Short‐​Term Plans: The Battle for Health Insurance Choice
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Welcome to the Cato Institute. My name is Michael Cannon. I'm the Director of Health Policy Studies here at Cato. And today we're going to be talking about a recent proposal from the Biden administration on health insurance. Now,

Here's the story of a man named Biden who in 2019, when he was trying to convince people to make him president of the United States, made a certain familiar promise that we've all heard about health insurance. He said, if when he is president, if you have health insurance, private health insurance, you can keep it.

Now, I'm old enough to remember the 1992 Democratic Convention when the balloons dropped and the Clinton family and the Gore family began dancing to, you all remember the song, it was Fleetwood Mac's Don't Stop Thinking About Tomorrow. I remember that because I remember the quip that my undergraduate, I was an undergraduate at the time, my undergraduate political science advisor made, his name is Larry Sabato, he's a

political scientist at the University of Virginia, he said, you know, Fleetwood Mac has another song. It goes, tell me lies, tell me sweet little lies. It turns out that this promise that we've heard over and over again from President Biden's predecessor, President Obama, turned out not to be true. And it appears that it may not, that President Biden's pledge that if you like your private health insurance, you'll get to keep it, may also not be true. Because

President Biden has proposed changes to how the federal government is going to regulate a certain type of private health insurance that is exempt from just about all federal health insurance regulations. This type of private health insurance is, we call it short-term, or the law calls it short-term limited duration insurance. Congress created this category of, or this exemption from federal health insurance regulation in 1996.

Congress left the exemption for short-term health insurance in place in 2010 when it created the Patient Protection and Affordable Care Act. And under current rules,

So consumers who enroll in one of these short-term, limited-duration health insurance plans can purchase a plan with an initial contract period of up to 12 months. They can renew that plan for up to a total of 36 months. And under rules that the federal government handed down in 2018 –

They can purchase from an insurer a renewal guarantee that allows them to re-enroll in another short-term plan after their initial plan expires without new underwriting.

So what President Biden has proposed to do is he has proposed to change those rules by requiring health issuers of short-term plans to cancel all short-term plans after just four months and then prohibit people from renewing those plans that federal regulation would have canceled. Now, why would the Biden administration propose something like this? We're going to be talking about that today. We're going to be talking about it with Brian Blaze, who's

colleague of mine and I have to give Brian credit for something. If it weren't for Brian, I wouldn't have paid much attention to this regulatory exemption from short-term plans. Before I tell you why, a bit more about Brian. Brian is a PhD economist. He did a dissertation on Medicaid, the federal Medicaid program.

And he's had just about every job and health policy that there is in Washington, D.C., including a job that I had when I worked on Capitol Hill. I worked. We both held the same position, the domestic policy analyst for the Senate Republican leadership position.

I was not a Republican at the time. I mean, I wasn't a Republican when I was working for Republicans. I believe you identify as a Republican. Yes, Brian? I do. Yes. Okay. We like him anyway. So, and Brian called me one day when he was working in the previous administration, and he said, Michael, I think you need to pay a little more attention to this regulatory exemption for short-term limited duration insurance.

I thought this is a small market. It's not that important. It's not going to go anywhere. But Brian's a smart guy. I respect him. I'll have a look into it. And what I found was actually the exemption that exists for these plans is not only not only shields them from all of the costly regulations in the Affordable Care Act and other regulations that Congress has enacted over the years.

But that exemption is actually broad enough to provide people meaningful choice when it comes to their health insurance. It is broad enough to provide people a viable alternative to the insurance that the federal government heavily regulates and heavily subsidizes under the Patient Protection and Affordable Care Act.

So, Brian is now the founder and president of the Paragon Institute, which is a free market think tank that focuses exclusively on healthcare reform.

I'm going to talk a little bit about the short-term plans rule. Brian is going to also. And then we're going to be taking questions from our in-person and online audiences. Our online audience could join the conversation by submitting questions directly on the webpage for this event on the Cato website or via Facebook, YouTube, or Twitter using the hashtag CatoHealth. Okay. So what is short-term health insurance, short-term limited-duration health insurance?

The Congressional Budget Office helpfully explains that 95% of the time, what we're talking about when we're talking about short-term plans are comprehensive major medical policies that, at a minimum, cover high-cost medical events and various services, including physician and hospital services. How horrible does that sound?

The CBU goes on to say that these plans basically resemble the individual market health insurance plans that were available before 2014 when Obamacare's health insurance regulations completely overhauled that market and threw tens of millions of people out of their existing health plans. So basically, what the short-term market is doing right now is providing people the health plans that Obamacare canceled.

They just want their health plans, their old health plans back. The CPO explains that because these plans are exempt from those ACA regulations, they may exclude some benefits that the ACA requires insurers to carry and requires consumers to purchase, but they may also have lower deductibles or wider provider networks. In that sense, short-term plans are often more comprehensive than ACA plans.

We did a survey, my colleagues here at Cato and I did a survey of the offerings in various metropolitan areas. It was one major metropolitan area in each state. And what we found was

where states don't prohibit short-term plans because about a dozen of them do, you can get a short-term plan with a deductible as low as $1,000. I'm sorry, that's not a deductible. That's a maximum out-of-pocket exposure limit of as low as $1,000. If you look at Obamacare plans, what you notice is that...

They have out-of-pocket, even the gold plans have deductibles that are higher. The average deductible in gold ACA plans is higher than total out-of-pocket exposure for some short-term plans. And beyond that, if you look at the covered benefits in short-term plans, what you find is, yes, none of them cover maternity care.

You won't find a short-term plan in the United States that covers maternity care, which indicates that consumers don't want it; otherwise, the insurance companies would be happy to offer it. I should say, I should clarify, that cover uncomplicated deliveries. Short-term plans cover care that's related to a complicated delivery, but not uncomplicated deliveries.

And when it comes to other types of benefits that the ACA mandates, like prescription drug coverage, substance abuse coverage, mental health coverage, and so forth, you will find some short-term plans that cover these benefits and others that don't, which means that consumers have a choice. And in just about every state, you have a meaningful choice between plans that do and do not cover those sorts of benefits.

And here, the CBO also notes that the short-term plans provide these additional forms of coverage, broader provider networks, often lower deductibles than ACA plans, at premiums that are as much as 60% lower than the lowest cost ACA plan.

We also surveyed the premiums for short-term plans and the lowest-cost bronze ACA plan in every state. And what we found was broadly consistent with what the CBO found. Lots of plans are available, lots of short-term plans are available at premiums that are more affordable than the lowest-cost bronze plans. But you can also spend a lot more on a short-term plan than you would on an ACA plan. The short-term market gives you that choice.

And I think this is the most important part, perhaps the most important part of the current rules for short-term plans and what the Biden administration's proposal would do.

in rules that came down in 2018, thanks in large part to Brian Blaze, because it was a lot of his activism within the previous administration that led to these rule changes. Those 2018 rules clarified that there's nothing in federal law that prevents an issuer of a short-term plan from also selling their enrollees a renewal guarantee that allows them to re-enroll in a short-term plan when their first one expires,

and shields them from medical underwriting. So if you become sick during your initial short-term plan contract, you won't have to face medical underwriting and higher premiums if you re-enroll in a short-term plan. This is incredibly important because it was this type of renewal guarantee, this type of health insurance market innovation that made the pre-ACA individual market better

at employer-sponsored insurance at preventing or reducing the problem of pre-existing conditions. What this graph shows is that if you were in, prior to the ACA, if you were in poor health, in an individual market plan, you were less likely to end up uninsured than if you were in an employer-based plan. The short-term market under current rules can do the same thing and reduce the problem of pre-existing conditions better than the employer market does.

So I think those rules are a good idea, and the Biden administration should keep them in place. I've pressed advance now three times. There we are. Okay, so who would want a short-term plan? Who would want to enroll in this type of plan? Well, I know someone. I will call her Maria. This is a friend of mine. I'm calling her Maria to protect her privacy, but I'm also calling her Maria because, like the character Maria in The Sound of Music, she is a postulant.

That means she has just recently entered a convent to study to become a Catholic nun. Now, Maria, because she's a postulant, her income is not going to be very high. All right. And as it turns out, her only option for obtaining health insurance is to purchase it herself. The convent does not offer her health insurance. Her income is going to be low enough to qualify her for Medicaid. But Maria is an immigrant, which makes her ineligible for Medicaid coverage.

Her income is so low that she is ineligible for a subsidy to purchase ACA coverage on one of Obamacare's exchanges. That means her income is below the federal poverty level. So she would have to pay the full premium herself. Now, Obamacare has this rule in it that says if you have to pay for more than 9.12% of your household income,

toward your health insurance premiums, that means the coverage is unaffordable for you. The lowest cost Obamacare plan that's available to Maria would cost a third or more of her income, 33% or more. So that is three or four times what Obamacare considers affordable. So Obamacare is not affordable for her. However, she could find a health insurance plan in the short-term market for as little as 9% of her income.

That means that the short-term market is her only option for affordable coverage. Now, what would happen to Maria under the rules? And I should say, if she enrolls in this type of plan, if she's able to purchase a renewal guarantee, then if she develops an expensive illness, then that plan can stay with her throughout the course of that illness and even beyond. However, under the Biden rule,

If she develops an illness during the, if she enrolls in a short-term plan and develops an expensive long-term illness, she's going to lose that plan after four months. And she's not going to be able to enroll in an Obamacare plan for another, for as much as, for as long as 12 months until the following January 1st.

That means that she could face up to 12 months of uninsurance and all of the financial and health risk that comes along with that, have no protection against expensive medical bills and so forth. And this isn't just conjecture, because from 2016 to 2018, those sorts of rules were in place and tripped up a number of people, including a woman in Arizona named Jean Balvin.

In 2017, Jean Balvin was 61 years old. She went shopping for health insurance and found that the cheapest ACA plan that was available to her had a premium of $744 and a $6,000 deductible. She found a short-term plan that had a $2,500 deductible and a premium of only $274 per month, much more affordable to her. And it was from a major, the largest health insurance company in the country, UnitedHealth.

And when she required emergency hospitalization for diverticulitis and emergency surgery for diverticulitis, her health plan paid its share of the medical bills promptly. However, because there was a Biden-like three-month limit in place at the time, that regulation threw Balvin out of her health plan in July of 2017, exposed her to medical underwriting if she wanted to re-enroll in a short-term plan, so she lost coverage for her diverticulitis.

She was not able to enroll in an ACA plan until January of the following year, and that left her, according to Consumer Reports, with $97,000 in unpaid medical bills.

These are the risks to which the Biden administration's proposal would subject enrollees in the short-term market. These risks are so substantial that the Biden administration actually proposes to warn consumers about them in a label that they want to affix to every short-term plan and all the marketing materials that says when this policy ends, you might have to wait until an open enrollment period to get comprehensive health insurance.

Here's a good rule of thumb. If you're proposing a regulatory change that is so dangerous to consumers it requires its own warning label, maybe you shouldn't propose that regulatory change.

Why might the Biden administration be doing this? Well, it turns out that things aren't going so well in the ACA or Obamacare market. These are the premium increase. Right now, the premiums for Obamacare plans are so high that Brian has done research that found that the Congress is offering subsidies to people making up to with household incomes of up to six hundred thousand dollars per year.

It must be pretty expensive if Congress thinks it needs to subsidize millionaires to enroll in Obamacare. And the premiums are just-- continue to rise.

We surveyed the premium increase request that insurers have filed with the federal government and found that more than half, well, 85% of insurers are requesting premium increases. More than half of them are requesting an increase of 6%. And a quarter of ACA plans are requesting a premium increase of more than 10%.

The number of choices available in the ACA market, the Obamacare market are declining. The number of participating insurers has been falling since Congress passed the law. The markets in the exchanges have become more consolidated because the ACA introduces a lot of adverse selection and that favors large insurers. They've been able to weather that adverse selection, whereas other smaller insurers have not.

The number of plans from which Obamacare enrollees can choose has been dwindling. This graph shows how many choices a typical person in each state had in 2015. That's the orange bars. The blue dots show how many choices they had in 2020. In nearly every state, the number of choices has been declining, typically dramatically. Even as the Biden administration labels short-term health insurance junk insurance, it's

The regulations that it is implementing in the Obamacare market is making coverage in that market worse. Empirical economic research has shown that those regulations, specifically the supposed protections for people with pre-existing conditions, are requiring insurers to engage in backdoor discrimination that undoes those protections.

These are quotes from an economist at the University of Texas named Michael Garuso. He and his colleagues found that coverage is getting worse in ACA plans for people with high-cost illnesses in a way that is beyond any insurer's ability to control, because this is a regulation-induced erosion of coverage.

that it's eroded coverage so much that not even healthy consumers can be adequately insured, and that costs sick patients thousands of dollars per year. For the example of patients with multiple sclerosis, these changes can cost them $12,000, or this erosion in coverage that is due to ACA regulations can cost them $12,000 per year.

The networks in ACA plans are also becoming narrower, which according to the National Academy of Science, Engineering and Medicine, jeopardizes the ability of consumers to obtain needed care.

The ACA prohibits anyone from enrolling in ACA plans for nine to 10 months of the year, or from switching plans, which means that if you are an ACA enrollee like Colette Briggs, who got a leukemia diagnosis when she was

two years old, and when she was five years old, her ACA plan network narrowed so much that it excluded the only providers in her area that provided her the cancer care that she needed. Her family was unable to switch plans to a provider that did cover -- or to a health plan that did cover those providers.

The I Am Essential Coalition has said that the gaps in ACA coverage completely undermine the goal of the ACA. And the ACA also imposes on women like Jean Balvin an older women tax. So there's a lot because it increases their premiums more than anyone else's because older women cost less than men of the same age. So these same provisions of the ACA increase premiums on older women like Jean Balvin.

So, there's a lot of dissatisfaction with the ACA that has led to Congress to subsidize it so heavily and then led people to seek shelter in the short-term market. Why is the Biden administration doing this? To encourage people to enroll in ACA plans, and it offers three different rationales in its proposed rulemaking.

for these changes. One is they want to more clearly distinguish between ACA plans and short-term plans, but the way they want to do that is by making short-term, by stripping consumer protections out of short-term plans and exposing those consumers to greater risk. They say that what this will do is it will force healthy people to leave the short-term market and enroll in more expensive ACA plans,

but because they will be healthier than the people who are currently in the ACA risk pools, that will bring down ACA premiums by a whopping 0.5%.

It will also reduce the spending on Obamacare subsidies by $120 million per year. Now, this might sound like a good thing. It might sound like it's making health insurance more affordable or reducing government spending, but it doesn't actually reduce the size of government or the burden of Obamacare and its regulations. All it does is take that burden off of the federal outlaw

federal budget and imposes it on those healthy people who are enrolling in ACA plans and paying higher premiums than they would in the short-term market. This does not reduce the implicit taxes and spending under Obamacare. In fact, it would increase them. And finally, I think

If you look at that warning label that the Biden administration wants to attach to every short-term plan and all of the short-term marketing materials, short-term plan marketing materials, you can see the real reason that they're trying to do this. Right below that warning about the regulation they're putting in place, they're saying visit healthcare.gov online or call this number in order to inquire about ACA coverage.

I have what I think is a modest proposal that instead of throw short-term plan enrollees with expensive illnesses out of their coverage and expose them to uninsurance, that the Biden administration should instead rescind this proposed rule

reaffirm the current rule that short-term plans can last 12 months and you can renew them for up to 36 months, and reaffirm that issuers can sell separate renewal guarantees to enrollees in short-term plans, and that HHS has no authority to regulate those. Because if you do that, not only will the short-term market grow, but it will also improve the performance of the ACA market,

by giving people who develop expensive illnesses an alternative to ACA plans so that they can stay in their STLDI plans, bring down the average risk in ACA risk pools and bring down the average premiums in those risk pools. And with that, I will turn things over to Brian for his remarks.

Thank you, Michael. Michael is the conscience of free market health policy. So it's always a pleasure to be with you speaking on health policy issues. Welcome the opportunity to be a Cato.

Today is an important day. It is the day that the comment period closes. So if you are persuaded by the information that Michael and I present today, you still have an opportunity to comment on this misguided proposed rule from the Biden administration. There are about 13,000 comments, as when I checked earlier today. The vast majority of them

oppose what the Biden administration is doing here. They're from middle-class families that don't want their coverage options reduced, and they're from brokers that work with families and individuals trying to get them affordable health coverage and realize that short-term options are a much better deal than alternatives that exist for them.

I am going to broadly talk about two things. I want to talk about the 2018 Trump administration rule, the benefits of that rule, because what the Biden administration is doing is if they finalize this rule would undo those benefits. Then I want to talk through some of the problems with the Biden administration's rule. I'll hit on a few that Michael didn't mention.

So I didn't know what short-term plans were until 2017.

Here's the history of short-term plans. Congress created them in 1996 in the legislation that created HIPAA, and they exempted short-term limited duration insurance from federal health insurance regulations. And the federal rules that were in place permitted short-term contracts for up to 364 days.

2010, obviously we have the Affordable Care Act, significantly changes rules in the individual market for health insurance, requires what the benefits must be, requires how insurers have to price the insurance. It doesn't mention short-term plans. So Congress in 2010 leaves short-term plans free from federal health insurance regulation.

In October of 2016, the Obama administration realized they had a problem. People were fleeing the Obamacare markets, and they wanted to choke off all the alternatives that people were using because the products were unattractive, premiums were too high, deductibles were too high, networks were too narrow, and they issued regulation restricting short-term plan contract period to 90 days. President Trump gets elected.

Congress focuses on repeal and replace efforts. Those efforts peter out.

And the president directed the administration to do whatever he could, whatever we could, to help people that had been most harmed by the ACA. Those middle class families that didn't have access to employer sponsored insurance that were either paying much more for health insurance or were going uninsured. And the president signed an executive order that one of the elements of which was an expansion of short term plans.

And actually, it is a example of a success within the free market health policy community. There's not that many of us on this side that shared the perspective that Michael and I have. One of them came and briefed me.

in the spring of 2017. His name is Chris Pope, he's at the Manhattan Institute, and he recognized that Congress was getting bogged down and that repeal and replace was

very likely not going to be able to get through Congress. And he said, you know, Brian, what you could do administratively is undo the Obama administration restrictions on short-term plans and count them as minimum essential coverage so the people that bought short-term plans wouldn't also have to pay the tax penalty associated with the individual mandate.

I was very intrigued by what he said. I did my research. That's probably when I contacted Michael and asked him to look at it from the outside. And lo and behold, there was an insurance product that Congress had created that was left unregulated other than sort of defining what

the length of time that short-term and limited duration meant. Now, we couldn't go as far as Chris wanted. We couldn't count the short-term plans as minimum essential coverage. But that was one thing that Congress did take care of. They zeroed out the penalty for people that didn't buy coverage that the federal government deemed they had to under the provisions of the individual mandate. So we moved ahead.

We did a proposed rule, got public comment. Michael, as well as several other sort of free market health policy experts, had very helpful comments that we relied on in writing the final rule. And what we did was change the contract period for short-term plans. Short-term was restored to 364 days. That was not revolutionary.

That was going back to what had existed since 1996. Interrupted just for the 18-month period that the Obama administration restricted short-term plans to three months. Creatively, the administration defined limited duration as up to three years. It used an analogy with COBRA. That's how long people can use COBRA in certain situations if they lose employer coverage.

So you could renew that same plan for three years. And one of the main issues that Michael was working on at the time was what he mentioned on renewal guarantees and that Congress or the federal rule would specify that the federal government cannot regulate what renewal guarantees are.

What do you need to know about short-term plans? Michael mentioned most of these. There is underwriting. This is one of, and they are comprehensive products. This is one of the things that's deeply frustrating from reading the narrative about, that you see from the mainstream media. They refer to these plans as skimpy plans, as not comprehensive, and that is not true. Chris Pope

again, did a study in 2019 for the Manhattan Institute. Michael has done work here showing that short-term plans cover just about any of the services that you would get in a typical insurance plan. And they have a far greater number of hospitals and doctors that accept the coverage. MD Anderson, the cancer center in Texas, not a single Obamacare plan covers MD Anderson.

If you want to get coverage for MD Anderson in the state of Texas, you have to buy a short-term plan. I myself was covered by a short-term plan actually for a year. My family, when I left the White House, we were on COBRA for 18 months. We then moved to Florida at the start of 2021, and I searched ACA plans and short-term plans. I went to eHealth. I called some providers and

And when I was referring to the ACA plans with providers, they just described them as sort of Medicaid plus, and most providers that I called didn't take them. It was the short-term plans that the providers accepted. If you go on to eHealth, it's very easy to determine short-term plans. They actually make it easy. They have a header for short-term plans, and they have a header for ACA plans.

So that should minimize some of the confusion that the Obama that the Biden administration is talking about. And you can select a short term plan that goes for three months, six months, 12 months or 36 months in states that sort of fully comply with the federal regulations like Florida. Florida did. And I selected a 12 month plan for my family.

Short-term plans are available throughout the year. There's not a few-week period in the fall that you have to purchase this coverage. You can often purchase the coverage, and it might start as soon as the next day. There's that flexibility there with short-term plans. On the screen is a map.

which shows how states regulate short-term plans. It actually, if you look at it closely, it aligns very much to what you would see with presidential election maps when I put this together. But you see the gray areas of the country. Those are states that fully comply with the 2018 rules. So you can purchase a short-term plan for up to 36 months.

The blue states are where there are restrictions on short-term plans. Those restrictions are typically that you can only purchase a short-term plan for six months. And then there are about a dozen states that are in orange where they have made it so difficult on insurers with the regulations on short-term plans that there is no coverage that's available to people in those states for short-term plans.

And I'll come back to a recent analysis that I did between these sort of short-term plan favorable states and unfavorable states in a few minutes. What does the Biden proposal do? Just to reiterate what Michael said, it takes the 364 days and reduces it to three months.

It redefines limited duration. Instead of up to three years, you can only have a plan for four months. It actually goes further in a negative direction than the Obama administration rule. The Obama administration rule allowed you to renew the same plan

for a period of up to a year. So you had to do it in three-month increments. But the Biden administration rule prohibits you to one plan from one insurer for a total of four months. And as Michael described, there's a much more detailed notice requirement. I should say here that the Trump administration rule has a notice requirement. So when you buy a short-term plan, there is a notice that specifies to the consumer that this is not Affordable Care Act coverage and that the

that consumers should check their plans carefully. Estimates of the Trump administration rule. Now, these estimates were made in 2018 and 2019. And if you look at, for instance, the decrease in the uninsured rate,

Five different organizations made estimates. CMS Office of the Actuary, Congressional Budget Office, Center for Health Economy, Urban Institute, and Commonwealth Fund. If you take an average of their projections, the short-term plan rule would reduce the number of people without health insurance by 1.8 million.

Undoing that rule, going to where the Biden administration is, it's gonna increase the number of people without health insurance, likely by several hundred thousand, up to probably two million people. Now these estimates have not come to fruition for one significant reason. In 2021, Congress significantly expanded premium subsidies for Obamacare plans.

And in the Inflation Reduction Act, Congress extended those subsidies through 2025. So short-term plans, people are purchasing with their own money. So they have an incentive to make sure that they're getting value for their spending and the insurance plan is providing them with enough benefit to justify the cost.

The Obamacare plans now, because of the enhanced subsidies, many enrollees are paying zero premium for them or just a small percentage of what the total premium is. So the federal government has significantly put their hand—

put their weight behind the ACA plans. So we really just want short-term plans to be able to compete, to have this alternative where they're not being restricted further by the Biden administration under this proposed rule. Key problems with the Biden rule. The first one is what Michael mentioned, Americans...

have a right to spend their own money on health care that works best for them. It's really a first principles issue. When I first learned of this in 2017, it struck me as this is a

This is a no-brainer, right? The Obama administration has restricted ways that Americans can finance their health care. We believe that people should decide how to spend their own money on the health care and coverage that works best for them. So, again, it's first principle to restrict or to allow people to purchase coverage.

consistent with sort of where the Trump administration ended up. I think the most devastating critique of the Biden administration rule is what Michael spent most of his time on, is it's gonna strip coverage from sick people, leaving them uninsured and with no way to pay their medical expenses.

Well, I had a slide showing that didn't make the final cut, but many people, so the Biden administration restricts this to three, four months. Many people are unemployed for longer than three or four months, particularly during economic down periods. So in July 2011, the average amount of time that people were unemployed was 40 weeks,

That's far greater than the three to four months that the Biden administration is allowing short term plans to exist. So they're forcing unemployed people to suffer even more and going without coverage after after the three or four month period passes. So these.

I will say, and I have a reference to this at the end, I did a comment letter that we submitted last week. There were 40 policy experts that signed on to that comment letter. I have a link at the end of the PowerPoint presentation to that comment letter. These are the 14 reasons that we've listed in the comment letter with explanation for why the Biden rule has costs that far exceed the benefits.

Another thing is just regulatory analysis. OMB Circular A4 is how it directs the federal departments for how they should conduct good regulatory review. And there's an extremely high bar

for prohibiting products. The first thing that the agencies are directed to do is sort of exhaust all the ways of making sure that consumers are fully informed of their product options. And that the last thing that they should do is prohibit products. And there's no evidence

If you look at consumer complaints and you compare consumer complaints between short-term plans and ACA plans, the consumers are any more frustrated with short-term plans than they are with, say, ACA plans. If anything, it appears to be the opposite.

The last item on here I'll spend just a few seconds on. So if you read the proposed rule, they decry low medical loss ratios with short-term plans. And medical loss ratio refers to the percentage of the premium that the plan spends on health care claims. And a low MLR

to some people signifies a lot of waste and a lot of spending on bureaucracy and administration instead of on actually paying out health care benefits. Ironically, reducing the contract period

for the short-term plan period lowers the MLR. It makes administrative costs be a bigger part of the plan because you basically have a fixed set of administrative costs that you have regardless of what the contract period is. So one of the reasons the MLRs for short-term plans are lower is because people have them on average about six or seven months.

So you have to spread those fixed administrative costs over a period that's shorter. So that's a slide showing the unemployment duration in July 2011 and June. The economy obviously very strong now.

Even with a very strong economy, one-third of people who are unemployed are unemployed more than 15 weeks. So there are people that are unemployed longer than the Biden administration is proposing to restrict the short-term contract period for. During bad economic times, like I said, in July 2011, 60 percent of people were unemployed for longer than 15 weeks.

When President Biden got elected, he signed an executive order one week after he was elected that signaled that the administration was going to take steps to restrict short-term plans. I wanted to test a theory that

behind, a theory behind the rationale that the administration, I thought, was going to put forward for restricting short-term plans. And that was a theory that healthy people were leaving the individual market in states that allowed short-term plans. They were moving to the short-term market, leaving an adverse risk pool in the individual market. And from the Biden administration rationale, they needed regulation to prevent that adverse selection from occurring.

What I did was take advantage of the fact that about half the states, like I showed on the map,

permit short-term plans, and about half the states either ban or restrict short-term plans. I looked at the trends, and we just, Care Baragon just released this analysis last week. I looked at the trends between 2018 and 2023 across those two sets of states, and interestingly, I found that states that fully permit short-term plans have had much better trends than

in their ACA markets than states that prohibit short-term plans. So the data, it's overwhelming. Exchange enrollment is up 63% in STLDI favorable states compared to a 5% increase in states that are unfavorable toward short-term plans. The number of insurers selling exchange plans has increased 105%.

versus a 32% increase in STLDI on favorable states.

If you look at the premium changes from 2018 to 2023, so in 2018, premiums got really high, has a mix of adverse selection in the exchanges, plus the Trump administration decision to stop a subsidy payment, which caused insurance companies to significantly increase the premium for benchmark plans.

Since 2018, overall premiums have declined, but they've declined significantly more in STLDI favorable states than in STLDI unfavorable states. And the worst experience in the Obamacare markets has been in states that ban short-term plans. So there's no evidence—

that restricting short-term plans helps the Obamacare market. In fact, the evidence suggests that short-term plans aid the Obamacare market, I think for the reasons that Michael alluded to. Plus, it introduces additional competition, and competition is good for the insurers offering ACA plans.

I do have a proposed alternative. My proposed alternative would basically be summed up as keeping these junk regulations only applicable during open enrollment period. So if the Obama, if the Biden administration is really concerned that consumers can't tell the difference between their plan, these plans just have their junkie regulations, um, apply during open enrollment period for the rest of the year, allow, um, uh, short-term plans, um,

consistent with current regulations that allow the maximum potential consumer protections. So one way to reduce the harm would be to allow uninsured individuals at the conclusion of the open enrollment period to purchase short-term plans that last a full year and get them through that year. And with that, there are two sources that I put together here. The comment letter that we submitted last week

And a link to the paper that Paragon did on short-term plans. And to make my comms director very happy, we would love you to follow us on social media. And we try to make it as easy as possible with a QFR code.

Thank you. Nice work. Yeah, go ahead and keep it up there. And speaking of social media, we've got a lot of really good questions that have come in through social media. The first one I'll address is a number of people have asked, will our presentations be online? Yeah, we'll post them on the webpage for this event.

Maybe the most interesting question that I've gotten is from someone named Brian. I don't know if you pulled this off while you were giving your presentation, but someone named Brian asked, since the ACA has been a complete failure to expand coverage and control costs, actually it was not a complete failure on expanding coverage. It did expand coverage to a lot of people. Why not propose scrapping the ACA completely? And I am totally on board with that. I think Brian is totally on board with that. But Brian,

That doesn't seem in the cards right now. And even if you're not totally on board with that, even if you're a supporter of the ACA, you think that it's an essential batch of consumer protections, I think you should still oppose the Biden administration's rule on short-term plans. And the reason is that the ACA, what does it do? It promises that insurance companies will no longer throw sick people out of their health insurance and leave them uninsured.

This proposal does exactly that. This proposal takes health insurance away from sick people. It mandates that insurance companies do what the ACA purports to prohibit insurance companies from doing. And so whether you're on the left or the right, whether you're Republican or Democrat, I think you can

You can oppose this rule also because, as Brian's data suggested, and I think the experience with renewal guarantees suggest, if you allow the short-term market to grow, it can actually improve Obamacare's performance. All right. Other questions we've received are, let's see, one from a state legislator who asked, if a state passed a law that short-term, this is Kansas Senator Beverly Gossage,

If a state passed a law that short-term plans may be purchased for up to one year and renewed for one more with underwriting left up to the insurer, how would the Biden rule affect that state? Brian, do you want to take that one? Well, thank you for that question, Beverly, who signed – was one of the signers of the Paragon comment letter and is probably –

She may be the best educated state legislator on health insurance issues. You have to say legislator. Yeah. The Biden administration, the federal rule would preempt the state rules. So 29 states right now permit short-term plans for up to 36 months. If the Biden administration rule goes into effect, the maximum amount of time that people can have a short-term plan is four months. It's unfortunate. Yeah.

It's one of the things that this rule does is usurp state regulation over health insurance, which is what Congress intended short-term plans to be by leaving the regulation up to states with this one-size-fits-all set of federal rules. Next question. Wouldn't the renewal guarantee—this is from Anonymous— wouldn't the renewal guarantee for comprehensive short-term plans make them as expensive as ACA plans?

And the answer to that is maybe, but not necessarily. You saw from the graph that I provided, it showed that a lot of short-term plans are already more expensive than some ACA plans. You can get deductibles as low as $1,000. You can get a maximum coverage of up to $5 million, which is more than enough for most people who not only purchase health insurance, but purchase health insurance and then develop an expensive illness.

What the literature shows is that adding a renewal guarantee generally adds about 25% to the cost of a short-term plan. So if a short-term plan costs 60% less than an Obamacare plan, no, a renewal guarantee will not make that more expensive than the lowest cost Obamacare plan. If it is within, say, 30 percentage points, it might.

But over the long term, what these what renewal guarantees will do is they will allow those enrollees in in short term plans to have a secure source of financial protection from the financial costs of an expensive illness that does not cause.

where their premiums don't rise to reflect their higher risk. Because that's what renewal guarantees do. They protect you from medical underwriting so that if you enroll when you're healthy and then develop cancer, you still pay healthy person premiums, not cancer patient premiums. And if you have a deal like that, then that's a really good reason for you not to go into the Obamacare exchange dues and make their risk pools more expensive on average.

Do you have anything you want to add? Yeah, I just had one thing about the renewal guarantees just so people really understand them. I mean, there's benefits of employer-sponsored health insurance, but one of the problems with employer-sponsored health insurance is that if you get sick and you lose your job, you lose your health insurance coverage.

So it's one of the benefits of individual market coverage is that people don't have their insurance tied to their place of work. And what the renewal guarantee is, is it's about turning that into the long-term product so that you only face in a sort of an ideal free market health policy insurance world, the consumer faces underwriting once, they get the product, and then they have this protection against ever having to go through underwriting again.

The next question is...

Where do we go to submit comments on the proposed regulation? Great question. You go to regulations.gov. If you just go into Google and type in 2023 Biden administration short-term plan reg, you will get on the regulatory page. And there's on the top right, I believe, there will be a button to submit a comment on the rule.

And if you are not able to figure it out, you can email me, bblaze at paragoninstitute.org, and we will help you figure that out. Assuming the final rule is enacted in early 2024, are there any possible legal options by individual states or other entities? And that is...

from another anonymous viewer out there on the interwebs. I think here the answer is yes, because if you're a consumer who wants to purchase a new 12-month short-term plan and

There are issuers out there who've been doing this for years and years. That seems a pretty straightforward way to establish that you're suffering an injury because of this rule, that you cannot purchase coverage that will last you as long as coverage did under the previous rule. And I think there is a good case, a very colorful case,

that this rule is arbitrary, capricious, and or contrary to law, which is the standard that you need to meet in order to challenge an agency interpretation of an ambiguous statute. I mean, just take capricious. The

The Biden administration is trying to throw people out of their health insurance. It's trying to cancel health insurance plans after four months, creating gaps in health insurance. This is completely contrary to everything that Congress has been trying to do in health insurance for the past, oh, I don't know, at least 50 years.

Congress has been trying to fill gaps in health insurance and shield sick people from medical underwriting. This rule does the opposite. So I do think there's an opportunity for legal challenge there. So the I agree. The Trump administration rule was challenged. Oh, Michael, can you remind me who challenged the Trump administration rule in court? The Alliance for Community Affiliated Health Plans.

Which was a fancy name for an organization of health insurance, private health insurance companies that sell Obamacare plans. So the insurers that would benefit from restricting short-term plans were the ones that brought suit against the Trump administration rule and didn't want consumers to have the options to purchase those plans. Fortunately, the 2018 rule was upheld by district court and then appellate court.

I agree with the arguments that Michael made. I can tell you there is some regulatory discretion here. We were told that there is flexibility on the administration to define short-term and limited duration. Now, there's no other regulations that could apply. So people wanted the Biden administration to put essential health benefits, price controls on short-term plans

There may have been folks that were sympathetic in the Biden administration to doing such things, but that would have made the rule, would have significantly increased the litigation risk for the rule where it wouldn't have been able to actually be finalized and go into effect. I think it's sort of an open question whether the Biden administration is gonna be able to change the terms, short term and limited duration or not. - And,

While they have the authority to interpret what short-term means and limited duration means, if it is completely contrary to the statute, I think there is that colorable case there. And the ACA was designed to, like you say, increase the number of people with health insurance, decrease uncompensated care, and this rule goes against both of those. It increases the number of people without health insurance clearly and will increase the uncompensated care that providers deliver.

There's another point I was going to make there, and I've forgotten what it was. So I'll go to the next question, which is another anonymous question. Which state offers their residents the most choice of these sorts of health plans? Are there any countrywide health plans that will allow you to go to any state for care? There are national...

health insurance companies that sell plans nationally that also sell in the short-term market. UnitedHealthcare is probably the biggest, but there are others. And what we found is that in some states, there's a handful of states where there are as many as 100, more than 100 or 111 different short-term plans available in that state.

And they tend to be the same short-term plans that are available in other states. So what these insurance companies are doing is they're developing a product that they think will have broad appeal. They're getting whatever regulatory approval is necessary in different states and selling the same plan across multiple states, which to my mind says, well, first of all, tells you that, yes, there are some states where you have more choice than others. And we'll have to get back to you on which ones those are that have the 100 plus plans in them.

But also, what that says to me is that there's no reason why we have to have state-by-state regulation of health insurance when it's clear, the short-term market makes clear that health insurance companies can develop plans that have a broad appeal and then sell the same plan in different states. I think in most cases right now, if you're talking about -- or prior to the Affordable Care Act,

still after the Affordable Care Act.

An insurance company that wants to do that in the individual market, which Obamacare regulates so heavily, has to change that plan in order to conform with different states' regulations. That is much less the case with the short-term market, and that's why I think it illustrates that we really don't need to have each state coming up with its own set of regulations and using those as a barrier to entry into those markets. Each state could just recognize health plans

or health insurance licenses from other states. And not only the number of choices available in the short-term market, but also the uniformity of some of those choices from state to state illustrate that point. So another question from Senator Gossage, how can states wrestle back our insurance department's regulation of short-term plans, attorney general lawsuit? If it's the insurance department's regulations that concern you, that's going to depend on

what your insurance regulators have done and the injured parties and whether they're going to be able to establish standing and whether statute gives the attorney general in your state the authority to intervene on these sorts of matters. I don't know Kansas law or other states laws well enough to comment on that, but there may be opportunities.

as in the past when states have been able to challenge various parts of the ACA, as well as the executive branch's implementation of the ACA. With that, I think that was the last online question that we've got. I think we have time for one question from...

from our audience here at the Cato Institute. If there are any or if the online questions have exhausted any of them, or exhausted all of them, know that we do have a question here. So if you'll just wait for the mic, speak clearly so the folks out on the interwebs can hear you. - Thank you very much. Dr. Myrtle Alexander, Institute for Academic Management. My question is, is there, when one chooses, if one's in ACA and they choose to opt out, what are the consequences for that?

And just to piggyback on that, is it just intentional that the ACA wants to cancel private insurance and just make one universal government insurance at this point? So I don't think the ACA doesn't want anything. The ACA is just a bunch of rules. I think supporters of the ACA recognize that it cannot function as they want it to function.

If people are free to make their own health care decisions, if they're free to choose their own health plan, then the people whose premiums the ACA raises dramatically will choose a different health plan. That frustrates the goals of ACA supporters because they want to tax those people and impose hidden taxes on them in the form of higher premiums in order to subsidize others.

And if they can't do that, well, there are subsidies in the ACA that will rise. If they can't do that, the ACA pools are going to be sicker. The premiums for Obamacare plans are going to rise as a result. And while Obamacare does have subsidies that will rise along with those premiums, what that does is,

It makes the cost of those taxes and subsidies, they want to be opaque. It makes them transparent because then they appear in the federal budget. The federal government has to pay those excessive premiums. And taxpayers might care about those excessive premiums more than if they were able to hide those premiums.

those taxes and those transfers. So I think that is what is happening with the short-term market, is that they're trying to... And why the ACA originally prohibited the sorts of plans that were available on the individual market prior to the ACA. Because if you allow people that sort of choice...

then the costs of the ACA become transparent and people won't want it. It's not just Michael Cannon, libertarian health economist, saying this. If you remember, one of the architects of the ACA, an economist named Jonathan Gruber, who's a health economist at MIT, got in a lot of trouble for saying something about the stupidity of the American voter.

The point he was making in those remarks was he was saying that if you made the taxes and subsidies that the ACA tries to affect transparent, if you had transparent taxes and transparent subsidies, it never would have passed. And I think that supporters of the ACA are still very sensitive to that. They're still very sensitive to how high the premiums are for these plans. They know the success of the ACA, political support for the ACA,

is tenuous, and the public could turn on it. And so they are trying to keep those premiums and the cost of this regulatory regime from becoming transparent because voters might rebel against it. But the point I'm trying to make here today is that...

Even if you're one of those people, these plans could help, or short-term plans could help bring down the cost of ACA, the ACA's taxes and subsidies. Yeah, actually, Paragon's going to have a paper within the next two weeks written by two actuaries that have looked at the projections of the ACA with what's actually happened. And sort of one top-line result is that if you go back to...

what the Congressional Budget Office expected, and that's sort of the gold standard for measuring policy in Washington. They expected about 40 million people would be enrolled in the individual market at this point. It's less than half of that.

So it's less than half of what original projections were, and the per-enrollee subsidy cost is much greater. So the story of the ACA is really a story of the government

introducing all these regulations that made health insurance more expensive and less attractive. And then the only way to get that market to work has been just to throw more taxpayer money at that market. And the subsidy expansion in first the American Rescue Plan Act and then the Inflation Reduction Act was very significant.

Those subsidies expire after 2025. And it's an important thing for the policy community to do is figure out what the alternative is to those expanded subsidies because continuing those expanded subsidies is just really an inefficient way of government to allocate resources.

And I think short-term plans, like what's so offensive to me and Michael and others, this is people spending their own money, right? People should be able to spend their own money on the health coverage and healthcare that works best for them rather than having the government come in and say, well, you know, you're not able to make those decisions. We need to come in and tell you what the health insurance should be that you're allowed to purchase.

One more point that you triggered that I think is relevant both to the Biden administration is to figure out what to do with this proposal and to any court challenges if they do finalize this proposal as is.

is that ever since 2010, Congress has not been trying to penalize people for not enrolling in ACA plans. They've been trying to induce people using positive incentives. In 2017, Congress got rid of the individual mandates penalty. So Congress itself is backing away from negative incentives like the ones the Biden administration is trying to create here in order to get people to enroll in ACA plans, focusing instead on incentives

Positive inducements, huge, generous subsidies to people making up to more than a half a million dollars per year to induce them to enroll in ACA plans rather than penalizing them for not enrolling in ACA plans.

So with that, though, I think we're out of time. And I want to thank all of you for coming and joining us today, including our audience on the on the Internet. I want to thank Brian here for all of his work on this issue and for coming to join us as well. I hope you will join us. Those of you who are with us in person will join us upstairs for lunch in the conference center. And with that, thank you and have a good day.