Biden Administration Moves to Ban Fee-for-Service Indemnity Health

Indemnity Health Enforcement Actions

HHS, the department that oversees the ACA individual major medical provisions, says it will look closely to see whether an individual indemnity health product is really an excepted benefit or is instead comprehensive coverage that should comply with the ACA major medical insurance rules.

Holes in New Regulations

The agencies acknowledge that their draft regulations may include two holes.

One is the possibility that an individual consumer could get around the four-month short-term health insurance coverage duration limit by “stacking” policies, or buying separate short-term policies from more than one issuer.

The agencies are asking for comments about whether they should stop people from buying two more separate short-term health policies from separate insurers that are part of the same corporate family.

The second hole is the possibility that insurers could use “specified disease excepted benefits coverage,” such as policies that pay benefits when an insured patient is diagnosed with cancer or has a heart attack, as a substitute both for major medical insurance and for fee-for-service indemnity health policies.

The agencies are asking commenters for ideas about how to stop that from happening.

The Reasoning

The Biden administration says it drafted the regulations because of concerns about coverage quality and concerns about non-ACA plans hurting sales of ACA-compliant major medical insurance.

Short-term health insurance issuers may see policy provisions limiting the scope of coverage as a well-established way of holding coverage costs down.

In an address at the White House that was streamed live on the web, Biden said that the effects of those kinds of provisions are unacceptable. He cited a patient who appeared at the White House address to talk about the bills from an emergency appendectomy.

“In the fine print, his plan said it would only cover a fraction of the $37,000 the hospital bill was, even though he was paying his insurance premiums every month,” Biden said.

Biden also objected to rules in some states that let issuers of short-term health insurance exclude coverage for preexisting conditions.

“Just imagine if you had a heart attack and you expect your insurance company to pay for it,” Biden said. “But they dig into your medical records, discover you had asthma as a kid, claim you had a preexisting condition, and then refuse to pay. Folks, that’s not health insurance. That’s a scam.”

For healthy younger insureds who do not qualify for ACA premium subsidies, short-term health insurance may cost less than $200 per month out-of-pocket, with a deductible under $1,000. ACA-compliant coverage, in comparison, may cost more than $500 per month, with a deductible over $5,000.

Tri-agency officials acknowledged in their analysis of the possible effect of the proposed regulations that short-term health coverage seems to have displaced at least some sales of ACA-compliant coverage.

In states that let a short-term health insurance policy last for 364 days, sales of individual ACA-compliant coverage outside the ACA exchange system fell 27% between 2018 and 2020.

In states that banned short-term health insurance or limited the policy duration to six months or less, sales of individual ACA-compliant coverage fell just 4%, officials reported.

Reactions

The Association for Community Affiliated Plans, a group for nonprofit regional health plans, welcomed the proposed regulations.

B. Ronnell Nolan, the president of Health Agents for America, said federal agencies have not done enough to show how much problems with excepted benefits are affecting consumers.

“Furthermore, consumers deserve the right to choose the health insurance plans that fit their specific health insurance needs,” Nolan said. “While short-term medical plans do not fit the needs of all consumers, the consumers who do benefit from a short-term medical plan should not be penalized.”

Jeff Smedsrud, a longtime player in the supplemental health benefits market, said that regulators have already been cracking down on bad products and bad sellers.

Limiting short-term health policy duration would be reasonable, but “the proposed rule goes too far,” he said. “A six-month limit would better protect the millions of individuals who find themselves without coverage for a period of time.”

He also questioned the Biden administration’s approach to regulating fixed indemnity plan benefits, given the high deductibles many consumers face.

The White House. Credit: Shutterstock