What we don’t know about short-term health insurance products

Any day now, the Trump administration is expected to release a new regulation promoting short-term health insurance products as an alternative to coverage under the Affordable Care Act. I recently reviewed short-term health plan information found on the eHealth and Agile websites, and in a post to the Philadelphia Inquirer Health Cents Blog, described how many appear to be low-value products that won’t pay out the benefits consumers need and expect in a time of crisis. This follow-up post critiques the websites on which the plans are sold, lists the gaps in information available to consumers, and offers some suggestions for reform. 

Too little information, presented too clumsily, for consumers to understand exactly what they are buying.

The eHealth and Agile websites are structured as aggregators of products. Both are formatted quite similarly, displaying search results with companies’ logos as one might see airlines and flights displayed on the Orbitz or Expedia websites. But the insurance sites have less specificity, less uniformity, and more ambiguity than travel websites. 

Both the websites and brochures to which they link lean heavily on the use of shorthand, undefined phrases. Clauses that are typically used as modifiers, such as “out-of-pocket,” sometime have no noun following them to clarify their meaning (e.g., “Out-of-pocket maximum/limit” is the phrase used in the healthcare.gov glossary). 

Each website uses a matrix to display various product attributes but there is no uniformity across entries. For example, one website’s display has two columns with no headings at the top. In the 2nd column, across from “Prescription Drug Coverage” the display describes what is paid for; across from Hospital Services Coverage the display says “20 percent after deductible,” presumably referring to the part that is not paid for.

Under the heading of “Plan Type,” “PPO” is sometimes used to describe indemnity products. Perhaps of greater concern is that the sites do not explain the dynamics of an indemnity policy, which will often leave a remaining balance between providers’ charges and the “usual, customary, and reasonable” payment tendered by the insurer. When the insurer does not contract with providers, and when the insurer’s relationship with the consumer will end with the term of the policy, insurers may feel less inhibited in setting a low payment amount by a desire to maintain goodwill. It’s been decades since indemnity plans were common, and those consumers old enough to have had experience with them did so in an era when provider charges were lower, and providers were not as aggressive in balance billing.

Some product descriptions inflate the policy’s value. Product L is advertised as having a $750,000 policy limit. The shopper seeing that number will surely think that it offers a lot of protection, but given its fixed-dollar benefit schedule and its 3-month term it appears unlikely that this policy has paid anyone more than a few thousand dollars. It would seem the maximum this could policy could pay out is far lower. If a consumer entered the hospital the first day a policy was in effect and stayed for 90 days, the payout would be around $72,000—leaving an unpaid hospital bill in the neighborhood of the advertised “limit.” Because spending during a cancer episode is spread across a period far exceeding 3 months, even the payout for cancer would be unlikely to exceed $100,000, nor more than a third of the total cancer episode cost. 

Product E purports to pay “Charges for organ or tissue transplants including all expenses related to the transplant before the transplant is performed, for the procurement of the donor organ or tissue, the hospital expenses of the donor, and for follow-up care…” Yet it is difficult to imagine circumstances in which the predicate organ failure would not be excluded as a pre-existing condition. While in theory a person could suffer kidney failure with no warning and arrange a transplant from a living donor within the 3-month policy term, Product E excludes any coverage of kidney disease. 

What we need to know about short-term plans

The websites do not display the full plan descriptions/certificates, nor were they made available after I requested them through the websites’ communication features. None of the plan descriptions for products I reviewed were posted on the System for Electronic Rate and Form Filing (SERFF) for the state in which they were being sold. 

I was able to find certificates for Product N and Product L on SERFF/Texas. While the plan language includes boilerplate not uncommon in ACA or employer plans, there are also some major exceptions. In addition to fixed indemnity schedules, lists of exclusions include “injury resulting from intoxication” and “hazardous activity.” These would seem to warrant upfront disclosures, especially if younger consumers are purchasing the products. We do not know how often these exclusions are invoked. Another major element of plan language relates to pre-authorization requirements; we do not know anything about how pre-authorization is implemented nor how often abatements for failing to notify are invoked.

A product’s loss ratio is the proportion of premium dollars that are paid out in claims. We do not know the loss ratios for these products because the National Association of Insurance Commissioners (NAIC) only reports this data for “individual” policies, not for “group” policies; these products require enrollees to “join” a nominal organization so the products are filed in the “group” category. But we do know that for other ancillary health insurance products, loss ratios have been in steady decline over the past decade, and now sit in the 40-50 percent range for specified disease and accidental death and dismemberment products. There is little reason to hope that the picture is any sunnier for loophole-ridden short term products.

What regulators can do to protect consumers

Currently NAIC is revising the model regulation that governs short-term and other limited benefit health products. Insurance regulators could take these steps to protect consumers: 

• First, NAIC should compile company loss ratios for the “group market” short-term products sold online for inclusion in its annual market Experience Report due this month. This information would provide perspective on the value of these products.
• Similarly, NAIC should collect and report more detailed data on how short-term insurers dispose of claims and inquiries from consumers who get sick; for instance, how frequently pre-existing condition and other exclusions are applied.
• States could mandate uniform descriptions of products, just as the Affordable Care Act mandates a uniform “Coverage Facts Label,” to include enumerating benefits paid or not paid in common accident and illness scenarios; for example, many products offer nominal or no coverage for common events like appendicitis or broken joints, which should be disclosed.
• States could mandate disclosure at the point of sale of a product’s loss ratio. A disclosure of a loss ratio or some type of actuarial value equivalent would facilitate comparison shopping and promote competition based on value to the consumer.
• States could require insurers to submit to accreditation by the National Committee for Quality Assurance. This would generate publicly-reported information on companies’ customer satisfaction and oversight of their pre-authorization requirements.
• Finally, states could regulate how products are displayed on aggregator websites. For example, the US Department of Transportation requires Orbitz and others to display bottom-line fares inclusive of “fees” (One short-term plan aggregator displays a monthly premium in large font with “plus fees” in smaller type). Inflated benefit descriptions, such as 6- and 7-figure policy limits that have not and can not be met, or transplant coverage when no customer could be expected to receive one, should be expressly prohibited (in my view, they already violate general prohibitions on deceptive advertising).

Comprehensive health insurance is expensive because underlying costs of care are high. Some conservatives suggest that the market is capable of insuring healthy people for a fraction of the cost of an ACA policy; in fact, it appears that the current short-term market won’t even insure the healthy for the cost of an appendectomy, or for repairing a joint or tendon injured in an accident, in the price range consumers want to spend. Could it do so if regulators curbed information asymmetry? One way to find out would be to require prominent disclosures of such exclusions and see how the market reacts.

[Photo by Chris Potter via Flickr.]