On June 25, 2020, the U.S. House of Representatives’ Energy and Commerce Committee released a new report on a year-long investigation of short-term, limited duration insurance (STLDI) and the practices used by insurers and brokers who market these products. In March 2019, the Committee sent letters to 14 prominent companies that issue or market STLDI, requesting documents and answers to questions on underwriting practices, coverage denials, marketing, broker commissions, and consumer complaints.
The Committee’s 197-page report provides one of the only known comprehensive examinations into the practices of STLDI insurers and the brokers that sell these products. Data is hard to come by, in part because many states do not collect information on STLDI or because these products are sold through out-of-state associations. There are some efforts to address this data gap for state insurance regulators through the National Association of Insurance Commissioners (NAIC)—first through a data call completed in fall 2019 and now by adding STLDI to the annual Market Conduct Annual Statement. But rules at the NAIC mean that the data will not be released publicly. As a result, the public still lacks comprehensive STLDI information, which makes the Committee’s investigation even more valuable.
One of the Committee’s most notable findings is that an estimated 3 million people were enrolled in STLDI in 2019, an increase of 27 percent from 2018. This is likely a conservative estimate because it only accounts for nine STLDI insurers. Even more notable, most were enrolled in STLDI through an association. Six of the nine insurers offered STLDI through associations, with 2.2 million individuals enrolled in 2019 (up from 1.7 million consumers enrolled in STLDI plans through associations in 2018).
Broker-mediated enrollment also increased: relative to prior months, enrollment by brokers increased by about 60 percent in December 2018 and then 120 percent in January 2019. The Committee attributes these enrollment spikes in December and January to the idea that STLDI is “benefiting from, and possibly capitalizing on the marketing and advertising around the ACA’s open enrollment season.”
Increased enrollment is likely due to the Trump administration’s efforts to expand access to STLDI by allowing these products to be sold for up to 364 days and extended for up to three years. This rule went into effect in fall of 2018 and was criticized for creating a “parallel” market to the Affordable Care Act (ACA) market. STLDI does not have to comply with the ACA’s market reforms, allowing significant benefit limitations that make these products much less expensive than ACA coverage. The STLDI rule was challenged by safety net health plans and patient advocates but upheld by a district court. The lawsuit is pending before the Court of Appeals for the DC Circuit, which heard oral argument in March 2020. Democrats in Congress have repeatedly tried to roll back the STLDI rule, including in new ACA enhancement legislation expected to be passed by the House soon.
In its report, the Committee recommends new federal legislation to require STLDI plans to comply with the ACA’s most significant market reforms. The Committee also urges states to restrict STLDI plans by capping their duration at 90 days, prohibiting renewability, and prohibiting their sale during ACA open enrollment periods. States should also apply the ACA’s reforms to STLDI and require these plans to only be sold in-person to help prevent aggressive marketing tactics.
A Deeper Dive Into The Report
The investigation confirmed many concerns that have been raised about STLDI in other analyses. Prior studies showed that STLDI is marketed using misleading and fraudulent practices, discriminates against individuals with preexisting conditions, offers limited financial protection, and engages in post-claims underwriting. Other analyses—from the Kaiser Family Foundation and the Leukemia and Lymphoma Society as well as a Trump administration assessment—have found that the sale of STLDI raises premiums for people with preexisting conditions who purchase coverage in the ACA markets.
The Committee’s report confirms that these STLDI practices are widespread among the major sellers of STLDI plans, and the entire report is worth reading. (It includes many examples pulled from complaints and 12 appendices with various enrollment applications and marketing materials.) This post highlights some of the most interesting data from the investigation.
About 3 Million Enrolled In STLDI, Mostly Through Associations
About 2.36 million consumers were enrolled in STLDI with nine insurers in 2018. This rose to 3 million consumers with those same insurers in 2019, an increase of more than 600,000 people. This data suggests that the Trump-era rule has in fact increased enrollment in STLDI coverage. As noted above, these are likely conservative enrollment estimates; although the Committee investigated nine major sellers of STLDI, there is currently no way to know about every company that might be offering these products.
The Committee found that STLDI plans were widely available in some states, with the highest enrollment in Florida and Texas in both 2018 and 2019. These two states accounted for 28 percent of overall enrollment. Other states with the high enrollment were Arizona, Georgia, Illinois, Missouri, North Carolina, Ohio, Tennessee, and Wisconsin. Of these states, only Illinois has restricted the sale of STLDI since the recent rule. It is thus perhaps no surprise that most STLDI insurers were availing themselves of the ability to offer plans for up to 364 days with long-term renewals (of 24 to 36 months).
STLDI was marketed mostly through associations, with 2.2 million individuals enrolled in STLDI via an association in 2019. This data, the Committee notes “suggests that STLDI insurers are aggressively pursuing sales through out-of-state associations, possibly to take advantage of [state] regulatory gaps.” Everest, for example, offered STLDI through non-employer associations in 18 states in 2018 while National General Accident and Health offers STLDI through non-employer associations in 21 states. Some of these states do not regulate out-of-state association group policies, allowing companies to sell policies approved in another state. These tactics make it challenging for state regulators to oversee STLDI, and the federal government has taken no enforcement or oversight action in this area.
High Profits And High Broker Commissions
The brokers investigated by the Committee received commissions that were up to 10 times higher than commissions for ACA plans. STLDI commissions are based on a percentage of premium and exceed compensation for ACA plans even though STLDI premiums are lower than ACA premiums. In its review of 14 STLDI companies, the Committee found that commission rates for STLDI plans ranged from 10 to 40 percent, with an average commission rate of 23 percent (compared to a commission rate of 2 percent for ACA plans).
Higher commissions should not be surprising because STLDI is far more profitable than traditional individual market coverage. The median medical loss ratio for STLDI products was 48 percent across eight companies. This is compared to 80 percent in the individual and small group markets under the ACA. This ratio is consistent with NAIC data, which shows that the three largest insurers offering STLDI had loss ratios of 43.7 percent, 34 percent, and 52.1 percent. The majority of STLDI premium revenue for those insurers went to profit, marketing, and expenses unrelated to medical care.
Misleading And Fraudulent Marketing
Higher commissions incentivize brokers to engage in aggressive marketing tactics. This includes misrepresenting the coverage to consumers, urging consumers to purchase plans over the phone without written information, or failing to disclose major coverage limitations. The report summarizes many complaints from consumers who thought they were enrolling in major medical coverage that included ACA protections, only to learn that their bills would not be covered. In the face of complaints, many STLDI companies simply refunded premiums or canceled the policy, leaving consumers on the hook for full medical bills.
Consistent with other studies on this issue, the Committee found that consumers are often deprived of robust information to inform purchasing decisions. Some marketing brochures mislead by, say, advertising coverage for services (such as hospitalization and prescription drugs) that are subject to significant limitations and exclusions. Others do not disclose plan limitations or exclusions at all. Some STLDI companies and brokers purposely target consumers with medical conditions who are actively looking for comprehensive health insurance and make assurances that medical conditions will be covered (even though the STLDI policies exclude coverage for preexisting conditions). STLDI policies also include misleading information about network breadth or relationships with prominent insurers.
Here, the Committee includes an extended discussion of practices by Health Insurance Innovations (HII), a publicly traded company that has faced many lawsuits and a 43-state market conduct exam over its sales and marketing practices. The Committee reviewed thousands of consumer complaints and concluded that HII “incentivizes third-party agents and brokers to actively target vulnerable consumers seeking comprehensive health coverage and deceive them into purchasing STLDI plans, in addition to limited benefit indemnity plans, life insurance plans, and medical discount plans.”
The Committee also looked into HII’s relationship with Simple Health (which the Federal Trade Commission has sued for defrauding consumers by falsely claiming to sell comprehensive health insurance) and its owner, Steven Dorfman. The report concludes that “HII was abetting or willfully ignorant of Simple Health and Mr. Dorfman in its operation of defrauding vulnerable Americans.” The report includes much more detail about HII and its practices.
No Coverage For Preexisting Conditions
Of the eight STLDI insurers reviewed, six used health status underwriting, meaning they screened applicants based on health status, denied coverage to those with preexisting conditions, or excluded coverage for common conditions that result from preexisting conditions. The underwriting process involved completion of invasive, complex applications. Five insurers refused to issue a policy to someone with a preexisting condition, and all insurers offer some plans that exclude coverage for preexisting conditions.
Various companies denied coverage to people who had a history of diabetes, stroke, heart or circulatory system disorders, cancer, substance use, bipolar disorder, immune system disorder, kidney disease, HIV, and more. All STLDI insurers denied coverage to those who were pregnant, and five denied coverage to those who were in the process of adoption or undergoing fertility treatment. Despite these practices, only two STLDI insurers had data on the percentage of consumers who were denied coverage.
Some of the companies will issue a policy to people with preexisting conditions but still exclude coverage for those conditions. Some STLDI excludes even basic preventive care, such as routine physical exams. One of the insurers covers preexisting conditions but at a surcharge of up to 300 percent and only after an extensive review of medical and prescription drug records for up to seven years prior. After reviewing this information, the insurer determines whether the consumer is eligible for coverage.
Insurers that do offer coverage for preexisting conditions apply severe limitations. Some impose a 12-month waiting period, meaning a condition will not be covered until the policy has been in effect for a full year. Another offers coverage for preexisting conditions but only up to $25,000 in medical expenses.
Broad Coverage Exclusions
Beyond exclusions for preexisting conditions, the plans reviewed by the Committee had exclusions for many common medical conditions that consumers would expect to be covered by health insurance. The report notes exclusions for pregnancy, mental health, prescription drugs, HIV, skin disease, knee injuries, kidney stones, and appendectomies, among other needs.
Even plans that cover preventive services, prescription drugs, mental health, emergency services, or hospitalization imposed “draconian” limits on coverage. One plan, for instance, imposed a six-month waiting period for a preventive care wellness check. Another excludes pap smears; others do not cover contraceptives. (The Committee notes that these exclusions appear designed to avoid enrolling women of child-bearing age and that all STLDI plans discriminate against women through gender rating, coverage exclusions, and other plan limitations.) The report includes many details of these limits on coverage under STLDI policies.
Rescissions And Denied Claims
Rescissions, or post-claims underwriting, were also extremely common. All STLDI insurers engaged in this practice where, after a claim is filed, patients are required to submit extensive medical records from up to five years prior so the insurer can determine whether the medical condition was a preexisting condition that should have been disclosed during the application process—or was due to a preexisting condition. If the insurer can link the claim to a prior condition or error on the application, it will deny coverage for that claim or rescind the policy altogether.
The Committee reviewed thousands of consumer complaints from eight STLDI insurers regarding rescissions and denied claims. Claims were denied for cancer treatment, surgery, heart procedures, a tonsil procedure, shoulder surgery, a colonoscopy, biopsies, and an open ankle wound. One insurer rescinded coverage and denied claims for medical treatment after a motorcycle accident—since the patient had previously seen a provider for insomnia and fatigue (and had been recommended for prostate cancer screening at one point). In some cases, the insurers reversed course and covered claims but only after the patient retained legal representation.
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June 26, 2020 at 10:25PM
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New Congressional Investigation Of Short-Term Plans - Health Affairs
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