This state policy decision may be damaging the ACA exchanges

While some argue that allowing the sale of limited-coverage and transitional health insurance policies will benefit consumers, new research suggests that doing so has actually contributed to instability in some states’ individual markets.

In February, the Trump administration issued a memo allowing states to extend the life of transitional—or “grandmothered”—policies, which don’t have to comply with the Affordable Care Act’s rules. America’s Health Insurance Plans hailed the decision, citing the need for “stability during this time of transition.”

Limited-coverage policies, which also are not ACA-compliant, are having a similar moment in the sun.

In June, 14 Republican senators sent a letter (PDF) to Health and Human Services Secretary Tom Price, asking him to reconsider the Obama-era rule that limits how long individuals can stay on one type of limited coverage: short-term health plans. That rule, they say, “is yet another example of the Obama administration’s policies that inhibited consumer choice and harmed the market for healthcare products.”

However, a new analysis from the Robert Wood Johnson Foundation’s Kathy Hempstead argues that the sale of non-ACA-compliant plans may be causing harm. Because such plans are cheaper and less comprehensive, they tend to attract healthier, younger consumers—thus throwing off the balance of the ACA-compliant risk pool.

There are two primary factors, Hempstead notes, that can contribute to “adverse market outcomes” like insurer exits and premium increases. These include structural factors, such as having a small, low-income population in poor health; and policy factors, including decisions to allow the sale of limited-coverage or transitional policies. But only the latter are in states’ control—and evidence suggests they seem to make a bigger difference.

For example, states like New Mexico and Nevada—which had high structural risk factors but few or no policy risk factors—had very few adverse market outcomes. But more than 70% of the states that had at least two adverse market outcomes had enacted policies permitting the sale of limited-coverage or transitional policies.

These findings may mean that, contrary to arguments for giving states more control over the individual markets, the “exercise of existing state flexibility” may have caused trouble, according to Hempstead. But that also means states have the power to improve their individual markets by restricting the sale of limited coverage and banning transitional policies.

However, with fewer options available on the ACA exchanges and increasing premiums, consumer demand for non-ACA-compliant plans may be set to increase. eHealth, Inc., the largest online individual health insurance broker, told Bloomberg BNA that it is predicting such a trend, and thus plans to offer more packages of non-compliant products—including short-term health plans.