Recent decisions by Congress and the Trump administration are making it harder for Americans to enroll in health insurance plans through the Affordable Care Act (ACA) marketplaces. Congress’s refusal to preserve enhanced premium tax credits for marketplace enrollees has made coverage dramatically more expensive. Meanwhile, federal regulatory changes and last year’s tax and spending law, known as H.R. 1 or the “One Big Beautiful Bill,” have shortened enrollment periods, added administrative barriers to signing up, and cut funding for community groups that help people navigate the enrollment process.
As enrollment in ACA-compliant coverage becomes more challenging, insurance products and insurance-like arrangements that do not meet ACA standards — such as short-term plans, health care sharing ministries, fixed indemnity insurance, and medically underwritten coverage offered by Farm Bureaus — are likely to become more prevalent. While their relatively low up-front costs make these types of coverage attractive for some consumers, cheap doesn’t mean affordable: the limited financial protection they provide poses significant risks that aren’t always apparent when people sign up.
What makes coverage ACA-compliant?
The ACA requires most forms of private health insurance, including all plans sold on the marketplaces (also known as Obamacare plans), to abide by regulations designed to protect consumers. Among many other safeguards, ACA-compliant plans:
- can’t deny coverage or charge a higher premium to people with a preexisting health condition
- must cover 10 categories of essential health benefits
- must cover high-value preventive services, including vaccines, without cost sharing
- can’t impose annual or lifetime limits on these essential benefits.
Consumers who purchase a compliant plan through the ACA marketplaces may be eligible for reduced premiums, through a federal tax credit, and cost-sharing assistance.
What is coverage that’s not ACA-compliant?
The ACA applies to forms of health coverage that are sometimes referred to in shorthand as “major medical insurance.” The law generally does not regulate insurance products and coverage arrangements that were originally intended to serve more limited or different purposes. For example, the ACA does not apply to:
- Short-term insurance: Intended to fill a temporary gap in comprehensive coverage, such as might occur when a person changes jobs.
- Health care sharing ministries (HCSMs): Coverage arrangements in which enrollee-members agree to follow a common set of religious or ethical beliefs and make monthly payments to help cover the qualifying medical expenses of other members.
- Fixed indemnity/hospital indemnity insurance: Provides a fixed amount of money to an enrollee who experiences a qualifying medical event, like a hospitalization. The policy pays the predetermined amount regardless of the enrollee’s actual expenses, if any.
- Underwritten Farm Bureau plans: Health benefit arrangements for Farm Bureau members that are specifically excluded from the definition of insurance under some states’ laws. Membership in a Farm Bureau (and therefore, eligibility for a Farm Bureau plan) is usually open to the general public and does not require a connection to the agricultural industry.
How do short-term plans, health care sharing ministries, fixed indemnity products, and Farm Bureau plans differ from ACA-compliant health plans?
For those able to enroll in them, coverage arrangements that aren’t ACA-compliant tend to have a lower up-front cost than compliant individual market plans purchased without a premium tax credit. The cheaper premium is directly due to the fact that these products aren’t required to, and thus typically don’t, comply with the health law’s consumer protections (see table below).
Unlike health plans sold on the marketplaces, short-term plans, HCSMs, fixed indemnity products, and Farm Bureau plans can — and do — deny coverage to people with preexisting health conditions. They may refuse outright to enroll someone they anticipate is likely to use a lot of medical care. They also don’t have to renew coverage for an existing enrollee who becomes sick.
Even when a person is permitted to enroll, the arrangement typically excludes coverage for care related to any preexisting condition the enrollee may have. If the enrollee later receives care and files a claim, there could be an investigation into the enrollee’s health history to determine whether the claim can be traced to a preexisting condition (a practice known as postclaims underwriting). If it’s decided that the claim is related to a preexisting condition, payment will be denied, leaving the enrollee on the hook for the full cost and at risk of having their coverage retroactively canceled.
Coverage arrangements that aren’t ACA-compliant also charge higher premiums based on a person’s health status and gender. They don’t have to provide coverage for essential health benefits, as ACA-compliant plans do. That typically means no coverage for prescription drugs, mental health services, substance use disorder treatment, maternity care, or preventive services. Benefits that are included are almost always limited, with per-incident, annual, and/or lifetime caps on the dollar amount they will pay.
Most arrangements also employ cost-sharing designs that expose enrollees to far greater out-of-pocket spending than is allowed under the ACA. In the case of health care sharing ministries, enrollees are exposed to the full cost of their care. While insurance is grounded in a promise to reimburse enrollees for covered services, HCSMs don’t guarantee that their members’ qualifying expenses will be paid. This “no guarantees” model is a defining feature of HCSMs that they rely on to distinguish themselves from traditional insurance.
Because they offer fewer benefits, limited protections, and target people less likely to use care, these arrangements can offer products with relatively low premiums. While consumers may find the lower up-front cost attractive, enrollees needing care may face much greater overall costs and potentially catastrophic financial hardship.
What should consumers know about the marketing of non-ACA coverage?
Health plans that aren’t ACA-compliant are sometimes marketed in ways that make it hard for consumers to understand what they’re buying. Sellers may blur critical distinctions between these arrangements and compliant coverage by using terms often associated with the ACA and the marketplaces.
For example, consumers searching “Obamacare” on Google will likely encounter “lead generating” websites used to sell non-ACA plans before they see the official federal marketplace, HealthCare.gov. And despite their disclaimers about not guaranteeing payment for medical expenses, many HCSMs market themselves as a reliable replacement for comprehensive insurance that members can trust to lower their costs.
Secret-shopper studies have routinely found sellers of short-term and fixed indemnity products using aggressive tactics to secure a quick sale. For example, some tell consumers that if they don’t purchase immediately, enrollment will fill up or the product will get more expensive — all while refusing to provide any plan information in writing. Research and government investigations have also documented repeated instances of sellers making deceptive statements, such as assuring consumers that products cover preexisting conditions when they actually don’t.
Does coverage that’s not ACA-compliant have any effect on people who enroll in compliant coverage?
Yes. Non-ACA plans tend to be most attractive to consumers who don’t expect to use care and least attractive (or outright inaccessible) to people with greater care needs. Consequently, they tend to draw off healthy individuals, while those in less-than-perfect health remain in comprehensive coverage.
This dynamic makes the pool of enrollees with ACA-compliant coverage smaller and sicker — and therefore more expensive to insure. In turn, this leads to higher premiums, making ACA-compliant coverage less affordable for the people who depend on it, including those with preexisting conditions.
Can states regulate these alternative coverage products?
Yes. The fact that the ACA doesn’t apply to them doesn’t prevent states from regulating them.
In practice, state regulation of non-ACA coverage arrangements is generally much more limited than it is for compliant coverage. Regulatory approaches also vary significantly by type of arrangement. States treat short-term plans and fixed indemnity policies as insurance products subject to insurance department oversight. By contrast, underwritten Farm Bureau plans mimic insurance but only operate in states that have exempted them from insurance regulation. HCSMs, because they don’t guarantee payment of claims, are not usually considered insurance either and generally receive minimal oversight.
If a consumer encounters a problem with non-ACA coverage, what should they do?
They should contact their state’s insurance department. While the insurance department ultimately may refer them to another state agency, people who run into problems should start here.
