No Go For Idaho: State Will Have To Rethink Its 'Freedom' Health Policies

No, you can't.

That's what federal officials told Idaho regulators and the state's governor late Thursday regarding the state's plan to allow insurers to sell health plans that fall short of the Affordable Care Act's requirements.

But the letter from the Trump administration did offer an alternative: Tweak your plan a bit to make them qualify as "short-term" policies. These alternatives, which offer coverage for a limited time, are exempted from ACA rules — including the rule that bars insurers from rejecting people who have pre-existing medical conditions.

"On the one hand, they're saying they're going to enforce the ACA," says Sarah Lueck, a senior policy analyst at the Center on Budget and Policy Priorities. But, Lueck adds, the Health and Human Services Department also seems to say, " 'if you want to roll back protections for people with pre-existing conditions, we have some ideas for you.' And that concerns me."

Idaho's approach, announced in January, would have allowed insurers to offer "state-based" insurance plans that did not include some of the ACA's consumer protections. A few weeks later, Idaho Blue Cross jumped in with five "Freedom Blue" state-based plans it hoped to sell.

Regulators in other states were watching the Idaho situation. Its move was viewed either as a brazen effort to flout federal law or an innovative attempt to stabilize the market. Regardless, Idaho's action meant the Trump administration had to take a position: Enforce the ACA or look away.

Here are four key takeaways from the administration's response to Idaho, and how the ruling may play elsewhere.

States and insurance carriers can't ignore federal law

Although Thursday's letter from Seema Verma, head of the federal Centers for Medicare & Medicaid Services, commended Idaho's effort to "address the damage" caused by the ACA, it said that, as proposed, the state-based plans would violate at least eight of the federal health law's provisions. For example, the ACA forbids insurers from charging sick people more for a policy than it charges those who are considered healthy; it bans the establishment of annual or lifetime coverage caps; and it won't allow insurers to reject applicants who have pre-existing conditions.

Verma's letter noted that if plans that don't meet ACA standards were sold in Idaho, insurance carriers might face significant financial penalties. Health policy specialists say they would be surprised if insurers would want to take that risk.

"It's one thing for the state to take on the CMS, but quite another for carriers," says Jan Dubauskas, general counsel for the IHC Group, which sells short-term health insurance nationally. "When I heard that, I thought, 'This is the end for state-based plans.' "

But Idaho Gov. Butch Otter, a Republican, has been upbeat, saying the letter from Verma "was not a rejection of our approach," but "an invitation ... to continue discussing ... what can and cannot be included in state-based plans."

Late Friday, Idaho Blue Cross issued a statement expressing disappointment in the CMS decision, but also echoing Otter's willingness to move forward.

The timetable going forward is not immediately clear, although both federal regulators and state officials say they are willing to talk about alternatives to Idaho's original proposal. Following Verma's suggestion to get new short-term plans on the market would also require Idaho's insurers to consider their options, modify the plans and come up with new premium rates — all of which takes time.

Short-term plans get another boost

Dubauskas and others say the Idaho decision could increase interest in short-term plans.

Such policies have been sold for years, meant as a stopgap for people between jobs. They are less expensive than ACA plans, mainly because they are allowed to reject people who have health conditions (or exclude coverage for such conditions) and have other limitations.

Most short-term plans don't cover treatment for substance abuse or mental health issues; few cover maternity care and some don't include prescription drug coverage. They generally can't be renewed — meaning consumers must reapply and answer medical questions each time their policies expire.

The Obama administration, fearing that short-term plans would suck relatively healthy people out of the ACA market, limited such policies to 90-day terms. The Trump administration, however, has proposed allowing short-term plans to last for up to a year. These final rules aren't expected for at least another two months.

Ironically, Idaho Insurance Director Dean Cameron had in January promoted the more robust "state-based" plans — like those the Blues insurer wanted to sell in Idaho— as an alternative to short-term coverage.

After getting the CMS letter, Cameron told the Idaho Statesman newspaper that short-term plans might be easier for the Trump administration to handle legally, but could cause consumers more problems than what Idaho had proposed.

Critics fear that consumers will buy such plans without understanding their limitations.

"They might think it's health insurance like they're used to," Lueck says. "But it's really not. It's really very bare-bones."

State reactions will vary widely, creating different rules around the country

Even if the Trump administration's proposal to extend short-term coverage to a full year is finalized, states can set stricter rules.

A handful of states already do.

New York and New Jersey require many of the same rules as the ACA for policies sold in their states. But insurers won't sell short-term plans there.

Four states — Arizona, Michigan, Minnesota and Oregon — limit the length of short-term plans sold in their states to 185 days, according to a survey by the Commonwealth Fund and researchers at Georgetown University.

"A small group of largely blue states have some regulation [of short-term plans], but not very many," says Sabrina Corlette, a research professor at Georgetown University's Health Policy Institute. "It's possible that if this rule is finalized we will see more states start to step up and regulate short-term markets."

Conversely, lawmakers in other states may promote short-term coverage as a lower-cost alternative to the ACA — although people with pre-existing conditions may not be able to buy such plans.

"Politically, short-term plans have some appeal because lawmakers can say now there's a cheaper option out there," Corlette notes.

The increased emphasis on short-term plans could increase premiums

Actuaries fear that short-term plans — or state-based plans like those rejected in Idaho — would drive up costs for people who remain in more comprehensive ACA coverage.

That's because younger and healthier people might be tempted to drop their ACA coverage, leaving only those who are older, sicker and costlier in the remaining pool. That, in turn, drives up premiums — affecting millions of Americans who don't receive subsidies and already struggle to pay for their health insurance.

But just how many people would jump to new, short-term coverage?

The Trump administration has estimated that about 100,000 to 200,000 people with existing ACA coverage would make the shift, while other specialists in health insurance suggest higher numbers.

Christopher Condeluci, a Washington, D.C., attorney who specializes in employee benefits and previously served as the tax and benefits counsel to the U.S. Senate Finance Committee, says it's unclear which estimates are correct.

The real issue to keep in mind, Condeluci says, is that an increasing number of people who don't get subsidies are already choosing to either forgo coverage or pick an alternative, such as a short-term plan.

"People are voting with their feet," he said. "That cannot be overlooked."

Kaiser Health News is a nonprofit news service covering health issues. It is an editorially independent program of the Kaiser Family Foundation that is not affiliated with Kaiser Permanente. You can follow KHN senior correspondent Julie Appleby on Twitter @Julie_Appleby.

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