Health Reform WK-EDGE Enrollment, premiums projected to rise after de-regulation of association, short-term health plans
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Wednesday, February 13, 2019

Enrollment, premiums projected to rise after de-regulation of association, short-term health plans

By Patricia K. Ruiz, J.D.

Two final rules governing coverage of association health plans and short-term, limited duration insurance will result in enrollment increase of 5 million individuals and a 3 percent increase in premiums over 10 years.

As a result of two final rules governing coverage offered through association health plans (AHPs) and short-term, limited duration insurance, roughly five million more people will enroll in AHPs or short-term plans over the next decade. According to a report by the Congressional Budget Office (CBO), eighty percent of those individuals otherwise would have purchased insurance in the small-group or nongroup markets, while the remaining 20 percent will be newly insured. Premiums for coverage in the fully regulated small-group and nongroup markets will be approximately three percent higher than they would have been without the rules (CBO Report, January 31, 2019).

Summer 2018 final rules. In June 2018, the Trump administration published a final rule (83 FR 28912) modifying the definition of "employer" under the Employee Retirement Income Security Act (ERISA) (see AHP final rule does not require EHBs or ‘minimum value’ coverage, June 20, 2018). The rule made it easier for business associations and other entities to offer health insurance through AHPs by establishing a less restrictive pathway for groups to form associations that offer plans and changing the definition of "small employer" to include self-employed individuals. Then, in August, it published a final rule (83 FR 38212) amending the definition of "short-term, limited-duration insurance" to exclude it from the definition of individual health insurance coverage (see Final multi-agency rule creates short-term, limited-duration insurance not subject to ACA requirements, August 8, 2018). This change exempted such plans from guaranteed issue requirements.

CBO analysis. Baseline budget and economic projections assume that current laws related to taxes and spending would generally remain in place for the current fiscal year and the following 10 years. The projections are the agency’s best assessment of how the economy and federal budget would evolve under existing laws, serving as a neutral benchmark by which Congress can measure the budgetary effects of proposed legislation. To estimate the effects of the summer 2018 final rules, the CBO analyzed the incremental increase in coverage that both rules would spur, comparing the estimated premiums for the new plans with those for the lowest-cost insurance otherwise available to individuals and small employers. It then adjusted the comparison to reflect differences in the portion of medical expenses paid by the insurer and the scope of services covered.

Effect on premiums. For AHPs, the CBO estimated that premiums sold under the new rules would be about 30 percent lower than premiums for fully regulated small-group coverage. The difference reflects that AHPs would not be required to cover all essential health benefits and that AHPs can set premiums based on expected or actual health care spending. Considering that short-term plans are not required to cover all essential health benefits, can price premiums based on expected health care spending, and may exclude coverage of preexisting conditions or refuse to provide coverage for individuals who use costly health care services, the CBO estimated that the departure of such plans from the regulated nongroup market will result in a premium increase of about 3 percent for the rest of the market.

Coverage changes. The CBO projects that as a result of the changes, roughly 5 million more people will be enrolled in an AHP or a short-term plan each year over the next decade. Three million of those would otherwise have been insured in the small-group market, one million would have had insurance through the nongroup market, and one million would have been uninsured.

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