Drafters of the ACA exemptedshort-term health insurance policies from the pricing rules,benefits rules and other rules that apply to major medicalinsurance. (Image: Thinkstock)

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

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Senior U.S. District Judge Richard Leon has rejected efforts byphysician groups, consumer groups, mental health groups andother parties to keep the Trump administration fromletting short-term health insurance arrangements stay in place forup to three years.

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Related: Affordability of short-term health plans a draw forolder enrollees

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

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Before early 2017, the federal government left the maximumduration of short-term health insurance policies up to thestates.

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The administration of former President Barack Obama then imposeda three-month limit on short-term health insurance policy benefitsperiods. Obama administration officials argued that the benefitsperiod limit was necessary, to make sure that consumers receivedsolid, ACA-compliant coverage, and to keep cheap, low-valueshort-term health insurance policies from luring the youngest,healthiest consumers away from the individual major medicalmarket.

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The administration of President Donald Trump has completed workon regulations that reverse the Obama-era regulations. The newregulations, which took effect in October 2018, let a consumer buya short-term health insurance policy with an initial duration of upto 364 days. The regulation lets the consumer renew the policy forup to three years.

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The new regulation affects only federal rules. States can settheir short-term health insurance duration limits, or ban the saleof 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), agroup for nonprofit health plans.

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The plaintiff list also includes AIDS United, the AmericanPsychiatric Association, Little Lobbyists LLC, Mental HealthAmerica, the National Alliance on Mental Illness and the NationalPartnership for Women & Families.

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The plaintiffs contend that letting short-term health insurancepolicies stay in place for up to three years could hurt people withconditions such as depression and leukemia, by letting plans thatshut out applicants who are sick, or who exclude coverage forexpensive conditions, take business away from plans to provide afull range of care for the sick.

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

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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 secretariesin charge of the Treasury, HHS and Labordepartments — have argued that short-term healthinsurance policies provide a valuable, affordable coveragealternative for people who are unable to afford major medicalinsurance, or who are shut out of purchasing individual majormedical coverage by the “open enrollment period” rules that limitwhen people can buy individual major medical coverage withoutshowing they have what the government sees as a good reason to bebuying coverage.

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The open enrollment period system is supposed to give healthypeople an incentive to pay for coverage, by raising the possibilitythat they could lack coverage, and face huge medical bills, if theygo without coverage and then face a medical catastrophe outside ofthe annual open enrollment period.

Leon's ruling

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

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

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In an analysis of the plaintiffs' arguments, Leon says the ACAitself sets no rules for how long short-term health insurance canlast. The ACA drafters included many duration limits and deadlinesin the ACA, and that they could have done so for short-term healthinsurance, if they had wanted to do that, he says.

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

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“The ACA's expansion of Medicaid eligibility also illustratesCongress's openness to individuals seeking coverage outside of theACA-compliant individual markets,” Leon says.

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“The ACA's various reforms are interdependent and were designedto work together as features of the individual exchange markets,”Leon says. “However, Congress clearly did notintend for the law to apply to all species of individual healthinsurance… Lawmakers were not rigidly pursuing the ACA-compliantmarket at all costs, e.g., at the risk of individuals going withoutinsurance altogether.”

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

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“Nothing in the ACA persuades me that the departments were notfree to adjust to that reality,” Leon writes.

Reactions

Margaret Murray, chief executive officer of ACAP, said in astatement that her group continues to contend that the Trumpadministration's decision to expand dramatically the sale ofshort-term health insurance violates the ACA and is arbitrary andcapricious.

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“Indeed, the district court itself recognized thatadministration's decision allows junk insurance to compete directlywith comprehensive, Affordable Care Act-compliant insurance plans,”Murray said. “That result subverts the health care protections ofthe ACA. Junk insurance, no matter what it's called, is an inferiorand hazardous substitute for comprehensive coverage. We areconfident that the appellate court will see this differently.”

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Allison Bell

Allison Bell, ThinkAdvisor's insurance editor, previously was LifeHealthPro's health insurance editor. She has a bachelor's degree in economics from Washington University in St. Louis and a master's degree in journalism from the Medill School of Journalism at Northwestern University. She can be reached at [email protected] or on Twitter at @Think_Allison.