Supporters of short-term health insurance are joining forces to oppose the Biden administration's proposal to restrict these plans, arguing that the rule would limit consumer choice and could raise the uninsured rate amid unprecedented changes in the U.S. health coverage landscape.

But health policy experts point out that whether the regulation increases the number of uninsured depends on how stakeholders weigh two possibilities: consumers moving from short-term plans to being uninsured, or moving to plans on the Affordable Care Act (ACA) exchanges.

"My view is that the shift to the individual market is likely to be much larger than the shift to uninsurance," said Matt Fiedler, a senior fellow at the USC-Brookings Schaeffer Initiative for Health Policy. "But ultimately, there is still room for discussion here. You need to consider both sides of the trade-off."

Short-term plans: from three months to three years and back again

Short-term health insurance plans, which are not required to cover the ten essential health benefits mandated by the ACA, were originally designed to provide a cheap safety-net coverage for only three months.

In 2018, the Trump administration extended the maximum duration of such policies to three years, sparking strong backlash from insurance researchers and patient advocates.

According to independent research and a 2020 investigation by House Democrats, these plans—already banned or restricted in about half of U.S. states—were found to discriminate against individuals with pre-existing conditions, routinely deny claims based on health status, retroactively cancel enrollees' policies, and produce surprise bills due to lack of in-network providers.

In July, the Biden administration proposed a rule that would limit short-term health insurance coverage to three months, with a possible one-month extension.

Under the proposal, consumers could not purchase another short-term plan from the same insurer in the same calendar year.

Free-market advocates and Republican lawmakers say these restrictions would make coverage too short to be practically useful for consumers who value such products, and could lead people to forgo insurance altogether.

"I think (the Biden rule) would reduce enrollment. It reduces enrollment at the expense of people who have some coverage... It would shrink the short-term medical insurance market, but it would increase the number of people who are technically uninsured," said Jeff Smedsrud, founder of Pivot Health and Healthcare.com, two of the largest marketers and manufacturers of short-term medical and fixed indemnity insurance products.

According to a 2019 congressional estimate, about 3 million people are enrolled in short-term plans, and they could be affected by coverage restrictions—although the lack of comprehensive data on short-term plans complicates assessing the impact of regulatory changes.

Supporters of the plans say they are valuable for many consumers who are unlikely to move to the ACA exchanges.

These groups include: people who lose their job at a small company and are not eligible for COBRA continuation coverage, but whose income is not high enough to be ineligible for subsidies on the ACA exchanges; or those in a probationary period who cannot yet join employer-sponsored coverage.

Short-term plans also help people who live in states that did not expand Medicaid and fall into the "coverage gap," as well as consumers in rural areas where local ACA plan options may have narrower networks, said Brian Blase, president of the right-leaning think tank Paragon Health Institute.

"Roughly, you might see anywhere from about 500,000 to 1.5 to 2 million people losing health insurance because of this rule," Blase said. He helped craft the 2018 rule expanding short-term plans while serving as a White House adviser.

A 2019 report from the Congressional Budget Office (CBO) estimated that about 500,000 people would become uninsured if stricter limits were placed on short-term plans.

ACA alternative: the key is where consumers go

Researchers say the rule could indeed raise the uninsured rate, but it depends on how many consumers move to the ACA exchanges versus how many choose to go without coverage.

Fiedler predicts that most people leaving short-term plans would end up in the market.

"My view is that the shift to the individual market is likely to be much larger than the shift to uninsurance. But ultimately, there is still room for discussion here. You need to consider both sides of the trade-off."

Matt Fiedler, senior fellow at the USC-Brookings Schaeffer Initiative for Health Policy

The two groups affected by short-term plan restrictions include healthy enrollees with incomes too high to receive large subsidies, and healthy enrollees who are eligible for large subsidies, he said. (People with chronic conditions are unlikely to be covered by short-term plans because such insurance charges higher premiums based on health status and is typically not sold to sick individuals.)

The latter group is likely to move to ACA plans because they typically offer better coverage at lower premiums, Fiedler said.

If the former group moves to market plans, they may pay higher premiums, but experts say that as more healthy individuals join the exchanges, overall market premiums would decline.

The Biden administration projects that if healthy people join the market due to the rule, premiums for ACA coverage would fall by 0.5% each year in 2026, 2027, and 2028. That would save the federal government about $120 million over that period.

Higher-income individuals might also choose to go uninsured if their previous short-term plan provided meaningful coverage, which would be a bad outcome.

But that is unlikely, according to Fiedler, because wealthier people tend to be willing to pay more for insurance.

"The people these plans are suitable for are healthy individuals with incomes too high to qualify for meaningful subsidies," Fiedler said. "The question is, what happens to these people? We don't have perfect data... My guess is that most of these people, especially if subsidies are still available at higher income levels, would end up moving to the ACA-compliant market."

One current appeal of ACA plans is that they may be much cheaper than in past years because Congress extended more generous financial subsidies through 2025.

Now, short-term plans can cost hundreds of dollars more per month than marketplace plans and have significantly higher out-of-pocket costs, health policy experts say.

The Biden administration projects that ACA enrollment would increase if the proposed rule is finalized. The regulation estimates that its provisions on short-term insurance would add 60,000 ACA marketplace enrollees each year in 2026, 2027, and 2028.

Increasing ACA enrollment is precisely the goal of the rule, but at the expense of consumer choice, says Sally Pipes, president and CEO of the free-market think tank Pacific Research Institute.

"I think it takes away choice because President Biden wants to push more and more people into the exchanges," Pipes said.

But more consumers moving to the exchanges is a good thing because those are comprehensive plans, said Justin Giovannelli, project director at the Georgetown University Center on Health Insurance Reforms.

Giovannelli believes the proposed rule would not raise the uninsured rate, both because of the affordability of ACA plans and because individuals covered by short-term insurance are already legally considered uninsured.

Bipartisan relief legislation passed during the pandemic, including the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, defined uninsured individuals as those without comprehensive coverage.

Short-term products do not fall into that category, so individuals in such coverage are already considered uninsured, Giovannelli said.

Additionally, the proposed rule has a lag time, so if the rule is finalized as proposed, individuals currently on any short-term plan would not be removed from coverage, experts say.

"I think it takes away choice because President Biden wants to push more and more people into the exchanges."

Sally Pipes, president and CEO of the Pacific Research Institute

Experts say that as the U.S. undergoes a massive coverage transition, with states rechecking Medicaid eligibility for the first time in three years, guiding people to the coverage that best suits them is crucial. Millions of Americans could lose coverage as a result.

Researchers emphasize that many consumers who end up in short-term plans due to misleading marketing would actually be better served by other coverage—and the Biden administration's rule also aims to address this issue.

A "mystery shopper" survey conducted by the Georgetown University Center on Health Insurance Reforms in June showed that misleading marketing of short-term plans continues during the Medicaid redetermination process, highlighting the need to clearly distinguish comprehensive health insurance from limited-benefit products.

"I want people looking for coverage to be able to evaluate their options and make decisions that provide the kind of financial security that comprehensive coverage offers," Giovannelli said. "The government is trying to return this product and others like it to their intended purpose."