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Michael Hiltzik: Why the short-term health plans Trump favors are cheap: They shortchange you on care

Michael Hiltzik, Los Angeles Times on

Published in Business News

President Trump and other foes of the Affordable Care Act have made the expansion of short-term health plans a centerpiece of their campaign to gut the ACA.

Their argument is that the plans, which the ACA limits to three-month nonrenewable terms, can bring cheaper coverage to millions of Americans supposedly burdened by the law's mandate that every health plan offer certain minimum benefits.

Two new statistical releases, however, reveal exactly why these plans are less expensive and less useful to the Americans Trump claims to be helping.

They come from the government's own Center for Medicare and Medicaid Services (CMS), and from the National Association of Insurance Commissioners.

Both releases tell the same story: Short-term plans are cheaper because the insurers that issue them spend only pennies on actual healthcare for policyholders.

So little, in fact, that Trump's 2017 executive order promoting the plans and a regulation proposed in 2018 to put his order into action can be seen not as a boon to insurance customers, but as a Bill of Rights for the insurance industry. The short-term issuers tend to reject customers with pre-existing conditions, don't cover pregnancy, and limit other services in dozens of ways not permitted for plans subject to the Affordable Care Act.

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At least one short-term insurance issuer spent less than 10 cents of every premium dollar collected on healthcare, according to the NAIC figures, which were assiduously crunched by Shelby Livingston of Modern Healthcare. The top three short-term issuers -- the giant UnitedHealth Group, National General and the private equity-owned Geneve Holdings -- spent a combined 43.8% of their premiums on delivering health services to customers. They account for 80% of the short-term market.

For perspective, the Affordable Care Act requires that qualified plans spend at least 80% of premium dollars on healthcare services. (For large group policies, the standard is 85%.) This figure is known as the medical loss ratio, or MLR. The best way for an insurance company to turbocharge its profits, obviously, is to push its MLR down. That's why a key provision of the ACA forbids insurers to spend less than 80%.

Short-term plans, however, are not subject to MLR rules, because the law doesn't regard them as legitimate insurance. The Obama administration limited the short-term plans to 90 days; Trump wants to allow them to remain in place for a year and to be renewed after that.

Insurance experts are concerned, rightly, that combined with the Republicans' cancellation of the financial penalty imposed by the ACA for not carrying health insurance, the expansion of short-term plans will siphon healthier and younger customers out of the ACA insurance pool, making good insurance more costly for everyone else.

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