California is poised to become the first state in the nation to ban cheap, short-term health insurance plans pushed by the Trump administration as a low-cost alternative to Obamacare.
New federal rules, finalized Aug. 1, allow insurers to deny coverage to people with pre-existing conditions and institute annual and lifetime caps on how much money they are required to spend on covered benefits over the course of a year or the life of a plan. Insurers can also sell health insurance plans that do not cover prescription drugs, and can exclude a broad scope of services, including maternity, pediatric and mental health care.
Under Obamacare, the short-term plans were allowed for three months, primarily to cover consumers transitioning between coverage. The new Trump administration rule, blasted by Democrats as a move permitting the sale of “junk insurance,” allows insurers to extend them for up to three years.
A California bill, authored by state Sen. Ed Hernandez, D-Azusa, would outlaw them altogether. Gov. Jerry Brown has until Sept. 30 to veto it or sign it into law.
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“These plans can bankrupt people,” Hernandez said. “They don’t have the protections of the Affordable Care Act. They’re junk. It’s a huge threat.”
Other states, including New York, New Jersey and Massachusetts, have policies banning plans that do not comply with Obamacare, but California would be the first to pass a law explicitly prohibiting the sale of the short-term policies. If signed into law, all current short-term plan policies that don’t include consumer protections outlined in the Affordable Care Act would terminate by the end of the year and no others could be sold.
The move to ban such plans is part of a broad effort under way, at the state level, to blunt actions by the Trump administration to unravel the federal health care law after President Donald Trump and the Republican-controlled Congress failed last year to repeal and replace Obamacare.
Brown is also considering bills that would prohibit low-income people on Medi-Cal from being required to work to receive benefits, require health plans to spend at least 80 percent of their revenue from insurance premiums on health care rather than profits and administrative costs, and ban individuals from creating their own so-called “association health plans,” which allow employers to join forces to form plans that can also exclude coverage for maternity and mental health care, prescription drugs and pediatric care.
The proposals are a direct response to actions taken by the Trump administration, said Anthony Wright, executive director of the consumer advocacy group Health Access California, which sponsored a trio of the bills.
“These are threats to our health care system that we aim to prevent,” Wright said. “These junk insurance plans, whether through so-called short-term insurance or through association health plans, leave people at risk of being uncovered for what they actually need, and they also threaten to destabilize the market and spike premium rates.”
The Trump administration argues the plans provide consumer choice. “This will create tremendous competition,” Trump said last year.
Federal regulators say insurers selling short-term plans are not required to comply with the broad scope of benefits required to be covered under Obamacare.
“Short-term, limited-duration insurance is not subject to the requirement to provide essential health benefits and is not subject to the prohibitions on pre-existing condition exclusions or lifetime and annual dollar limits,” federal regulators wrote in the rule expanding short-term plans.
The number of Californians enrolled in short-term plans has fallen in recent years, state insurance regulators said. At present, there are roughly 10,000 policies in effect, according to an analysis by Georgetown University’s Center on Health Insurance Reforms.
Researchers said without state action, enrollment would likely grow, with an estimates at more than 600,000 people potentially signing up for short-term plans. That could lead young, healthy people to leave the Covered California market, threatening greater premium spikes.
“If these were allowed, we’d see insurers aggressively make their play,” Wright said. He said if California does not ban the cheap plans, there’s greater risk of young, healthy people leaving the marketplace, which could further drive up premium costs.
But for some, short-term plans purchased outside of authorized enrollment periods offer needed relief, said David Fear Jr., president of the California Association of Health Underwriters, which opposes the ban.
“Unlike the Trump administration, we don’t think these are great plans, and in many ways we’re not huge supporters, but getting rid of these types of plans could leave some people uncovered in emergencies,” Fear Jr. said.
He said, for example, that he sold a short-term plan recently to a consumer who wasn’t paying attention or checking his mail, and he missed his regular enrollment period.
“He was going on a motorcycle trip and he wanted to make sure he was covered,” Fear Jr. said. “I was able to sell him one of these short-term plans for 90 days that would cover his trip.”
Hernandez says Californians will be better off without them.
“I want to make sure we continue to lead the country in the implementation of the Affordable Care Act,” he said. “I think all these bills maintain the stability of our health care market.”
These are the bills currently on Brown’s desk:
Senate Bill 910: Would prohibit insurers from selling, renewing or offering short-term health plans in California.
Senate Bill 1108: Would allow California to seek waivers from the federal government to increase enrollment in Medi-Cal, the low-income health care program. It would also ban the state from requiring anyone on Medi-Cal to work in order to receive benefits. Kentucky this year attempted to add work requirements to the state’s Medicaid program, but a judge blocked the action.
Senate Bill 1375: Would prohibit individuals from forming “association health plans,” which are not required to comply with Obamacare coverage mandates.
Assembly Bill 2499: Would require health plans to spend at least 80 percent of premium dollars on health care. The Trump administration has floated increasing the ratio insurers are allowed to spend on profits and administrative care.