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CMS Encourages States to Allow the Sale of Short-Term Health Insurance Plans

September 25, 2018

U.S. Health and Human Services (HHS) Secretary Alex Azar is encouraging states to allow the sale of short-term individual health insurance plans outside the Obamacare exchanges.

Speaking at the America Legislative Exchange Council (ALEC) annual meeting in August, Azar said, “We look forward to offering states all the flexibility possible under the law to craft solutions that promote affordability, fiscal sustainability, private coverage, and consumer choice. As one example, we recently finalized new regulations for short-term, limited-duration insurance plans that are free from most Obamacare regulations and, therefore, as much as 50–80 percent cheaper than Obamacare plans.

“Earlier this year, the Department of Labor also announced new rules for another affordable insurance option: association health plans,” Azar said. “[These] cover small businesses and self-employed Americans. Completely undoing the damage of Obamacare will require Congress to repeal and replace the law itself. But until that happens, this administration remains committed to repealing and replacing the ideology that underlies it: undoing the unnecessary restrictions on consumer choice and replacing them with free-market solutions that really work.”

HHS and the Centers for Medicare and Medicaid Services (CMS) have repeatedly encouraged states to allow the sale of more affordable off-exchange plans ever since the Trump administration passed a rule in June 2018 that allowed these plans to remain viable for one year before renewal.

Some States Pushing Back

Some states, such as California, are on the verge of banning short-term plans. California State Sen. Ed Hernandez (D–Azusa) has urged California Gov. Jerry Brown to sign legislation Hernandez crafted to ban short-term health plans in the state, a proposal that passed both houses of the California State Legislature.

“California lawmakers have been influenced by the hysteria raised by many Democratic politicians in Congress and in several states that short- term health plans are ‘junk’ plans,” said Sally Pipes, president of the Pacific Research Institute and a policy advisor to The Heartland Institute, which publishes Health Care News. “They have taken steps to counteract the Trump administration’s new rule, which became effective on August 1, that they say is a way to ‘sabotage’ Obamacare’s exchanges. Gov. Brown has until September 30 to sign the bill that passed the Senate and Assembly that would prohibit the sale of short-term plans in the state.”

Avoiding ‘Silver Loading’

Samara Lorenz, director of the Over- sight Group at the Centers for Medicare and Medicaid Services’ Center for Consumer Information and Insurance Oversight, released a statement encouraging states to move away from Obamacare exchange plans.

“To address increases in premiums of qualified health plans (QHPs) on account of the cessation of federal funding for cost-sharing reduction (CSR) payment to issuers, or ‘loading,’ and its effect on unsubsidized enrollees, the Centers for Medicare & Medicaid Services (CMS) is encouraging states to allow Exchange issuers to offer individual market plans that do not include this load, and that will only be avail-

able outside the Exchange,” the statement read.

Because Obamacare premium subsidies paid directly to health plans are based on the price of Obamacare Silver Plans, health insurers often hike Silver Plan premiums to make up for the CSR payments that Trump ended. This is often called “Silver loading,” says Twila Brase, president of the Citizens’ Council on Health Freedom and a policy advisor to The Heartland Institute.

‘Off-Exchange’ Plans

In October 2018, states will be allowed to offer “off-exchange” health care plans unrestricted by Obamacare requirements and regulations. These short-term, limited-duration plans, previously restricted by the Obama administration to a single three-month term, are now available for 12-month terms and can be renewed for up to 36 months. Under the new CMS guidance, states are encouraged to allow the sale of these affordable insurance plans.

In a CMS statement, Lorenz explained the reasoning behind the policy change.

“Given that issuers may likely continue to load plans to account for the cessation of federal CSR payments, CMS encourages states to allow issuers to offer and market plans that will be available exclusively off-Exchange and will not include any CSR load. Because plan level variations to the market-wide index rate are permitted,

but not required, an issuer may choose not to apply any CSR load to plans that are sold exclusively off-Exchange since such plans will not include enrollees who receive CSRs.”

More Flexibility

In his ALEC speech, Azar discussed the idea behind the new policy.

“We believe sensible state regulation of [short-term health insurance plans] is important,” Azar said. “But millions of Americans are in need of affordable insurance options, and states can help build this market outside of Obamacare’s broken regulations.”

As more Americans enter the new economic environment, they find them- selves unable to purchase quality health insurance, Azar told the audience. The new policy will give states greater flexibility to create more afford- able insurance options for all consumers, especially those workers who do not receive health insurance through an employer, Azar says.

“While these plans aren’t for every- one, we believe they can be an important option for many—people who have been priced out of Obamacare plans, who are between other sources of coverage, or who are independent contractors in today’s gig economy,” Azar said.

Chris Talgo ( ctalgo@heartland.org ) and Emma Kaden (Ekaden.heartland@gmail.com) write from Arlington Heights, Illinois.

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Chris Talgo is editor for The Heartland Institute