California Bans Short-Term Limited-Duration Health Plans

Published October 24, 2018

The law is intended to thwart a rule by the U.S. Department of Health and Human Services (HHS) allowing the sale of short-term, limited-duration health insurance plans. The new HHS rule permits individuals to purchase short-term plans for policy periods lasting up to a year before renewal. The rule also allows plans to be renewed for as many as three years. Insurers may also offer guaranteed renewability to protect plan holders from premium increases if they fall ill.

Short-term plans, intended to lower premiums, are not subject to all the coverage requirements of the Affordable Care Act (ACA). In response to the Trump administration reform, the California Legislature passed Senate Bill 910 to ban the sale of short-term health insurance plans in the state. The legislation was authored by state Sen. Ed Hernandez (D-West Covina) and signed into law by
Brown at the end of September.

Young Adults Subsidizing Seniors

Doug Badger, a senior fellow at the Galen Institute, says young adults will be the group most adversely affected by the ban on short-term plans.

“Ages 26 to 34, in particular, have the highest uninsured rates in the country,” Badger said. “The reason for that is the ACA regulations charge them unfairly high premiums to subsidize, essentially, their parents. People in their twenties and thirties are asked to pay unfairly high premiums to subsidize those in the fifties and sixties, who purchase plans for unfairly low rates.” Skyrocketing premiums have reduced the number of young adults purchasing insurance, Badger says, and the short-term plans could help remedy that.

Young adults have lower health risks than older Americans, so the “skinny” coverage allowed in short-term plans makes sense for them, Badger says. “They have preferred to remain uninsured,” Badger said. “Short-term, limited-duration plans offer the opportunity for younger people to purchase insurance at a rate that accurately reflects their insurance risks. Automobile [insurance] rates tend to be higher [for younger people] because their accident rates are higher than their parents’; [the same is true] with life insurance. This formula is turned on its head in health insurance.”

Covered California Control

Joe Antos, the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute, says part of the pushback against short-term plans in California originates from Covered California, the state-run Obamacare marketplace.

Antos says Covered California officials favor strong regulations in the health insurance marketplace, and he says the ban on short-term insurance means those who can’t afford Covered California insurance will be out of options.

“Covered California has created an extremely elaborate set of coverage regions,” Antos said. “It’s a big state, and very regulatory. They’ve invested an awful lot of state money into Covered California. Peter Lee, who runs Covered California, has been on record for years saying you need a strong mandate to keep their market ‘stable,’ even though there doesn’t seem to be any instability.

“California is a state with a fairly large number of people who can’t afford coverage under the ACA or Covered California,” Antos said. “They won’t have any alternative.”

Eliminating Options

Antos says states with tight restrictions or bans on short-term health insurance plans—such as California, Massachusetts, New Jersey, and New York—have forced themselves into tough situations.

“States will have to make decisions based on their individual market,” Antos said. “The Idaho governor was recently talking about allowing insurers to offer noncompliant plans [due to] conditions in his state. There are not a lot of big corporations offering generous health insurance options.

“In a lot of agricultural states, the idea of having an alternative to exchange plans that is more affordable makes a great deal of sense as a matter of health policy and politics,” Antos said.

Banning short-term insurance is a regulatory overreach that eliminates options for people seeking relief from rising premiums, Badger says.

Consumer Reports is listing California as one of the states with the highest premium increases in 2019, an expected plus-8.7 percent,” Badger said. “People who continue to be upset about the premium increases and the lack of health insurance alternatives can certainly cite this action by the [California] legislature and the governor as one reason they don’t have options.”