and imposing very low dollar limits on other services.”
These policies were the kind of skimpy, low-grade plans that Obamacare had sought to marginalize, if not outright eliminate. And for a time, the law did just that.
Then Donald Trump became president.
Trump entered the White House promising to repeal and replace the Affordable Care Act, the landmark health care reform bill that became law in 2010. He spent most of his first year in office trying to push various repeal plans through Congress. Those attempts largely failed, except for the repeal of the individual mandate that was included in the tax legislation Congress passed in December 2017.
Then in August 2018, the Trump administration issued new regulations that would make short-term plans and other similar products more accessible and superficially appealing. Such plans don’t have to cover preexisting conditions, and they don’t have to provide comprehensive financial protection from major medical bills. People being sold these plans are often told they are not only cheaper than Obamacare-compliant coverage but will also provide the same level of financial benefits.
Such noncompliant plans still existed under Obamacare. But the Obama administration had promulgated regulations that restricted such insurance to cover people for just three months. The idea was to push people off those skimpy plans and prompt them to buy (thanks to the individual mandate) the new comprehensive coverage available on the law’s marketplaces.
The Trump administration rolled back those regulations. Combined with the repeal of the individual mandate, it’s a significant change, opening the door for insurance brokers to push plans — even to the point of misleading consumers — that aren’t covered by Obamacare’s protections.
Amid a raging pandemic and skyrocketing unemployment, those subpar plans are making a comeback. The US uninsured rate has begun ticking up again recently, and it’s poised to soar this year. As millions of Americans cope with the coronavirus crisis and lose their jobs and employer-sponsored health insurance, experts expect that many may undertake the same journey that Lawley did — and end up victims of misleading marketing, weak health insurance, and the Trump administration’s deregulatory agenda.
The Trump administration’s discreet Obamacare repeal agenda
The ACA was supposed to be a step, the most significant in a generation, toward a system in which Americans would not be left on the hook for tens of thousands of dollars in medical bills. It created, for the first time, a federal standard for what constituted major medical insurance. The law sought to make preexisting conditions a relic, requiring health insurers to cover everybody at the same price and to provide a comprehensive set of benefits.
To help achieve its goal of near-universal coverage, it created a single, well-regulated market for individuals to buy health insurance if they don’t get it through their work. (It also expanded Medicaid with the goal of covering low-income people with government insurance.) The law contained a mandate that every person purchase ACA-compliant insurance or pay a penalty, and provided tax subsidies to make health insurance more affordable.
But Obama health officials did not believe they had the authority to ban skimpy, short-term plans. Instead, the Obama administration released regulations that prohibited noncompliant plans from being issued for longer than three months. The goal was to whittle down the non-Obamacare market as much as possible and divert people into the new insurance exchanges where ACA-compliant plans were being sold.
The way insurance works is people pay money to their health plan, and the health plan pays out from this pool of money when people file claims for their medical care. But for this structure to work, you need a mix of healthy people (who pay in more than they take out) and sick people (who receive more money than they pay in).
“Every part of the market that could cherry-pick people away from the single risk pool was damaging the underlying project of the ACA,” says Christen Linke Young, who worked on health reform in the Obama administration and is now with the Brookings Institution think tank. The ACA, through its regulations and subsidies, sought to drive young, healthy people away from cheap, subpar plans into the ACA-compliant market.
But Trump’s election signaled a new course for health care in the US. First, his administration supported congressional efforts to repeal the ACA and undo many of its preexisting condition protections. It nearly succeeded, before the repeal crusade was dramatically halted by Sen. John McCain’s (R-AZ) thumbs-down on the Senate floor, joined by Sens. Susan Collins (R-ME) and Lisa Murkowski (R-AK).
Republicans did, however, succeed in repealing a major plank of the ACA: the individual mandate. Passed as part of the 2017 GOP tax law, the repeal of the mandate would later have important implications for the short-term health insurance market.
Federal health officials then turned to the administrative steps that they could take to chip away at Obama’s reforms.
The most significant regulatory action they took was the expansion of short-term limited-duration insurance plans that the Obama administration had sidelined. The Trump administration declared in an August 2018 rule that they could last for up to 364 days, instead of just 90 days — and they could be renewed to last as long as three years. Sales could begin that October, unless a state said otherwise.
The Trump regulations created, in effect, a parallel health insurance market not subject to the same rules on preexisting conditions or essential health benefits as the ACA markets. And because Republicans repealed Obamacare’s individual mandate, there was no longer any financial penalty to discourage people from fleeing the ACA plans for these cheaper and skimpier plans if they wanted to. A new report from the House Energy and Commerce Committee found that enrollment in short-term plans offered by nine major carriers increased by 600,000 people in 2019, up to 3 million during the first full year in which the mandate penalty was repealed and the expanded short-term plans permitted under the Trump administration’s regulations.
“You have unregulated products competing much more directly with the regulated individual market,” Linke Young says.
But the administration went further. Trump officials issued rules to ease the creation of association health plans, another kind of insurance product not subject to the law’s rules about preexisting conditions. And Trump’s Justice Department has asked the Supreme Court to overturn the ACA in its entirety, which would invalidate the existing regulations protecting people with preexisting conditions and likely lead to millions of Americans losing health coverage.
Trump’s health department also cut funding for Obamacare’s advertising and for navigator programs that helped people sign up for ACA coverage. And enrollment through HealthCare.gov, the federal website that serves customers in most states, has fallen by more than 1 million since 2016. Officials permitted state Medicaid programs, for the first time, to establish work requirements that largely targeted the Medicaid expansion population who received coverage through the 2010 health care law. In Arkansas, the first state to implement such a program, more than 18,000 people had lost Medicaid coverage before federal courts put work requirements on hold nationwide.
Trump officials defended its deregulation of the short-term market by saying they wanted to make cheaper insurance options available to people, particularly those who make too much money to qualify for the ACA’s premium subsidies. They also said they wanted to encourage people on Medicaid to seek out work. But in both cases, in deregulating health insurance and creating new administrative burdens for Medicaid coverage, experts and patient advocates warned that the most likely consequence would be a weakening of consumer protections and the social safety net for low-income Americans.
Combined, these moves add up to a deregulatory assault on Obamacare that Republicans couldn’t accomplish via legislation. The short-term insurance rule, in particular, cut at the heart of the Obamacare project. Whereas the health care law sought to end coverage decisions based on preexisting conditions, the Trump regulations invited health insurers to start taking advantage of them again, an easy way for companies to guard against expensive medical claims and pad their bottom lines.
The health insurance industry was in fact generally skeptical of these rule changes, given the investment they had made in the ACA markets. But a few thought the new regulations could be a good business opportunity for them.
Insurance brokers are in the business of helping people sign up for health coverage. They are supposed to inform people of their options: what a plan will cover, what it won’t, and how much it will cost. As compensation, they typically get a commission — a slice of whatever an insurer’s new customer pays for their new policy.
But for Obamacare plans, brokers have seen their commissions decline, as Georgetown University professor Kevin Lucia and his colleagues wrote in a 2018 report for the Urban Institute. New enrollment assistance programs were set up under the law to help people navigate the law’s marketplaces, drawing away some of brokers’ potential clients. And insurers are limited by the ACA in how much they could spend on items other than medical claims, like broker commissions.
The short-term insurance market, by contrast, has been a cash cow. The House Democrats’ investigation found that, on average, brokers receive a 23 percent commission for short-term plans sold by the major carriers, whereas the average commission for an Obamacare plan in 2018 was 2 percent.
These financial incentives can push brokers to stretch the truth when they are pitching potential customers. State insurance regulators say they’ve seen training materials that insurers provide to brokers that urge them to regurgitate certain talking points and gloss over some of the downsides of short-term plans.
Claims of misleading marketing are detailed in the Alabama lawsuit against Health Insurance Innovations (HII) — now known as Benefytt Technologies after a recent name change — and various affiliates. The suit states: “Sales agents marketed HII products as comparable coverage at lower prices, leading consumers to believe they were receiving comprehensive health insurance. What consumers received, however, were limited benefit non-ACA compliant indemnity insurance, discount memberships and accidental health insurance.”
The defendants in the lawsuit have not yet filed a response and did not respond to Vox’s request for comment.
Customers were allegedly told to ignore any warnings that these products wouldn’t cover preexisting conditions. They were also discouraged from asking questions, according to the lawsuit, being told that they would have to start over the application process if they did; the call recording also allegedly shut off when a customer asked a question to avoid creating any evidence of misrepresentations. The lawsuit claims shoppers were promised they would have to pay little out of pocket, preexisting conditions would be covered, and they could see any doctor they wanted.
None of those claims and promises were true.
Secret-shopper research undertaken by policy experts shows misleading marketing and sales pitches continue to be common when brokers or online exchanges hawk these plans to consumers.
It starts with the very first Google search a customer might enter when they decide they want to buy a new health insurance plan. As researchers documented for the Robert Wood Johnson Foundation (RWJF) in January 2019, the vast majority of search results returned for “health insurance” will take consumers to third-party websites that sell noncompliant plans alongside plans that do comply with Obamacare’s regulations.
But the sites limit the information provided to shoppers and fail to inform them of the important differences between compliant and noncompliant plans. The brokers are also reluctant to educate their consumers; according to secret shopping undertaken by the RWJF experts, most brokers would cut off a call or fail to follow up if the “customer” asked for more detailed information about the short-term plans.
Sometimes, brokers are outright misleading in talking to customers about these plans. Linke Young and her colleagues at Brookings conducted some secret-shopping trials with brokers in the first few months of 2020, after the coronavirus had taken hold. They focused on testing and treatment for Covid-19 when asking brokers about short-term insurance.
What they found was disturbing: Seven of the nine insurance brokers they spoke with provided false, misleading, or ambiguous information about the plan’s coverage for Covid-19 treatment. Five of them provided false or ambiguous responses when asked whether the disease would be considered a preexisting condition for somebody who wanted to enroll in a short-term plan.
State regulators have picked up on the same trend. Insurance officials in New Mexico told me they have seen an uptick in misleading marketing for coverage that claims to have benefits for Covid-19 testing and treatment.
“I was shocked by the amount of misinformation we encountered,” Linke Young says. “They were totally dishonest about the nature of the coverage.”
Not only are those plans not subject to rules about preexisting conditions, they can also circumvent the ACA requirement that insurers spend at least 80 percent of the premiums they receive on medical claims, leaving only 20 percent going toward administrative and overhead costs. The biggest short-term insurers spend only about 50 cents out of every dollar they receive in premiums on their customers’ medical bills, according to the Kaiser Family Foundation.
While the insurers hold on to half of the money people pay them, the patients receive very narrow benefits compared to the standards established by Obamacare. For starters, short-term plans don’t have to cover all the essential health benefits required under the ACA. Just 29 percent of these plans cover prescription drugs, and none of them cover maternity care, according to KFF.
Less than 40 percent cover substance abuse treatment and less than 60 percent cover mental health services. Contraception is often excluded, according to the House investigation, and at least one short-term insurer refuses to cover preventive services for women like Pap smears and pelvic exams. All of those services are mandatory for ACA plans.
The ACA also set an out-of-pocket limit of $7,350 annually per person and banned insurers from setting any annual or lifetime limits on benefits. These noncompliant plans can require patients to spend more than $20,000 of their own money on medical care, and they can set an overall cap on benefits as low as $250,000 a year. The patient would be responsible for all of the costs above that cap.
“People aren’t getting any value for that plan,” Michael Conway, Colorado’s insurance commissioner, says. “They’re either getting denied or they’re getting overcharged for what the plan actually provides.”
How short-term insurance fails consumers
The financial incentives and misleading marketing are a dangerous combination, even as hundreds of thousands of people — if not more — are expected to sign up for these plans in the coming years.
Estimates vary widely about how many people will ultimately enroll in these plans; the Congressional Budget Office expected about 1.4 million people — who otherwise would have bought Obamacare-compliant insurance — would sign up for a short-term plan instead over the next 10 years. The full effect of the new Trump framework wasn’t felt until 2019; year-long noncompliant plans could be sold starting in October 2018, unless states decided otherwise, and the individual mandate was voided for 2019.
Their enrollment is expected to continue growing, even though the limited benefits can place an undue burden on consumers — especially in the middle of a public health emergency like the coronavirus pandemic.
The Miami Herald reported on the case of Osmel Martinez Azcue, who had recently returned from a work trip in China in January and was suddenly feeling flu-like symptoms. Worried about his potential exposure to Covid-19, he went to the hospital and asked for an influenza test, before the doctors tested for the novel coronavirus.
Azcue had the flu instead of Covid-19. But a few weeks later, he got a bill for more than $3,000 from his short-term insurance plan for the flu test. They also wanted all of his medical records from the past three years, so they could check whether his flu was related to preexisting conditions that had not been disclosed when he signed up for the plan. This kind of post-claims underwriting is common, according to experts I spoke with and the House report on short-term plans; some insurers will deny claims if medical records are not provided in short order, as little as 30 days, the House investigation found.
As unemployment spikes to Depression-era levels during the coronavirus, more people could turn to these plans as an option, unaware of their financial exposure at the same time they are worrying about the ongoing pandemic. More than 25 million people may end up losing their health insurance during the coronavirus crisis, and many of them are used to getting coverage through their work, not having to shop for it themselves.
“It’s extremely hard for people to know what they’re buying. It’s often not made clear to them,” Jeremy Smith, who runs a navigator program in West Virginia, told me. “It may be cheaper, but it may not cover what they need it to cover.”
Obamacare navigators across the country told me they hear a lot from customers having trouble with short-term plans.
“We hear all the time from somebody who was really happy with the price but then when they went to use it, they found out it didn’t cover what they thought it would cover,” Smith says.
It is hard to overstate the degree of confusion among consumers: Health insurance is an extraordinarily complex product, and even required disclosures might not clear up all the questions customers have. Americans might also mistakenly believe that because the ACA has been the law for a decade now, preexisting conditions are always covered for every kind of health insurance.
Jodi Ray, who runs a navigator program in Florida, told me her operation had recently received a call from a woman who didn’t understand why the short-term plan being pushed on her by a broker would not cover her preexisting conditions.
“The consumer had already met with a broker and was confused by the fact that the policy that she could purchase through the broker would exclude care for her preexisting condition,” Ray said. “It seemed like she thought that even private plans outside of the [marketplace] had to meet ACA regulations.”
I surveyed more than a dozen state insurance departments, asking about the features of their short-term markets. Regulators often have a limited view of this market segment, because insurers aren’t required to make many disclosures. State officials don’t always know how many of their residents are signed up for short-term plans, for starters, which made it hard to provide answers to the questions I had.
But what I did learn is troubling. State regulators have collectively received hundreds of complaints from consumers about short-term insurance plans or other similar products in the past few years, some of them regarding how a person’s claims were handled by their insurer and others about misleading marketing. But it’s difficult to know the full scale of the problem without more information, not to mention how many problems are never reported to the government at all, and state officials stress that each individual complaint can mean financial catastrophe for the person involved.
“I always put these in context by pointing out, first of all, that there’s a frequency and then there’s a severity,” Jessica Altman, Pennsylvania’s insurance commissioner, told me. “We’ve seen some real troubling things within those complaints.”
Her agency provided one example, keeping the consumer anonymous. The person had signed up for a package of products that were supposed to cover excess medical costs and bills for a specific disease or illness. But when they endured a medical emergency that led to a $36,000 bill, their “insurance” wouldn’t cover the bills. It provided a slight discount, but the person was still on the hook for $27,000.
Another situation, reported by the Philadelphia Inquirer, involved a Villanova adjunct professor who needed an amputation to prevent a blood infection from spreading through her body, only to find out that her fixed-indemnity medical plan wouldn’t cover it. She had to come up with $2,000 of her own money before her doctor would perform the procedure. She still lost half her foot.
The holes in America’s health system have gotten bigger under Trump
The long-term future of short-term plans will ultimately be determined by the 2020 presidential election.
Donald Trump believes he has met his promise to roll back Obamacare and make cheaper health insurance more available. Presumptive Democratic nominee Joe Biden, on the other hand, is pledging to expand the government’s role in guaranteeing quality health coverage and reverse Trump’s “sabotage” of the health care law. He wants to set up a new public option that would compete directly with private plans, both ACA-compliant and not. He said in March that the short-term health insurance plans “are called junk plans for a reason.”
“President Trump’s Administration has consistently sought to convey these junk plans as legitimate alternatives to high-quality plans meeting Obamacare’s consumer protections,” Biden said in a statement. “They are not.”
Some states have already intervened to stop Trump’s expansion of short-term plans. Some, like California, banned their sale entirely. Others, like Colorado, imposed strict rules that ended up discouraging short-term plans from continuing to sell in their state, despite the efforts of the Trump administration. Meanwhile, some, like Pennsylvania, are limited by state statute in how much they can do to restrict short-term plans, but the mere presence of an aggressive regulator can dissuade insurers from entering the market.
Those differences across states could deepen some of the disparities that already exist because of state attitudes toward the ACA. A dozen states still refuse to expand Medicaid, denying coverage to more than 2 million low-income Americans who have few other options for affordable health insurance — except, perhaps, a short-term plan that doesn’t have strong consumer protections or comprehensive benefits.
If Lawley and her co-plaintiffs prevail in their litigation, they may receive compensation for their unpaid medical bills and her insurer could be barred from continuing any practices the court finds fraudulent. But short-term medical plans will still be on sale across the country.
And now, during the coronavirus crisis, hundreds of thousands, even millions, of Americans may be looking for a new health insurance plan. They may unwittingly be entering a market transformed by the Trump administration and its hands-off approach, content to let insurers and their agents do as they please.
“The general attitude [the administration has] taken,” Linke Young says, “is do whatever you want — we don’t care.”