Testimony: limited-benefit health plans pose numerous risks for consumers

To: Texas House Committee on Insurance

Interim Charge 1, monitor SB 1852 and non-traditional health plans

The consumer and patient organizations listed above appreciate the opportunity to provide comments on the following section from Interim Charge 1:

Monitor SB 1852, which requires certain disclosures for insurers that offer short-term limited duration plans. Study whether similar consumer disclosures and other safeguards are needed for non-traditional health coverage products marketed to individuals or small employers in Texas. Identify any gaps that leave consumers without needed information or consumer protections, including network adequacy and protections from surprise medical bills.

Many Texans, including those with pre-existing health conditions, can obtain affordable and comprehensive health care coverage today. Texas must take additional steps to extend quality, affordable coverage to its 5 million uninsured residents, but in doing so, should preserve affordable coverage for people with pre-existing conditions and support a health care system that provides affordable, accessible, and adequate health care coverage.

We are concerned about what appears to be a proliferation of health plan arrangements that are often marketed to consumers as a substitute for traditional, comprehensive health insurance, but that lack many standard consumer protections and adequate coverage. These plans are more loosely regulated by state and federal agencies, and in some cases, not overseen by Texas Department of Insurance (TDI) at all. TDI’s website lists many types of alternative health plan arrangements, including:[i]

• short-term plans,
• fixed indemnity plans,
• limited benefit plans,
• association health plans
• health care sharing ministries,
• direct primary care arrangements, and
• discount plans.

Limited coverage and increased risk for medical debt

While premiums for these products can be cheaper, that is because they often do not cover basic health needs including maternity care, prescription drugs, and mental health care. Their limited benefits and broad exclusions can expose patients to extremely high costs in the event of an emergency or new diagnosis. Patients who receive a new diagnosis while covered by certain alternative plans can be dropped when the policy comes up for renewal, leaving them uninsured until open enrollment for traditional health insurance begins.

• A recent Milliman study found that patients with a short-term plan who have a heart attack, are hospitalized for a mental health or substance used disorder, or are newly diagnosed with lymphoma would pay about $20,000 – $40,000 more toward out-of-pocket costs and premiums in the 6 months following diagnosis than patients with a traditional plan.[ii] A patient newly diagnosed with lung cancer would encounter $41,000 – $95,000 more in costs.
• Media reports have highlighted stories of patients left with staggering medical bills due to alternative plans including: a Texas man left with $200,000 in unpaid medical bills following a heart attack;[iii] a woman left with a $36,000 bill following back surgery;[iv] a woman left with $19,000 in bills for sepsis-related treatment;[v] and a couple left with $240,000 in bills following a heart attack.[vi]

Limited-benefit plans cause premiums for comprehensive coverage to rise

These products destabilize the individual health insurance market by siphoning off healthy people, which drives up premiums for individuals who want or need comprehensive coverage or who would be denied by alternative plans.

• A recent Milliman analysis found that in states like Texas that allowed the federal expansion of short-term plans, this expansion along with the repeal of the individual mandate penalty contributed to a 4.3% increase in premiums on average in 2020. On the other hand, premiums for traditional insurance dropped an average of 1.2% due to the regulatory actions of the 12 states that restricted or banned the expansion of short-term plans.[vii]

Aggressive and misleading marketing

Several types of alternative plans have a well-documented history of marketing in aggressive, misleading, or deceptive ways that put consumers at risk of buying a plan that they do not understand and that will not meet their needs. Examples include: [viii]       

• Brokers selling some alternative plans rely heavily on telemarketing and are trained to use scripts designed to obscure the plan’s limited coverage or lead consumers to believe, incorrectly, that it is Affordable Care Act-compliant;
• Consumers may be pushed to buy a plan quickly and unable to get information on benefits and limits to coverage until after they’ve bought the plan; and
• Consumers shopping online may be fooled by “lead-generator” websites that promote alternative coverage but use misleading terms like “HealthCare.gov” or “Obamacare” in their online ads or websites.

Failure to make COVID-related coverage or limits transparent

Federal law requires traditional health insurance to fully cover the cost of COVID-19 tests, leaving consumers with no out-of-pocket costs, but that requirement does not apply to most alternative plans. On March 31, TDI issued Commissioner’s Bulletin #B-0016-20 that encourages alternative health plans to take several steps related to COVID-19 that already applied to traditional plans, including:

• Covering COVID-19 tests with no out-pocket costs;
• Waiving out-of-pocket costs and otherwise facilitating the use of telemedicine;
• Creating a consumer resource page on a plan’s website to explain its coverage for COVID-19 testing and treatment or a similar action to inform consumers; and
• Reporting actions taken to TDI to be included on TDI’s COVID-19 response page for consumers and providers.

A small handful of responses from short-term plans are listed on TDI’s COVID response page, but few, if any, responses from fixed indemnity plans, health care sharing ministries, or direct primary care arrangements are listed. It is concerning that alternative plans, especially those with a history of misleading marketing, would fail to at least provide clear information on COVID-related coverage and limits to consumers and TDI.   

Recommendations

States have the authority to determine the availability of alternative plans within their borders and the consumer protections which must apply. We offer the following recommendations to the committee as they continue to study needed safeguards for alternative health plans.

1. Extend strong, up-front consumer disclosure requirements from SB 1852 to all alternative health plans marketed to individuals in Texas.

Individuals shopping for coverage need ready access to understandable summaries of coverage that allow them to compare plans and select the right level of coverage.

Traditional coverage in the individual market is subject to strong, federal requirements to provide a clear, upfront, and standardized Summary of Benefits and Coverage. In 2019, the Texas Legislature responded to an increase in short-term plan offerings in the market with inadequate disclosure by passing SB 1852. It requires a clear, upfront, and standardized disclosure for short-term health insurance, regardless of whether sold in the individual market or through an association. The SB 1852 disclosure form designed by TDI provides clear and meaningful disclosure. It is a good model to use and adapt for other alternative plan arrangements.

There is no consumer-protection justification for exempting some alternative plans marketed to individuals from the bare-minimum protection of strong, upfront, and clear plan disclosures for consumers. Given the scope of the harms to consumers posed by alternative plans, we do not believe that disclosure alone is sufficient, but rather a small first step.

2. Relevant agencies should have sufficient authority to collect data from alternative health plan arrangements and should be instructed to step up efforts to stop misleading and deceptive marketing practices.

The Texas Department of Insurance and the Office of Attorney General, as appropriate, must be able to collect from alternative plans basic data such as types of plans marketed, lives covered, and other data need to both understand the markets for alternative coverage and how they impact the traditional market. They must also be able to collect information from plans needed to protect consumers, such as TDI’s request for COVID-19 coverage information from alternative plans, which most alternative plans appear to have ignored. Relevant agencies must also have the direction and capacity to crack down on growing reports of misleading telephone sales of alternative plans and misleading websites and online advertising.

3. Alternative plans should be subject to key consumer protections.

The Texas Legislature has worked hard to put in place appropriate consumer and provider protections in health insurance, including a prohibition on surprise medical billing, mental health parity requirements, network adequacy standards, and prompt pay provisions.

At the same time, changes at the federal level have encouraged the proliferation of some types of limited-benefit, alternative plans, which generally do not appear to be subject to the protections Texas legislators have fought for. Alternative plans should not provide a loophole that lets insurers and other entities sell coverage without key consumer protections passed by the Texas Legislature. We encourage the Committee to review how alternative health plans are regulated and ensure that alternative plans marketed to individuals, regardless of whether they are sold through associations, are subject to, as relevant: the prohibition on surprise medical billing, state mental health parity requirements, network adequacy standards, prompt pay provisions, filing rates with TDI, and minimum standards for policy provisions and benefit in TIC Ch. 1201.

4. The Legislature should place further limits on short-term health plans, fixed indemnity plans, and other plans that destabilize the market for comprehensive individual market coverage.

Our organizations continue to support further limits on short-term health plans and other limited-benefit plans, similar to those contained in HB 2507 and SB 2407 from the 86th Legislature and actions already taken in 25 states[ix] to better protect consumers. Alternative plans place substantial financial risk on consumers, often fail to cover pre-existing conditions, and destabilize the market for comprehensive and subsidized individual coverage.

From: 

American Diabetes Association
American Lung Association in Texas
Every Texan (formerly Center for Public Policy Priorities)
The Leukemia and Lymphoma Society
National Alliance on Mental Illness (NAMI)
National Multiple Sclerosis Society
Texas Parent to Parent
Young Invincibles