Short-term limited-duration insurance (STLDI), otherwise known as "junk" plans, are the latest issue plaguing the U.S. health care system.
A junk insurance plan offers short-term insurance coverage and is not part of the Affordable Care Act (ACA) marketplace. Though it’s intended to fill gaps in coverage, it’s become an increasingly problematic alternative.
“These would be policies that can medically underwrite, turn you down, charge you more based on your health status, or exclude coverage of your pre-existing condition,” Karen Pollitz, a senior fellow at the Kaiser Family Foundation, told Yahoo Finance. “These are policies that won’t necessarily cover essential health benefits. They may not cover prescriptions or maternity or mental health or more than two or three days in the hospital. They’re sold by insurance companies by and large.”
Earlier this week, a group of 40 Democratic senators sent an open letter to Health and Human Services Secretary Xavier Becerra urging him to “limit the sale and availability” of junk plans.
“Despite the important gains that we have made in providing comprehensive and affordable coverage for more Americans, STLDI plans continue to sow confusion and cause harm to patients,” the senators wrote. “These plans, which are not required to adhere to important standards, including prohibitions on discrimination against people with pre-existing conditions, coverage for the 10 essential health benefit categories, and annual out-of-pocket maximums, have continued to proliferate.”
Evolution under Trump
Sen. Tammy Baldwin (D-WI), one of the letter’s signees, explained that these plans were an issue for years but worsened under the Trump administration.
“Prior to the Trump administration, these junk plans could only be used for three months,” Baldwin told Yahoo Finance. “They were there to play a very limited transitory role — for example, if you were maybe leaving an employer or between jobs, which would offer in-house insurance. They were meant to be transitory and temporary, but the Trump administration proposed a rule change to allow people to sign up for entire year periods.”
In 2018, junk law regulations were altered under the Trump administration. These plans were expanded up to 364 days and allowed to be renewed for up to 36 months.
Consequently, a report by members of Congress in 2020 found that the number of junk plan enrollees increased 27% in 2019.
“That’s not a transitory policy anymore, and they were basically lifting it up as an alternative to either an employer-provided plan or a plan through the Affordable Care Act marketplace,” Baldwin said. “They wanted people to actually see them as equivalent when they’re not. Again, these plans can be devastating when you find out how little it covers and how much you owe.”
For many people enrolled in junk plans, they end up paying more than if they had insurance through an employer or the ACA marketplace.
According to a report by the Leukemia & Lymphoma Society, over 25% of policies had “a deductible greater than the 2019 annual maximum limit for ACA-compliant policies of $7,900” established by HHS, while 60% had an out-of-pocket maximum greater than $7,900.
And because these plans are not subject to ACA regulations, they are allowed to discriminate against those with pre-existing conditions and deny them coverage for specific events. This potentially includes those who have been previously diagnosed with COVID-19.
Reading the fine print
Individuals with pre-existing conditions could be deceived into thinking they would have coverage under these plans.
In 2020, the Government Accountability Office (GAO) used “undercover agents” to contact 31 health insurance representatives to inquire about coverage for pre-existing conditions. They found in eight of those calls, sales reps “engaged in potentially deceptive practices, such as claiming the pre-existing condition was covered when plan documents said otherwise.”
Those who don’t have a pre-existing condition but instead experience a sudden event like a car accident or diagnosis of illness may still find themselves on the hook for thousands of dollars despite being insured through one of these plans.
“We really struggle with people who call us and say ‘I need something in the interim, isn't this better than anything at all?’” Katie Berge, director of federal government affairs for the Leukemia & Lymphoma Society, told Yahoo Finance. “And my answer is ‘not really’ because when you get cancer, it's going to leave you with the same amount of debt as if you didn't have it at all.”
One insurance company paid just 26% of claims through its STLDI coverage in 2020, a ProPublica investigation found.
“The information we get from people who sign up for a junk plan and then are in a car accident or get cancer or have an emergency room visit or whatever — they can owe tens of thousands of dollars while insured because they’re insured with a junk plan, not a real, quality insurance plan that meets the standards of the Affordable Care Act,” Baldwin said.
Many types of routine health care are also not covered through these plans including prescription drugs, mental health care, and maternity services. For six-month coverage, deductibles can reach $5,000.
“You pay money in premiums but when it comes time to get health care and to make a claim, the sellers of these products have multiple and overlapping ways of getting out of having to pay that claim,” Kaiser's Pollitz said.
For those considering enrolling in one of these types of plans, Baldwin stressed the importance of reading the fine print to know exactly what you’re signing up for.
“The most important thing is that people are fully informed about the limitations of these plans and buyer beware, because I’ve met so many people and heard so many stories about folks who think ‘wow this is so inexpensive, I can have health insurance,’ and then they learn that it doesn’t cover even the most basic things,” she said.
Part of the issue, though, is that health insurance can be extremely difficult for consumers to navigate and understand.
“It is about as fun as taxes and figuring out your student loans, right?” Berge said. “You can put as many warning boxes on them as possible, but it's just such an existential dread. I don't know anybody who thinks happily about reading through pages and pages and pages of fine print, the people who buy insurance, buy insurance with the expectation that the insurance will back them up when they need it. Otherwise, why would you buy it?”
She added that "there's an industry failing happening here when you're allowed to sell somebody a false bill of health. And when you turn around and really need it, it's not there.”
Adriana Belmonte is a reporter and editor covering politics and health care policy for Yahoo Finance. You can follow her on Twitter @adrianambells and reach her at firstname.lastname@example.org.