August 9, 2019

The top five short-term health plan insurers in 2018 spent only about 39% of premium dollars on medical care, well below the Affordable Care Act's (ACA) medical loss ratio threshold, according to the National Association of Insurance Commissioners' (NAIC) 2018 Accident and Health Policy Report published last week.

Cheat sheet: What you need to know about the ACA

Background

HHS last year finalized a policy that allows insurers to sell short-term health plans that are valid for up to 12 months and allows enrollees to renew the plans for up to three years. The Trump administration has touted the new coverage option as a cheaper alternative to traditional health insurance.

However, as Axios' "Vitals" notes, a major reason why the plans are cheaper is that they are not required to comply with certain ACA requirements, such as the law's minimum coverage requirements.

Congressional Democrats have denounced the plans' expansion, and several health care groups are fighting the rule in court.

New data suggests short-term plans spend proportionately less on care

The NAIC report offers a glimpse at the percentage of premiums spent on medical care by the insurers selling short-term health plans—an amount known as the "medical loss ratio."

For ACA-compliant plans, insurers must issue refunds to customers if they spend less than 80% of the premiums they collect for ACA-compliant plans sold on the individual and small group markets and less than 85% of plan premiums in the large group market on medical care. The remaining 15% to 20% can be used as profits or to pay administrative costs.

The loss ratios for short-term health plans—which aren't subject to the ACA's medical loss ratio requirements—were significantly below that threshold. According to the report, the average loss ratio of the top five short-term plan insurers by total premiums was 39.2% in 2018. Put another way, Modern Healthcare reports, the insurers spent 39 cents of every $1 collected in premiums on medical care.

Broken down by the top five short-term plan insurers by total premiums in 2018, the data show:

  • UnitedHealthcare spent about 37 cents of every $1 collected in premiums on patients' medical care;
  • National General Insurance spent about 58 cents of $1 collected on medical care;
  • Geneve Holdings spent about 36 cents of every $1 collected in premiums on medical care;
  • Blue Cross of Idaho spent about 55 cents of every $1 collected in premiums on medical care;
  • Cambia Health Solutions, which operates Blue Cross and Blue Shield plans in four states, spent 9 cents for every $1 collected on medical care.

Rachel Schwab, a research associate at Georgetown University's Center on Health Insurance Reforms, suggested the findings are not surprising. "Compared to comprehensive plans that have to comply with the ACA's rules, short-term plans' coverage limitations often result in carriers paying out far fewer claims, or paying pennies on the dollar," she said (Livingston, Modern Healthcare, 8/8; Owens, "Vitals," Axios, 8/8).

Editor's note: The Daily Briefing is published by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group. UnitedHealth Group separately owns UnitedHealthcare. 

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