by Jordan Roberts
Director of Government Affairs, John Locke Foundation
On March 3rd, 2010, the Affordable Care Act (ACA) aka Obamacare was signed into law with the promise of slowing the rising costs of health care. The law added to the already growing regulatory oversight of almost all aspects of the American health care system. The ACA has failed to deliver on many of its major promises, namely controlling the costs of health care and providing affordable coverage to the uninsured. One of the most expensive regulations was the essential health benefits mandate that required insurance plans to include coverage for specific services to be qualified as a health plan. States are also guilty of adding to the growing number of coverage requirements that must be included for insurance to be sold. Insurance providers may be required to offer certain mandates for political reasons, such as pressure from special interests groups.
As the ACA approaches its ten-year anniversary, patients, providers, and insurers are still reeling from their efforts to comply with all of the regulations at the federal and state level. Fortunately, the Trump administration has taken some steps to expand options to buy insurance through plans outside the ones offered on the ACA exchanges in the individual and small group markets. New rules from the executive branch were recently released for Association Health Plans (AHP) and Short Term, Limited Duration Insurance (STLDI). Both of these options offer health insurance plans that are less expensive than those offered on the ACA exchanges and loosen the restrictions on the type of coverages that must be included. Also, Farm Bureau plans are similar types of health benefits that are not subject to nearly as much federal or state regulations.
These plans are technically not insurance but offer health benefits and are subject to little state and federal regulation. In the space that follows I will detail how each of these plans work, the benefits of each, and what states can do to make them more accessible.
According to the Department of Labor, AHP’s “work by allowing small businesses, including self-employed workers, to band together by geography or industry to obtain health care coverage as if they were a single large employer.” The new rule put in place by the Trump administration changes the criteria of what is known as a “commonality of interest,” which is the rule governing which groups could band together to buy insurance. By making the criteria broader, there is less regulation to dictate the entities that can join together to utilize an AHP. AHP’s are still subject to federal and state laws regulating coverage requirements and consumer protections, but the groups that band together have much more freedom to define the benefits they offer based on the needs of the patients in the pool. The ACA subjects the individual and small group markets to much stricter regulatory restrictions compared to large employer group plans, which disproportionality affects those offering health insurance to their employees in the small group market. With more freedom to band together, small businesses and other associations can be considered a single health plan and offer plans to their members at much lower prices than those on the ACA exchanges.
STLDI plans are offered in the individual market. The name is self-explanatory — it is a plan that can be purchased for up to 364 days and can be renewed for up to three years. STLDI plans are not considered insurance by definition and therefore are exempt from the requirements that other individual market plans are subject to. This type of health insurance usually contains far less coverage for services compared to the insurance sold in the ACA exchanges, and therefore providers are required to inform patients of the coverage the plans provide. STLDI plans allow individuals to purchase very inexpensive coverage for a short period.
It is most beneficial to those who are uninsured, moving jobs, recent college graduates, or anyone who would like coverage without joining a larger plan. Fearing that plans of this nature would siphon off healthy individuals from the ACA exchanges, the Obama administration limited the length of coverage to only three months. Further, they outlawed what’s known as a “renewal guarantee” option, which, by paying an additional premium, guarantees that rates won’t change from year to year, even if there are changes in health status. The new rules by the Trump administration reverse this policy to make it possible for insurers to offer STLDI and renewal guarantees again.
The National Farm Bureau is a trade association that started in the early 1900s to represent the interests of farmers. In 1947, the Tennessee Farm Bureau started to offer health coverage to its members to try and help rural Tennesseans with health coverage. Today, the Tennessee Farm Bureau provides coverage to 16 percent or nearly 344,000 people that purchase their insurance through the individual market. The plans may exclude anyone with pre-existing conditions, a practice that the ACA prohibited, but in some cases those with pre-existing conditions will have to wait 6 months until coverage kicks in. While this may not work for those who have complex or chronic health issues, the plans are extremely popular with those who have them. Tennessee Farm Bureau’s general counsel explains why:
The legislature has an opportunity every year to say no, we don’t want this setup to continue, and yet every year since 1993 they’ve allowed this to continue because we’re trusted, because we’re doing what we told them we would do. It’s not a loophole. It’s not an accident.
Anyone can join the Farm Bureau and become eligible for plans. The plans offer cheaper, more personalized coverage for the state’s residents because the coverage is negotiated by the association. To provide a way for residents to attain more affordable insurance, Iowa has allowed for Farm Bureau plans to be sold and other states like Nebraska are looking on to see the results.
Each of these plans offers unique forms of coverage that can be more beneficial and less expensive than existing ACA plans. It can offer patients the health care coverage they need and gives businesses and smaller groups more freedom to choose what their health insurance looks like. As I said before, these plans are not for everyone, but they give a substantial part of the population more options than the plans offered under the strict regulations of the ACA and state health benefit mandates.
The common criticism is that these plans amount to nothing more than junk insurance. They don’t offer any substantive coverage, and create opportunities for fraud. Actually, they give consumers more options to get the type of health care coverage they desire. By allowing small businesses and associations the same flexibility as large employers to get the coverage they want through AHP’s, the same incentives exist for these plans that drive large employer plans to offer the best and most extensive coverage possible. Extending the possible duration and scope of AHP’s, STLDI plans, and Farm Bureau plans would give people alternatives to the ACA exchanges, which have extremely high premiums and deductibles.
Even though the Trump administration made these rule changes at the federal level, many states can act to make these plans more accessible. State legislatures can change the statutory language that prohibits the freedom of small businesses to band together to purchase health insurance as an association. Further, lawmakers can ensure that STLDI plans and renewal guarantees are available to be purchased. Finally, the states can pass laws that allow “non-insurance” like farm plans to be sold in the state without being subject to the state’s department of insurance. Each of these plans gives consumers more choices, expands health coverage options to the uninsured, and offers less expensive plans compared to those sold on the ACA exchanges.