REPORT JUNE 2018 What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Health Insurance Plans Is Increased? Preethi Rao Sarah A. Nowak Christine Eibner Associate Policy Researcher Physical Scientist Paul O’Neill Alcoa Chair in Policy Analysis RAND Corporation RAND Corporation Senior Economist RAND Corporation ABSTRACT KEY TAKEAWAYS ISSUE: Short-term health insurance policies are inexpensive, limited- Changing only the duration of duration plans that provide few consumer protections. Two factors — a short-term health insurance plans — from the current three- 2018 federal rule to extend the terms of these plans from three months month term to 12 months — to up to 12 months, and the repeal of the individual mandate penalty — would have minimal effects on could cause healthy people to leave the ACA-compliant market and enrollment and premiums. premiums in that marketplace to increase. Removing the individual GOAL: To determine the effects of these policy changes on health mandate penalty, eliminating insurance enrollment and premiums. behavioral barriers (e.g., METHODS: Using the RAND COMPARE microsimulation model to increasing awareness of plans), and increasing the duration analyze the effect of extending short-term plans and repealing the to 12 months would decrease individual mandate, both individually and in combination. enrollment in plans with minimal FINDINGS AND CONCLUSIONS: Extending the duration of short-term essential coverage by 9 million and increase premiums in silver- plans has little effect on premiums and enrollment alone. Repealing the tier marketplace plans by 3.6 individual mandate in addition to extending the duration of short-term percent. plans leads to fewer young people enrolled in ACA-compliant plans; overall, it reduces enrollment in minimum essential insurance coverage People insured in short-term by 6 million and leads to a 0.9 percent increase in ACA marketplace plans may face high out-of- premiums. However, when behavioral factors (e.g., lack of consumer pocket costs and coverage limitations, possibly making their awareness of short-term plans, hassle of enrolling, desire to comply with health care unaffordable in the law) are removed, we estimate that 5 million people will enroll in short- event of illness or injury. term plans, and ACA-compliant premiums will increase by 3.6 percent. What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Plans Is Increased?2 INTRODUCTION In February 2018, the U.S. Departments of Treasury, Labor, repeal of the mandate and extension of short-term plans’ and Health and Human Services proposed a rule that may motivate insurers to market short-term plans more would expand health insurers’ ability to sell short-term aggressively or take steps to simplify enrollment. The plans. These are limited-duration policies that do not expansion of short-term plan duration to 12 months also comply with requirements of the Affordable Care Act. 1 will allow those who enroll in 12-month short-term plans Under current law, such plans may be sold only for three- to switch to the ACA-compliant market during open month terms; the federal rule proposes that insurers be enrollment if they experience a change in health status, allowed to sell them for terms of up to 12 months. Short- without facing any penalties and without fear of a gap term plans are less comprehensive and often cheaper in coverage. This could lead to increased enrollment in than ACA-compliant policies, and therefore potentially short-term plans by young, healthy individuals who may attractive to young, healthy people who do not expect to nonetheless be risk averse. need insurance. However, if healthy, low-cost people leave the ACA’s insurance risk pool to enroll in short-term plans, MODELING premiums for ACA-compliant policies may increase. In this report, we use the RAND COMPARE microsimulation Short-term plans have been available since before the model to analyze the impact of extending short-term plans ACA took effect, but uptake of these plans has been low; as a standalone policy and in combination with individual just over 160,000 people were enrolled in such plans in mandate repeal. To model short-term plan enrollment, we 2016. There are likely several factors responsible. First, 2 take into account a “behavioral barriers” parameter to short-term plans are intended to cover temporary gaps account for factors not directly related to plan characteristics, rather than serving as the primary source of coverage. including lack of awareness and hassle of enrolling. These Second, such plans typically have limited coverage factors may have previously led to low enrollment in these compared to standard health insurance plans, and thus plans (see the Appendix for complete study methods). are less appealing to many individuals. Third, there may These barriers may be reduced, however, as a result of the be behavioral factors that affect enrollment, such as lack new federal rule, the repeal of the individual mandate of awareness that these plans exist, the time and hassle penalty, and changes in insurer behavior (like increased associated with enrolling, and choice overload resulting marketing) and consumer attitudes. We analyze the effects from multiple plan options. Finally, after the ACA was of five policy scenarios, projected to the year 2020: enacted, individuals carrying short-term plans were subject to the individual mandate penalty unless they had 1 Current law. In this scenario the individual mandate penalty is in effect and applies to another source of coverage. short-term plan holders; consumers have access Shortly before the proposed federal rule to extend the to three-month-duration short-term plans. duration of short-term plans, Congress passed the Tax Cut This scenario resembles the current state of the and Jobs Act of 2017, which repealed the ACA’s individual insurance market. mandate penalty. Estimates from the Congressional Budget 2 Twelve-month short-term plans. The individual Office (CBO) suggest that repealing the individual mandate mandate penalty is in effect and applies to will reduce health insurance enrollment and increase short-term plan holders; consumers have access premiums for plans purchased on the individual market.3 to 12-month-duration short-term plans in Various factors — plans’ limited duration, the fact they do states that do not restrict such plans. We model not satisfy the individual mandate, hassle of enrolling — this scenario to isolate the effect of loosening may have caused some individuals to rule them out. But restrictions on short-term plans. commonwealthfund.org June 2018 What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Plans Is Increased?3 3 No individual mandate, three-month short- are ineligible for the ACA’s tax credits. Because short-term term plans. The individual mandate penalty is plans do not meet the ACA’s minimum essential coverage repealed and consumers have access to three- requirements, individuals enrolled in them without month duration short-term plans. We model this another source of coverage were subject to the individual scenario to isolate the effect of eliminating the mandate penalty in 2014 through 2017 and will continue individual mandate. to be subject to this penalty for the 2018 calendar year. Short-term plans are ineligible for the ACA’s tax credits 4 No individual mandate, 12-month short-term and cost-sharing reductions, meaning that enrollees plans. The individual mandate penalty is in such plans must pay the full premium and any cost- repealed and consumers have access to 12-month sharing without federal financial assistance. short-term plans in states that do not restrict such plans. This scenario reflects the effect of In April 2017, a new regulation — issued under the Obama the administration’s planned changes, assuming administration — took effect, limiting the duration of behavioral barriers to enrollment in short-term short-term plans to less than three months. Previously, plans remain the same. these plans could be issued for periods of less than 12 months, meaning they could be issued for up to 364 days, 5 No individual mandate, 12 month short- effectively a full year of coverage despite being considered term plans, behavioral barriers removed. “short-term.” New changes put forth by the February 2018 The individual mandate penalty is repealed, federal rule propose to reverse this regulation, allowing consumers have access to 12-month short-term short-term plans to again be issued for up to 12 months. plans in states that do not restrict such plans, and However, states may impose stricter regulations; some do there are no behavioral barriers to enrollment not allow the sale of short-term plans and others restrict in short-term plans. This scenario reflects the duration to a maximum of six months. Historically, effect of the administration’s planned changes, enrollment in short-term plans has been low — just over assuming behavioral barriers to enrollment in 160,000 in 2016 — perhaps because enrollees were still short-term plans are reduced. subject to the individual mandate penalty.5 If short-term plans are expanded to 12 months, some people may find it OVERVIEW OF SHORT-TERM PLANS advantageous to enroll, switching to the ACA’s regulated market only if they become sick. Short-term/limited duration health insurance policies are plans that are issued for a period of less than 365 Removing the individual mandate penalty could increase days. Such plans have been available since before the enrollment in short-term plans. If this increase comes enactment of the ACA. Their original purpose was to from young, healthy people moving out of marketplace cover short-term gaps in health insurance coverage, rather plans, there could be serious implications for premiums than being a sole source of coverage. Because these plans on the ACA market as their populations become older do not have to comply with ACA insurance regulations, and sicker. An analysis of the individual mandate by the insurers can deny or fail to renew short-term plans for CBO and the Joint Committee on Taxation predicts that people with preexisting conditions, exclude coverage of repealing the individual mandate would increase the essential health benefits and preventive care, and charge number of uninsured by 7 million individuals by 2020 higher cost-sharing than permitted in the ACA-compliant and would increase average premiums in the nongroup market.4 Because of these exclusions and limitations, market by 10 percent, not accounting for any changes in short-term plans often have lower premiums than the ages of people purchasing insurance.6 However, the ACA-compliant plans. As a result, they may be attractive CBO also points out that because of assumptions made to young and healthy individuals, particularly those who about how people may respond to a change in the law, the commonwealthfund.org June 2018 What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Plans Is Increased?4 premium estimates may be high.7 The CBO analysis does RESULTS not directly address short-term plans; furthermore, CBO previously clarified that it considers people who are not Enrollment enrolled in policies that provide “financial protection from Relative to current law (i.e., individual mandate penalty major medical risks” to be uninsured.8 in effect and short-term plans restricted to three months), the consequence of increasing the duration of short-term The Urban Institute recently released a report on the effects of short-term plan expansion, individual mandate plans to 12 months is that the overall number of nonelderly repeal, and other recent policy changes, and found individuals with insurance that provides minimum an increase of 6.4 million in the number of uninsured essential coverage stays constant at 250 million. Removing and an 18 percent increase in average premiums.9 The the individual mandate penalty in both scenarios (three- changes reported by the Urban Institute are not directly month and 12-month short-term plans) reduces that comparable to our estimates because of differences number to 244 million, a decrease of 6 million people in assumptions around cost-sharing reduction (CSR) (Exhibit 1). This aligns with estimates from the CBO, payments, reporting of premiums (mean vs. age-specific), which finds an additional 7 million uninsured people by and other policy changes considered in the model. 2020,10 and by the Urban Institute, which finds 6.4 million Exhibit 1. Estimated Enrollment in Health Insurance Plans, Individuals Under Age 65, in Millions Total enrolled in minimum Enrolled in essential ACA-compliant Enrolled in coverage nongroup plan short-term plan Scenario (in millions) (in millions) (in millions) Current law 1 Individual mandate penalty in effect Short-term plan duration limited to 3 months 250 18.9 0.2 Behavioral barriers to short-term plan enrollment Individual mandate penalty in effect 2 Short-term plan duration expanded to 12 months Behavioral barriers to short-term plan enrollment 250 18.9 0.2 Individual mandate penalty repealed 3 Short-term plan duration limited to 3 months Behavioral barriers to short-term plan enrollment 244 15.5 0.2 Individual mandate penalty repealed 4 Short-term plan duration expanded to 12 months Behavioral barriers to short-term plan enrollment 244 15.5 0.3 Individual mandate penalty repealed 5 Short-term plan duration expanded to 12 months No behavioral barriers to short-term plan enrollment 241 14.2 5.2 Data: Analysis based on the RAND COMPARE microsimulation model. Notes: In scenarios in which the individual mandate penalty is still in effect, short-term plan holders are subject to the penalty. Minimum essential coverage does not include short-term plans. commonwealthfund.org June 2018 What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Plans Is Increased?5 additional uninsured people by 2019.11 When we assume short-term plans may have relatively small effects on short- the elimination of behavioral barriers to enrollment in term plan enrollment. But if these two changes together short-term plans, the number of people in insurance that are accompanied by reductions in behavior barriers to provides minimum essential coverage declines by 9 million enrollment (e.g., increased marketing of plans to increase to 241 million. This is largely the result of an estimated 5 awareness, streamlining the application process, lack of million people enrolling in short-term plans, with others concern over facing the mandate penalty), there could be a dropping insurance coverage entirely. substantial effect. In the ACA-compliant nongroup market, enrollment stays Age and Poverty Level of Nongroup Enrollees constant when 12-month short-term plans are available, Under current law — short-term plans available for up to relative to current law, and falls by 3.4 million people when three months and the individual mandate penalty still the mandate is repealed. It falls by a further 1.3 million in effect — the share of short-term plan enrollees age 34 when we remove behavioral barriers to enrollment in short- or younger is 23 percent. This remains constant when term plans. Enrollment in short-term plans is relatively low the term is increased to 12 months. The shares increase (200,000 to 300,000) in all scenarios except when behavioral to 26 percent and 27 percent under the three-month barriers are removed, in which case enrollment jumps to 5.2 and 12-month plans, respectively, when the mandate million. These results suggest that by themselves the repeal is repealed. The share increases to 29 percent when of the individual mandate and the increase in duration of behavioral barriers are removed (Exhibit 2). Conversely, Exhibit 2 Enrollment in Short-Term and ACA-Compliant Nongroup Plans, Exhibit 2. Enrollment in Short-Term and ACA-Compliant Nongroup Plans, Enrollees Age or Younger, Incomes at or Less Than 400% FPL Enrollees Age 34 34 or Younger, Incomes at or Less Than 400% FPL 93% 88% 88% 78% 78% 52% 50% 49% 48% 47% 39% 39% 36% 36% 38% 29% 26% 27% 23% 23% Short-term plan enrollees, ACA-compliant plan enrollees, Short-term plan enrollees, ACA-compliant plan enrollees, age ≤34 age ≤34 income ≤400% FPL income ≤400% FPL 1 Current law 2 12-month STPs 3 3-month STPs, 4 12-month STPs, 5 12-month STPs, no mandate no mandate no mandate, no behavioral barriers Data: Analysis based on the RAND COMPARE microsimulation model. Data: Analysis based on the RAND COMPARE microsimulation model.? Notes: Absolute numbersof short-term plan and ACA-compliant nongroup planplan enrollees are presented in Exhibit 1.federal poverty level. Notes: Absolute numbers of short-term plan and ACA-compliant nongroup enrollees are presented in Exhibit 1. FPL = FPL == short-term plan. STP federal poverty level. STP = short-term plan. Source: P. Rao, S. Nowak, and C. Eibner, What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Health Insurance Plans Is Increased?, The Commonwealth Fund, May 2018. commonwealthfund.org June 2018 What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Plans Is Increased?6 eliminating the mandate reduces the proportion of for an ACA-compliant silver plan increases by 0.9 percent people age 34 or younger in ACA-compliant nongroup (from $7,308 to $7,377) relative to current law when plans. These findings are consistent with concerns that the individual mandate is lifted, and by 3.6 percent repealing the individual mandate would cause young, (from $7,308 to $7,568) when the mandate is lifted and healthy individuals to leave marketplace plans, leading behavioral barriers are removed (Exhibit 3). We find to increases in premiums. The proportions of short-term higher increases in premiums in bronze plans — 6.9 plan enrollees with incomes under 400 percent of the percent when the mandate is lifted (from $4,662 to $4,982), federal poverty level (just over $48,000 for an individual) 9.9 percent (from $4,662 to $5,124) when behavioral is 49 percent under current law and 52 percent when plan barriers are removed. The difference is driven by the duration is increased to 12 months. The proportion of loading of CSR subsidies onto silver-tiered plans. (For enrollees with incomes under 400 percent of poverty in additional discussion of this, see the Appendix.) These the ACA-compliant market is 78 percent under current law estimates are somewhat lower than the CBO’s estimate that age-specific premiums will increase by roughly and 88 percent when the mandate penalty is lifted. This 10 percent if the individual mandate is lifted. CBO has effect is largely because of high-income individuals leaving said, however, that these estimates are preliminary and the ACA-compliant market when the mandate is lifted and revised estimates “would likely be smaller.”12 The Urban either becoming uninsured or moving to short-term plans. Institute predicts much higher increases in premiums (approximately 18%) following repeal of the individual Premiums mandate and expansion of short-term plans.13 These Premiums for ACA-compliant plans are relatively constant estimates reflect average changes in premiums, as opposed across the first two scenarios, when the individual to age- and metal-tier-specific premiums. These results Exhibit 3 mandate is in effect. However, the age-specific premium may also reflect Urban Institute’s taking into account Estimated Changes in Premiums Exhibit 3. Estimated Changes in Premiums $7,568 $7,308 $7,283 $7,377 $7,382 $4,982 $4,985 $5,124 $4,662 $4,655 $1,482 $1,412 $1,413 $1,395 $1,071 Bronze plan premium, 40-year-old Silver plan premium, 40-year-old Short-term plan premium, 40-year-old 1 Current law 2 12-month STPs 3 3-month STPs, 4 12-month STPs, 5 12-month STPs, no mandate no mandate no mandate, no behavioral barriers Data: Analysis based on the RAND COMPARE microsimulation model. Data: Analysis based on the RAND COMPARE microsimulation model.? Notes: Absolute numbersof short-term plan and ACA-compliant nongroup planplan enrollees are presented in Exhibit 1. short-term plan. plan. Notes: Absolute numbers of short-term plan and ACA-compliant nongroup enrollees are presented in Exhibit 1. STP = STP = short-term Source: P. Rao, S. Nowak, and C. Eibner, What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Health Insurance Plans Is Increased?, commonwealthfund.org The Commonwealth Fund, May 2018. June 2018 What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Plans Is Increased?7 other concurrent policy changes, such as the shortened Without making additional assumptions, combining the open enrollment periods on the ACA-compliant market extension of short-term plans with the individual mandate and reduced federal funding for outreach and assistance. repeal has little additional effect beyond individual mandate In contrast, our analyses isolate the effects of the short- repeal alone. However, the combination of expanded term plan expansion and the individual mandate repeal. short-term plan duration and the mandate repeal may lead Further, our analyses take into account the Trump to changes in insurer behavior and consumer attitudes, administration’s intent to halt CSR subsidy payments to ultimately reducing behavioral barriers to short-term plan insurers. We assume that insurers load such costs onto enrollment. When we assume such barriers are eliminated their silver-tier plans in all scenarios; the Urban Institute’s along with the mandate repeal, we estimate substantially analysis does not assume CSR payments are halted in their higher enrollment in short-term plans: slightly more baseline scenario. than 5 million enrollees compared with roughly 200,000 if behavioral barriers continue. This scenario causes a Premiums for short-term plans fall, relative to current law, decrease in the total enrollment in insurance plans that in the 12-month short-term plan scenario without the provide minimum essential coverage of 3 million (relative mandate, particularly when we assume changes in insurer to the scenario of mandate repeal but including behavioral behavior and consumer attitudes. This is consistent with barriers), resulting in 9 million fewer people with minimum the hypothesis that younger, healthier individuals would essential coverage. Those insured via short-term plans may leave the ACA-compliant market and enroll in short-term face high out-of-pocket costs and coverage limitations, which plans if the mandate were lifted, reducing premiums for may make their care unaffordable in the event of illness short-term policies while causing premiums to rise in or injury. Simultaneously, we estimate that premiums for ACA-compliant plans. ACA-compliant silver plans would increase by 0.9 percent to 3.6 percent relative to the “current law” scenario. CONCLUSION We think there are credible reasons to believe that Our analysis suggests that in isolation, the changes to combining short-term plan expansion and individual short-term plan duration put forth in the recent proposed mandate repeal could reduce behavioral barriers to enrolling federal rule would have minimal effects on enrollment in short-term plans. The fact that short-term plan holders in short-term plans, enrollment in ACA-compliant were subject to the individual mandate could have made insurance policies, and premiums on the ACA-compliant these policies a nonstarter for some consumers, regardless market. Enrollment in short-term plans has been very low of their cost. Similarly, the limited duration of short-term historically, and without an assumption of changes in plans could have caused some consumers to rule out these insurer behavior and consumer attitudes, simply extending policies without seriously considering the costs and benefits. their duration will not affect enrollment substantially. However, with the elimination of the ACA’s individual mandate and resulting premium increases, people may be In contrast, eliminating the individual mandate, alone or looking for low-cost insurance options. Insurers, in turn, in combination with expanding short-term plan duration, may increase marketing of short-term plans and take other has a considerable impact on enrollment and other steps to reduce hassle or choice overload associated with outcomes. Repealing the individual mandate increases the enrolling in these policies. Particularly important is the fact number of individuals without minimum essential coverage that those who enroll in 12-month short-term plans will be relative to current law, mainly because those people will able to switch to the ACA-compliant market during open leave their individual market coverage and employer- enrollment if they experience a change in health status, sponsored insurance plans. Premiums for ACA-compliant without facing any penalties and without fear of a gap in silver marketplace plans increase, largely because of younger coverage. This could encourage young, healthy individuals to and healthier individuals dropping coverage. enroll in short-term plans. commonwealthfund.org June 2018 What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Plans Is Increased?8 NOTES 1. Department of the Treasury, Internal Revenue Service, 7. CBO, Repealing the Individual, 2017. Department of Labor, Employee Benefits Security Administration, and Department of Health and Human 8. Jared Maeda and Susan Yeh Beyer, “How Does CBO Services, Centers for Medicare and Medicaid Services, Define and Estimate Health Insurance Coverage for People “Short-Term, Limited-Duration Insurance; Proposed Rule,” Under Age 65?” Congressional Budget Office Blog, Dec. Federal Register 83, no. 35 (Feb. 21, 2018): 7437–47, https:// 20, 2016, https://www.cbo.gov/publication/52352. While www.federalregister.gov/documents/2018/02/21/2018- CBO lists several plan types that fail to meet these criteria, 03208/short-term-limited-duration-insurance. short-term plans are not included. In our analyses, we present the number of individuals with insurance that 2. National Association of Insurance Commissioners, 2016 provides minimum essential coverage, a category that Accident and Health Policy Experience Report (NAIC, July does not include short-term plans, and separately report 2017), http://www.naic.org/prod_serv/AHP-LR-17.pdf. the number of individuals enrolled in short-term plans. 3. Congressional Budget Office, Repealing the Individual 9. Linda Blumberg, Matthew Buettgens, and Robin Wang, Health Insurance Mandate: An Updated Estimate (CBO, Nov. 2017), https://www.cbo.gov/system/files/115th- The Potential Impact of Short-Term Limited-Duration congress-2017-2018/reports/53300-individualmandate. Policies on Insurance Coverage, Premiums, and Federal pdf. Spending (Urban Institute, Feb. 2018), https://www.urban. org/sites/default/files/publication/96781/2001727_0.pdf. 4. Dania Palanker, Kevin Lucia, and Emily Curran, “New Executive Order: Expanding Access to Short-Term Health 10. CBO, Repealing the Individual, 2017. Plans Is Bad for Consumers and the Individual Market,” To the Point (blog), Commonwealth Fund, Oct. 11, 2017, http:// 11. Blumberg, Buettgens, and Wang, Potential Impact of www.commonwealthfund.org/publications/blog/2017/ Short-Term, 2018. aug/short-term-health-plans. 12. CBO, Repealing the Individual, 2017. 5. NAIC, 2016 Accident and Health, 2017. 13. Blumberg, Buettgens, and Wang, Potential Impact of 6. CBO, Repealing the Individual, 2017 Short-Term, 2018. commonwealthfund.org June 2018 What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Plans IsHealth Care Cost Burden? The Commonwealth Fund How High Is America’s Increased?9 9 APPENDIX. STUDY METHODS of the actuarial value of individual plans sold prior to the We estimated the effects of the expansion of short-term ACA.c In addition, we account for the possibility that since plan duration using RAND’s COMPARE model, which uses short-term plans are typically not guaranteed issue, some economic theory and data to estimate the impacts of different individuals may be denied coverage. health care reforms.a We used our national model, which • Increased risk. We account for the fact that limited duration uses data from the April 2010 wave of the 2008 Survey of (e.g., three-month) short-term plans expose individuals to Income and Program Participation, to create our population of the possibility of being denied coverage later in the year. individuals and families, and data from the 2009 Kaiser Family For example, if an individual is issued a three-month plan at Foundation/Health Research and Educational Trust Employer the start of the year, he or she faces the risk of uninsurance Health Benefits Survey to create our population of firms. because of denial at the beginning of each subsequent Health care expenditures in COMPARE are derived from the quarter of the year. We model this risk of uninsurance based 2010–2011 Medical Expenditures Panel Survey, the Centers for on the age- and gender-based risk of transitioning to a poor Medicare and Medicaid Services National Health Expenditure health state each quarter.d Since COMPARE is an annual Accounts, and the Society of Actuaries. While our data sources model, and the probabilities of health status transitions were predate the implementation of the ACA, we updated them to annual, this was done by annualizing the risk of being denied reflect population growth (using factors reported by the U.S. coverage each quarter. We assume that unless an individual Census Bureau) and to reflect health care cost growth (using is denied coverage in any quarter, they continue enrolling the CMS National Health Expenditure Accounts). in three-month plans for the full year. We note that while In October 2017, the Trump administration announced there is anecdotal evidence that insurers may attempt to its intention to halt cost-sharing reduction (CSR) subsidy circumvent the three-month limitation on short-term plan payments to insurers; such payments serve to reduce out-of- duration,e there are no estimates of the extent to which this pocket expenses to low-income individuals. However, even is happening. Therefore, we assume in the model that the without federal funding for CSRs, insurers are required to three-month limitation on plan duration does in fact expose provide reduced cost-sharing for low-income individuals in enrollees to the risk of uninsurance at every subsequent silver-tier plans. In anticipation of this executive action, many quarter in which they may seek insurance coverage via an insurers built the costs of the CSR payments into premiums for additional three-month short-term plan. their silver plans. The second-lowest-cost silver plan is used • State variation in regulations. Despite the proposed to calculate tax credits provided to low-income individuals federal rule, some states have stricter regulations on short- to purchase health insurance, so by increasing silver-plan term plans. Details of state regulations on short-term plans premiums, insurers can effectively recoup CSR payments. have been published elsewhere.f In particular, short-term Given that insurers in most states did load CSR payments onto plans are not available in some states, and are restricted in silver-plan premiums,b we take this into account in COMPARE others. In states with restrictions on short-term plans, the by eliminating CSR payments by the federal government most common restriction is a six-month duration restriction and loading the costs of CSRs onto the premiums of silver with renewals not permitted. We model these state policies nongroup market plans. In general, this change increases either by making short-term plans unavailable in states premiums for silver plans and increases advanced premium tax where they are not sold or by accounting for the fact that credit payments by the federal government (while reducing enrollees in six-month plans face risk of denial midway federal CSR payments to 0). through the year. To incorporate short-term plans into COMPARE, we considered • Behavioral barriers. Finally, we considered that despite several features: the consistent availability of short-term plans both prior • Benefit design. Short-term plans generally do not cover to and following the enactment of the ACA, enrollment preexisting conditions and are not required to adhere to has historically been very low. We assumed that this low ACA regulations on the actuarial value of insurance plans. enrollment is at least partially because of features not Therefore, we modeled short-term plans to have an actuarial directly related to plan characteristics: lack of knowledge value of 50 percent, or 10 percent lower than the actuarial of the existence of such plans, the time and hassle costs value of bronze-tier plans. This is consistent with estimates of applying for such plans, the uncertainty associated with commonwealthfund.org June 2018 What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Plans IsHealth Care Cost Burden? The Commonwealth Fund How High Is America’s Increased?10 10 whether one will receive coverage, choice overload given the • Because of the publicity of the ACA and enrollment outreach abundance of plan options, confusion regarding plan costs efforts, we added a “welcome-mat” effect to the model, and benefits, and other factors.g Since we cannot distinguish which increased Medicaid enrollment among previously between factors or account for them in COMPARE based eligible individuals after Medicaid expansion in 2014. on plan features alone, we predicted enrollment that is an • We also accounted for states that have expanded Medicaid order of magnitude larger than actual enrollment for the since 2015 (Louisiana, North Carolina, and Alaska), which years for which data are most recently available.h Therefore, has implications for marketplace enrollment and premiums, we introduced a “behavioral barriers” parameter to more since those with incomes between 100 percent and 138 accurately predict enrollment in short-term plans. This percent of the federal poverty level became eligible for is done by taking a random sample of those who would Medicaid in those states. otherwise choose a short-term plan and removing short- term plan coverage as an insurance option; these individuals Additionally, we made three recent upgrades to COMPARE would then choose the insurance option with the next- to better match actual experience. First, we incorporated an highest utility that is available to them. adjustment factor to ensure that the model more accurately matches the distribution of tax-credit-eligible and -ineligible To simulate the effects of repealing the individual mandate, enrollees in the ACA-compliant market. The factor reduces we eliminated the financial penalty for those who remain uptake of tax-credit-eligible plans, reflecting the possibility that uninsured in the model. RAND had previously conducted some individuals may be unaware of their eligibility, or prefer such an analysis.i Our current estimates of the increases in nonmarketplace coverage. Second, we made adjustments to the premiums on the nongroup market of 5 percent are somewhat income distribution of individuals over 400 percent of poverty lower than the 2015 results (8% increase) for several reasons: who pay the individual mandate tax penalty to better match data • To account for noncompliance and nonenforcement of the reported by the IRS.k Finally, we allowed for geographic variation individual mandate penalty, we downweighted the effect of in premium levels. These adjustments are explained in more the penalty by 20 percent.j detail in the Technical Appendix. a. Amado Cordova et al., “The COMPARE Microsimulation Model and the U.S. Affordable Care Act,” International Journal of Microsimulation 6, no. 3 (Winter 2013): 78–117, http://www.microsimulation.org/IJM/V6_3/5_IJM_6_3_2013_Cordova.pdf. b. Sabrina Corlette, Kevin Lucia, and Maanasa Kona, “States Step Up to Protect Consumers in Wake of Cuts to ACA Cost-Sharing Reduction Payments,” To the Point (blog), Commonwealth Fund, Oct. 27, 2017, http://www.commonwealthfund.org/publications/blog/2017/oct/states- protect-consumers-in-wake-of-aca-cost-sharing-payment-cuts. c. Jon R. Gabel et al., “More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be Sold Through Exchanges as of 2014,” Health Affairs 31, no. 6 (June 2012): 1339–48, https://www.healthaffairs.org/doi/10.1377/hlthaff.2011.1082. d. Christine Eibner and Sarah Nowak, Evaluating the CARE Act: Implications of a Proposal to Repeal and Replace the Affordable Care Act (Commonwealth Fund, May 2016), http://www.commonwealthfund.org/publications/fund-reports/2016/may/evaluating-care-act. e. Julie Appleby, “Desperate for Coverage: Are Short-Term Plans Better Than None at All?” Kaiser Health News, Dec. 1, 2017, https://khn.org/ news/desperate-for-coverage-are-short-term-plans-better-than-none-at-all/. f. Kevin Lucia et al., State Regulation of Coverage Options Outside of the Affordable Care Act: Limiting the Risk to the Individual Market (Commonwealth Fund, Mar. 2018), http://www.commonwealthfund.org/publications/fund-reports/2018/mar/state-regulation-coverage- options-outside-aca. g. Katherine Baicker, William J. Congdon, and Sendhil Mullainathan, “Health Insurance Coverage and Take-Up: Lessons from Behavioral Economics,” Milbank Quarterly 90, no. 1 (March 2012): 107–34, https://www.milbank.org/quarterly/articles/health-insurance-coverage-and- take-up-lessons-from-behavioral-economics/. h. National Association of Insurance Commissioners, 2016 Accident and Health Policy Experience Report (NAIC, July 2017), http://www.naic.org/ prod_serv/AHP-LR-17.pdf. i. Evan Saltzman and Christine Eibner, The Effect of Eliminating the Affordable Care Act’s Tax Credits in Federally Facilitated Marketplaces (RAND, 2015), https://www.rand.org/pubs/research_reports/RR980.html; and Christine Eibner and Carter C. Price, The Effect of the Affordable Care Act on Enrollment and Premiums, With and Without the Individual Mandate (RAND, 2012), https://www.rand.org/pubs/technical_reports/TR1221. html. j. Internal Revenue Service, Tax Gap Estimates for Tax Years 2008–2010 (IRS, Apr. 2016), https://www.irs.gov/pub/newsroom/tax%20gap%20 estimates%20for%202008%20through%202010.pdf. k. Internal Revenue Service, “SOI Tax Stats — Individual Statistical Tables by Size of Adjusted Gross Income, 2015” (IRS, last updated Apr. 4, 2018), https://www.irs.gov/statistics/soi-tax-stats-individual-statistical-tables-by-size-of-adjusted-gross-income. commonwealthfund.org June 2018 What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Plans Is Increased?11 ABOUT THE AUTHORS ACKNOWLEDGMENTS Preethi Rao, Ph.D., is an associate policy researcher at the We thank Kevin Lucia, Dania Palanker, and colleagues RAND Corporation. Her research focus is on topics related from Georgetown University for their review of our to health policy and health economics. Her recent work has work and for providing us with information on state involved using RAND’s COMPARE microsimulation model regulations. We also thank Chapin White for his to understand the effects of changes to the Affordable thoughtful review of this work, and Emily Kate Chiusano Care Act’s provisions on insurance coverage, costs, and for her excellent administrative assistance. spending. Her other work includes research on provider payment and reimbursement issues in Medicaid and For more information about this report, please contact: Medicare She earned her Ph.D. in health economics from Preethi Rao, Ph.D. the Wharton School at the University of Pennsylvania. Associate Policy Researcher RAND Corporation Sarah A. Nowak, Ph.D., is a physical scientist at the RAND Preethi_Raorand.org Corporation, specializing in mathematical modeling. Much of Dr. Nowak’s recent work has focused on using the RAND About the Commonwealth Fund COMPARE microsimulation model to evaluate health The mission of the Commonwealth Fund is to promote a insurance reforms including assessing the impact of the high performance health care system. The Fund carries Affordable Care Act on individual and family spending, out this mandate by supporting independent research on and how alternatives to current Affordable Care Act health care issues and making grants to improve health care provisions would impact health insurance coverage and practice and policy. Support for this research was provided enrollment, government spending, and families’ health by the Commonwealth Fund. The views presented here care spending. Dr. Nowak holds a Ph.D. in biomathematics are those of the authors and not necessarily those of the from the University of California, Los Angeles, and a Commonwealth Fund or its directors, officers, or staff. bachelor’s degree in physics from the Massachusetts Institute of Technology. Christine Eibner, Ph.D., is a senior economist at the RAND Corporation and the Paul O’Neill Alcoa Chair in Policy Analysis. Eibner’s recent studies have considered changes in health insurance enrollment since 2013, use of pharmaceuticals among marketplace enrollees compared with employer-insured individuals, and geographic variation in marketplace premiums and cost-sharing. In addition, she has led a series of analyses using the RAND COMPARE microsimulation model to assess how changes to the Affordable Care Act could affect key outcomes, including federal spending, Medicaid enrollment, and individual market coverage. Eibner’s research has been published in journals such as Health Affairs, Health Services Research, and the New England Journal of Medicine. She earned her Ph.D. in economics from the University of Maryland and her bachelor’s degree from the College of William and Mary. Editorial support was provided by Deborah Lorber. commonwealthfund.org June 2018