State Regulation of Coverage Options Outside of the Affordable Care Act: Limiting the Risk to the Individual Market


  • Issue: Certain forms of individual health coverage are not required to comply with the consumer protections of the Affordable Care Act (ACA). These “alternative coverage arrangements” — including transitional policies, short-term plans, health care sharing ministries, and association health plans — tend to have lower upfront costs and offer far fewer benefits than ACA-compliant insurance. While appealing to some healthy individuals, they are often unattractive, or unavailable, to people in less-than-perfect health. By leveraging their regulatory advantages to enroll healthy individuals, these alternatives to marketplace coverage may contribute to a smaller, sicker, and less stable ACA-compliant market. The Trump administration recently has acted to reduce federal barriers to these arrangements.
  • Goal: To understand how states regulate coverage arrangements that do not comply with the ACA’s individual health insurance market reforms.
  • Methods: Analysis of the applicable laws, regulations, and guidance of the 50 states and the District of Columbia.
  • Findings and Conclusions: No state’s regulatory framework fully protects the individual market from adverse selection by the alternative coverage arrangements studied. However, states have the authority to ensure a level playing field among coverage options to promote market stability.


Recent federal actions have created the potential for instability in the individual health insurance market, through which approximately 18 million Americans currently purchase their health insurance coverage.1 In October 2017, President Trump issued an executive order to encourage the sale of health insurance products that do not comply with the consumer protections of the Affordable Care Act (ACA).2 In December, Congress repealed, effective in 2019, the tax penalty for individuals who can afford to maintain health insurance coverage but decline to do so (the individual mandate penalty).3

Prior to health reform, insurers in the individual market had wide latitude to deny coverage, charge an unaffordable premium, or limit benefits based on a person’s medical history. As a consequence, individual market health insurance routinely proved inadequate for consumers’ health and financial needs and was often inaccessible to those with even minor health problems.4 The ACA established numerous consumer protections designed to make it easier for consumers in the individual market to access affordable, adequate health insurance. The law requires insurers that sell individual health insurance to offer coverage to all individuals regardless of health status, requires coverage of preexisting conditions, and prohibits insurers from charging higher premiums based on a person’s medical history or gender. It also includes limits on cost-sharing and requires insurers to cover a minimum set of essential health benefits, including coverage for mental and behavioral health care, prescription drugs, and maternity services.

For these consumer protections to work as intended and to keep premiums affordable, they need to be paired with policies that encourage a broad and balanced risk pool. To promote continuous enrollment by the sick and healthy alike, the ACA imposes an individual mandate and provides financial assistance to make coverage more affordable for those with lower and moderate incomes. Importantly, the ACA also defines what types of coverage were sufficiently protective for purposes of satisfying the individual mandate. To prevent cherry-picking of individuals who are low health risks, it also requires all individual market insurers to play by the same rules.

In many ways, the ACA’s regulatory approach to the individual market has proven successful. During the most recent open enrollment period, approximately 11.7 million Americans signed up for coverage through the ACA marketplaces (also called exchanges), most of whom are eligible for subsidies to help with the cost of coverage.5 In turn, improved access to comprehensive individual health insurance under the ACA, along with the expansion of Medicaid, has helped to reduce the uninsured rate by a third, as of 2018, and lower consumers’ average out-of-pocket costs.6 And, despite insurers’ continued uncertainty over the possible repeal of the health law and the Trump administration’s approach to implementing the ACA, analysis showed that, on average, states’ individual markets were stabilizing, with some insurers reaching profitability.7

However, challenges remain. In the past two years, the individual market in most states has seen significant increases in premiums, coupled with decreases in the number of participating insurers.8 While the ACA’s premium subsidies insulate many consumers from these price hikes, many millions of consumers are not eligible for subsidies, and those individuals identify the cost of coverage as a significant barrier to care.9 And though marketplace sign-ups remain stable despite federal policy uncertainty and Trump administration actions seen as undermining the ACA, enrollment remains well below early expectations.10

These challenges are interrelated and can be attributed to many factors. Still, the availability of coverage options that are not compliant with the ACA’s rules, as well as confusion over them, likely has played an important contributing role.

Policy Implications

Although states’ approaches to implementing the ACA can sharply differ, the law’s consumer protections operate nationwide, and nearly all states have taken responsibility for enforcing these reforms in their jurisdictions. The insurance exchanges in most states have proven resilient in the face of significant change and uncertainty, with millions of Americans now able to depend on individual health insurance to protect them both medically and financially.

However, maintaining a stable individual market will become more challenging, thanks to an environment in which healthy consumers are not required to maintain insurance and federal regulations are loosened to promote coverage arrangements likely to weaken insurance risk pools and raise premiums. These developments may incline healthy individuals to look increasingly outside the compliant market for coverage, leaving those who remain to face higher costs and fewer plan choices.68

Based on our review of state laws and standards, it appears that no state maintains a regulatory environment that fully protects its individual health insurance market from being undermined by the alternative coverage options we have identified. However, states continue to be the primary regulators of private health insurance. Although the ACA set a federal floor of consumer protections for insurers that operate in the individual market, it did not curtail states’ power to regulate above these minimum standards and to exercise full authority over coverage arrangements that fall outside the scope of federal insurance law.

How We Conducted This Study

This analysis is based on a review of applicable laws, regulations, and guidance enacted or promulgated prior to February 1, 2018, by each of the 50 states and the District of Columbia. This review was supplemented by correspondence with state regulators in 48 states and the District of Columbia.

A number of states have taken steps to limit the availability of non-ACA-compliant products and protect against adverse selection. Massachusetts and New York promptly discontinued transitional coverage and effectively prohibit underwritten short-term policies, while several other states tightly restrict the duration of such plans. Significantly, Massachusetts also has its own individual mandate, requiring state residents to maintain coverage that meets minimum standards.69 Other states have begun to explore enactment of similar policies in anticipation of the federal mandate’s 2019 repeal.

On many fronts, states face a federal regulatory approach to the individual market that is significantly different from what was originally envisioned under the Affordable Care Act. In light of these changed circumstances, there may be value for states in considering regulatory options for protecting their individual insurance markets and their insured beneficiaries from the detrimental effects of non-ACA-compliant policies. The decisions states make will likely have a significant impact on their residents’ access to adequate and affordable coverage and on the stability of their individual health insurance markets.



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