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A federal judge has issued a ruling that could help issuers, distributors and purchasers of short-term health insurance.

Senior U.S. District Judge Richard Leon has rejected efforts by physician groups, consumer groups, mental health groups and other parties to keep the Trump administration from letting short-term health insurance arrangements stay in place for up to three years.

(Related: House Panel OKs Short-Term Health Blocker Bill)

Drafters of the Affordable Care Act (ACA) of 2010 have exempted short-term health insurance policies from the pricing rules, benefits rules and other rules that apply to major medical insurance. A short-term health insurance issuer can set a $50,000 annual benefits limit; exclude coverage for broken bones, or for mental health care or maternity care; and reject applications from people who have cancer, heart disease or acne.

Before early 2017, the federal government left the maximum duration of short-term health insurance policies up to the states.

The administration of former President Barack Obama then imposed a three-month limit on short-term health insurance policy benefits periods. Obama administration officials argued that the benefits period limit was necessary, to make sure that consumers received solid, ACA-compliant coverage, and to keep cheap, low-value short-term health insurance policies from luring the youngest, healthiest consumers away from the individual major medical market.

The administration of President Donald Trump has completed work on regulations that reverse the Obama-era regulations. The new regulations, which took effect in October 2018, let a consumer buy a short-term health insurance policy with an initial duration of up to 364 days. The regulation lets the consumer renew the policy for up to three years.

The new regulation affects only federal rules. States can set their short-term health insurance duration limits, or ban the sale of short-term health insurance altogether.

The Case

The list of plaintiffs in the case Leon decided, Association for Community Affiliated Plans et al. v. U.S. Department of Treasury et al. (Case Number 1:18-cv-02133), includes the Association for Community Affiliated Plans (ACAP), a group for nonprofit health plans.

The plaintiff list also includes AIDS United, the American Psychiatric Association, Little Lobbyists LLC, Mental Health America, the National Alliance on Mental Illness and the National Partnership for Women & Families.

The plaintiffs contend that letting short-term health insurance policies stay in place for up to three years could hurt people with conditions such as depression and leukemia, by letting plans that shut out applicants who are sick, or who exclude coverage for expensive conditions, take business away from plans to provide a full range of care for the sick.

The plaintiffs have argued that the new short-term health insurance regulations conflict with the intent of the ACA drafters to create a strong individual major medical insurance market, without use of mechanisms for shutting out sick people, or for charging sick people higher prices for coverage.

The defendants — the United States of America, the U.S. Department of Treasury, the U.S. Department of Labor, the U.S. Department of Health and Human Services (HHS), and the secretaries in charge of the Treasury, HHS and Labor departments — have argued that short-term health insurance policies provide a valuable, affordable coverage alternative for people who are unable to afford major medical insurance, or who are shut out of purchasing individual major medical coverage by the “open enrollment period” rules that limit when people can buy individual major medical coverage without showing they have what the government sees as a good reason to be buying coverage.

The open enrollment period system is supposed to give healthy people an incentive to pay for coverage, by raising the possibility that they could lack coverage, and face huge medical bills, if they go without coverage and then face a medical catastrophe outside of the annual open enrollment period.

Leon’s Ruling

Leon contends in his ruling that, because the plaintiffs were asking for summary judgment against the Trump administration, under the federal Administrative Procedure Act of 1946, they had to show that the administration had acted in a way that was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

Under that standard, the court must normally defer to the judgment of the agencies that took the action, Leon writes.

In an analysis of the plaintiffs’ arguments, Leon says the ACA itself sets no rules for how long short-term health insurance can last. The ACA drafters included many duration limits and deadlines in the ACA, and that they could have done so for short-term health insurance, if they had wanted to do that, he says.

The ACA drafters also included exemptions from the ACA major medical insurance rules for certain types of individual health insurance, such as plans in existence before March 23, 2010, and student health insurance plans, Leon says.

“The ACA’s expansion of Medicaid eligibility also illustrates Congress’s openness to individuals seeking coverage outside of the ACA-compliant individual markets,” Leon says.

“The ACA’s various reforms are interdependent and were designed to work together as features of the individual exchange markets,” Leon says. “However, Congress clearly did not intend for the law to apply to all species of individual health insurance… Lawmakers were not rigidly pursuing the ACA-compliant market at all costs, e.g., at the risk of individuals going without insurance altogether.”

Congress has already changed the ACA framework, by, for example, setting the penalty for people who lack what the government classifies as adequate coverage at zero, Leon writes.

“Nothing in the ACA persuades me that the departments were not free to adjust to that reality,” Leon writes.

Reactions

Margaret Murray, chief executive officer of ACAP, said in a statement that her group continues to contend that the Trump administration’s decision to expand dramatically the sale of short-term health insurance violates the ACA and is arbitrary and capricious.

“Indeed, the district court itself recognized that administration’s decision allows junk insurance to compete directly with comprehensive, Affordable Care Act-compliant insurance plans,” Murray said. “That result subverts the health care protections of the ACA. Junk insurance, no matter what it’s called, is an inferior and hazardous substitute for comprehensive coverage. We are confident that the appellate court will see this differently.”

Resources

A copy of Leon’s ruling on ACAP v. Treasury is available here.

— Read Feds Unleash Short-Term Health Insurance From Obama-Era Limiton ThinkAdvisor.

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