Dear Biden Administration: Please Do Not Take Health Insurance Away from Sick Patients

Michael F. Cannon

On July 12, the U.S. Departments of Health & Human Services, Labor, and Treasury issued a notice of proposed rulemaking that would strip health insurance from sick patients, with devastating financial and health consequences.

This week, I filed formal comments on the proposed rule. In sum:

The Departments’ proposal is unreasonable, unlawful, and cruel. The Departments should rescind it and affirm that their current interpretation of the relevant statute is both consistent with Congress’ purpose and can improve the performance of the Patient Protection and Affordable Care Act (ACA).

My complete comments follow.

Dear Secretaries Becerra, Yellen, and Su:

Your Departments’ Notice of Proposed Rulemaking (NPRM) on short-term, limited duration health insurance (STLDI) would effectively cancel all STLDI plans after four months and prohibit renewals of such plans. These changes would reduce consumer protections in the STLDI market. They would strip coverage from sick patients, leaving them uninsured—with all the financial and health risks that follow—for up to 12 months or more in some cases. They would increase by 500,000 the number of uninsured U.S. residents.

The risks of this proposal are so substantial, the Departments propose requiring STLDI marketing and plan materials to warn consumers about them. The Departments are considering a regulatory change so dangerous, they believe it should come with a warning label. The Departments do not propose requiring the warning label to inform consumers that it is the Departments creating those dangers.

The Departments’ proposal is unreasonable, unlawful, and cruel. The Departments should rescind it and affirm that their current interpretation of the relevant statute is both consistent with Congress’ purpose and can improve the performance of the Patient Protection and Affordable Care Act (ACA).


In 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA), which imposed several regulations on the individual health insurance market via the Public Health Service Act (PHSA). At the same time, HIPAA expressly exempted “short-term limited duration insurance” from those regulations. Thanks to this exemption, STLDI plans are an important source of health coverage for millions of consumers. The Departments allowed STLDI plans to have an initial contract period of up to 12 months.

In the intervening 27 years, Congress has clearly manifested its desire to preserve the STLDI exemption and has expressed zero desire to reduce the initial contract term. Congress has repeatedly amended the PHSA. Examples include:

  • The Mental Health Parity Act of 1996 (Pub. L. 104–204, September 26, 1996)
  • The Newborns’ and Mothers’ Health Protection Act (Pub. L. 104–204, September 26, 1996)
  • The Women’s Health and Cancer Rights Act (Pub. L. 105–277, October 21, 1998)
  • The Genetic Information Nondiscrimination Act of 2008 (Pub. L. 110–233, May 21, 2008)
  • The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) (Pub. L. 110–343, October 3, 2008)
  • Michelle’s Law (Pub. L. 110–381, October 9, 2008)
  • The Children’s Health Insurance Program Reauthorization Act of 2009 (Pub. L. 111–3, February 4, 2009)
  • The Patient Protection and Affordable Care Act (Pub. L. 111–148, March 23, 2010)
  • The No Surprises Act (Division BB of the Consolidated Appropriations Act, Pub. L. 116–260, December 27, 2020)

These laws frequently imposed new requirements on issuers of health insurance. In every case, Congress chose both to preserve the STLDI exemption and to exempt STLDI plans from the new regulations. It has never curtailed the exemption. It has never sought to shorten the 12-month STLDI contract length. On the contrary, congresses and presidents of both political parties have accepted that contract length. Nor has Congress ever sought to prohibit consumers from purchasing multiple consecutive STLDI plans from the same issuer.

The U.S. Court of Appeals for the D.C. Circuit writes that the STLDI exemption allows consumers to use STLDI plans as their primary health insurance:

Congress expressly elected not to set up a Hobson’s choice between purchasing ACA-compliant insurance and forgoing coverage altogether. . . .To be sure, Congress hoped that most individuals would purchase ACA-compliant plans as their primary insurance, and it provided incentives to encourage them to do so. . .But it did not foreclose other options. (Emphases in original.)

The sole instance the Departments cite of Congress imposing burdens on STLDI issuers argues against the changes they propose in the NPRM. In 2020, Congress required issuers of STLDI plans “to disclose the direct or indirect compensation provided by the issuer to an agent or broker associated with enrolling individuals in such coverage to the enrollees in such coverage as well as to report it annually to HHS.” This de minimis regulation indicates that Congress knew how to regulate STLDI plans when it wanted and that Congress has repeatedly chosen not to impose the sorts of burdens and penalties the Departments seek to impose without Congress (see below).

For all but two of the 27 years since Congress created the STLDI exemption, a 12-month initial contract term has been the rule. The only exception occurred from 2016 to 2018, when the Departments required STLDI issuers to cancel all STLDI plans after just three months. (More on this change below.)

In 2018, the Departments reversed themselves. They re-established an initial contract term of 12 months. For the first time, they gave meaning to the statutory phrase “limited duration” by allowing issuers and consumers to extend the initial contract up to a total of 36 months. The Departments also clarified that nothing in federal law either prevented consumers from purchasing consecutive STLDI plans or prevented issuers from selling standalone renewal guarantees that shielded sick enrollees from medical underwriting when they purchased a new STLDI plan.

Importantly, these features are consumer protections. They shield enrollees who develop expensive medical conditions from coverage denials and coverage loss. The opportunity for renewal guarantees means the STLDI market can reduce ACA premiums by giving patients who develop high-cost conditions an affordable source of health insurance that keeps them out of the ACA’s risk pools.

The current rules have withstood a court challenge from private insurance companies that sell ACA plans. Those issuers claimed the current STLDI rules harmed their revenues by providing many consumers with a more attractive option than those insurers’ ACA plans. The insurers explicitly petitioned federal courts to reinstate the three-month limit because doing so would increase their revenues by crippling their competitors and punishing their competitors’ customers.

Both a district court and the U.S. Court of Appeals for the D.C. Circuit upheld the current rules. The D.C. Circuit found the current rules “perfectly reasonable” and that they had “only modest effects on the government Exchanges.” It affirmed that “nothing in [federal law] prevents insurers from renewing expired STLDI policies.”

Characteristics of STLDI Plans

Short-term plans are comprehensive health insurance. The non-partisan Congressional Budget Office (CBO) writes that—thanks to current STLDI rules—95 percent of STLDI plans are a “comprehensive major medical policy that, at a minimum, covers high-cost medical events and various services, including those provided by physicians and hospitals.” In essence, STLDI plans “resemble a typical nongroup insurance plan offered before 2014, when many [ACA] regulations . . . took effect.”

On some dimensions, STLDI plans are more comprehensive than ACA plans. The CBO writes that STLDI plans “may exclude some benefits that [ACA] plans must cover [but] may have lower deductibles or wider provider networks” than ACA plans. Figures 14 show that STLDI plans in major cities have a wide range of annual out-of-pocket limits, including limits as low as $1,000. In most markets, STLDI plans offer up to $5 million of lifetime coverage.

ACA marketplace plans vs. short-term health insurance plans in select cities, 27-year-old female
ACA marketplace plans vs. short-term health insurance plans in select cities, 64-year-old female
ACA marketplace plans vs. short-term health insurance plans in select cities, 64-year-old male

Similarly, Figure 5 shows that the broad range of available STLDI plans allows consumers to choose whether and to what extent they will purchase coverage for such items as preventive care, mental health, substance abuse, and prescription drugs. Though apparently no STLDI plans provide coverage for uncomplicated pregnancies, many consumers consider that a feature rather than a drawback (see below).

Short-term health plans let consumers choose common types of coverage

The CBO finds that for many consumers, comprehensive STLDI plans carry premiums that are “as much as 60 percent lower than premiums for the lowest-cost bronze [ACA] plan.” Figures 14 are broadly consistent with the CBO’s findings. Figure 6 shows where the lowest-cost bronze ACA plan premium falls in relation to the range of available STLDI premiums. STLDI plans even give consumers the choice of paying more than they would pay for the lowest-cost bronze ACA plan.

(Figures 14 and 6 show that many STLDI plans have premiums that are much more than 60 percent lower than the lowest-cost bronze ACA plan. Presumably, the 5 percent of STLDI plans that have the lowest premiums are not comprehensive coverage. That still leaves plenty of room for comprehensive STLDI plans with dramatically more affordable premiums than ACA plans.)

Short-term health plan premiums often lower than lowest-cost bronze ACA plan premium

Finally, under current rules, consumers may purchase consecutive STLDI plans and issuers may sell standalone renewal guarantees that protect enrollees who become ill from medical underwriting at reenrollment.

Who Benefits from STLDI Plans?

STLDI plans provide reasonable temporary and primary health insurance options for many consumers. In contrast to the ACA, which generally bars consumers from purchasing coverage for 910 months out of each year, consumers can purchase STLDI plans at any time. STLDI plans can thus be a lifeline to consumers who miss the ACA’s restrictive “open” or “special” enrollment periods. They can be particularly attractive to consumers who face high ACA premiums, who receive little assistance with those premiums, or who object to certain types of coverage that ACA plans require them to purchase (e.g., religious objections to contraceptives coverage). They provide coverage to undocumented residents who do not qualify for subsidies to purchase ACA plans. When STLDI plans expand coverage to the uninsured, they reduce the problem of uncompensated care.

STLDI plans are especially important as a lifeline in situations that can be difficult for policymakers to foresee. One real-life example is “Maria.” In 2023, Maria entered a convent as a postulant, i.e., to study to become a Catholic nun. Maria’s only option for health insurance is to purchase it herself. The convent does not sponsor health insurance for postulants. Though her income is low enough to qualify for Medicaid, Maria is an immigrant, which makes her ineligible. She is eligible to purchase an ACA plan. Her income is below the federal poverty line ($14,580), however, which makes her ineligible for a premium subsidy. Were she to purchase an ACA plan, she would have to pay the entire premium herself. The lowest-cost bronze plan available to Maria has an annual premium of $4,821—roughly 33 percent of Maria’s household income. That’s nearly four times the amount the Departments consider affordable (9.12 percent of household income).

An STLDI plan is the only affordable option Maria has. She can choose from STLDI plans with annual premiums ranging from $1,100 to $5,300 and deductibles ranging from $1,000 to $10,000. Importantly for Maria, an STLDI plan would allow her to avoid both maternity coverage and contraceptives coverage, one of which violates her religious beliefs and neither of which she needs.

Other potential beneficiaries of STLDI plans are enrollees in ACA plans. If STLDI issuers have the certainty of knowing that the Departments will allow them to sell renewal guarantees that protect STLDI enrollees from medical underwriting at re-enrollment, the STLDI market can give enrollees who fall ill a lower-cost insurance option than ACA plans. Giving high-cost STLDI enrollees that option could help reduce ACA premiums by keeping high-cost patients out of the ACA risk pools. Figure 7 shows that due to renewal guarantees, the pre-ACA individual market did a better job of providing secure health insurance—and thereby reducing the problem of preexisting conditions—than employer-sponsored insurance.

For enrollees in poor health, individual-market coverage is similarly or more secure than employer coverage

Proposal to Cancel New STLDI Plans after Four Months

The Departments propose to cancel all new STLDI plans after four months. They propose to prohibit renewals by prohibiting insurers to sell two STLDI plans to the same customer within a 12-month period. These proposals would strip away the protections that longer contract terms, renewals, and renewal guarantees provide consumers. They would have little effect on healthy STLDI enrollees but catastrophic effects for STLDI enrollees who fall ill.

Consider these changes from the perspective of Maria. So long as she remains healthy, Maria could continue to use STLDI plans as her primary source of insurance. As she can today, Maria could keep purchasing a series of consecutive STLDI plans, albeit from different insurers. Her premiums would be higher and her plans’ medical loss ratios lower, though, because insurers would have to underwrite enrollees more frequently.

Were she to fall ill, however, Maria could not continue to use STLDI plans as her primary source of insurance. Within four months of falling ill, the Departments’ proposal would strip her of her current STLDI plan and any hope of enrolling in a subsequent STLDI plan. At the same time canceling Maria’s STLDI plan would turn her otherwise insured medical condition into an uninsured preexisting condition, it would also expose her to medical underwriting in that market. She would be unable to obtain STLDI coverage and would then face up to 12 months of uninsurance—with all the financial and health risks that entails—before she would be eligible to enroll in an ACA plan. Such is the situation that most STLDI enrollees would face. But since Maria is ineligible for ACA premium subsidies, she would also either need to devote at least 33 percent of her income to purchase an ACA plan or face more than 12 months without insurance.

These risks are entirely foreseeable. The National Association of Insurance Commissioners (NAIC), which represents state insurance regulators, warned the Departments about the dangers of limiting STLDI plans to less than one year when the Departments were contemplating a three-month limit in 2016. The NAIC wrote:

Short term, limited duration insurance has long been defined as a policy of less than 12 months both by the states and the federal government. The proposed rule provides no data to support the premise that a three-month limit would protect consumers or markets.

In fact, state regulators believe the arbitrary limit proposed in the rule could harm some consumers. For example, if an individual misses the open enrollment period and applies for short-term, limited duration coverage in February, a 3-month policy would not provide coverage until the next policy year (which will start on January 1). The only option would be to buy another short-term policy at the end of the three months, but since the short-term health plans nearly always exclude pre-existing conditions, if the person develops a new condition while covered under the first policy, the condition would be denied as a preexisting condition under the next short-term policy. In other words, only the healthy consumers would have coverage options available to them; unhealthy consumers would not.

This is why we do not believe this proposal will actually solve the problem it is intended to address. If the concern is that healthy individuals will stay out of the general pool by buying short-term, limited duration coverage there is nothing in this proposal that would stop that. If consumers are healthy they can continue buying a new policy every three months. Only those who become unhealthy will be unable to afford care, and that is not good for the risk pools in the long run.

The D.C. Circuit noted that canceling STLDI plans after just a few months would lead consumers “to be denied a new policy based on preexisting medical conditions.”

These risks are not hypothetical. They already befell STLDI enrollees from 2016 to 2018 after the Departments unwisely adopted a proposal to cancel all STLDI plans after three months. Consumer Reports tells the story of 61-year-old Arizona resident Jeanne Balvin. In 2017, the lowest-cost ACA plan Balvin could find had a monthly premium of $744 and a $6,000 deductible. Balvin instead enrolled in an STLDI plan from UnitedHealthcare that had a monthly premium of $274 and a $2,500 deductible. When Balvin required emergency surgery and hospitalization for diverticulitis, her STLDI plan paid its share of her bills promptly and in full.

In July 2017, however, the Departments’ three-month rule cancelled Balvin’s STLDI plan. Had the Departments not implemented the three-month limit, Balvin’s diverticulitis would have continued to be an insured condition. Instead, the Departments canceled her plan, which exposed her to medical underwriting. Balvin lost coverage for diverticulitis and was not eligible to enroll in an ACA plan until January 2018. A rule that is functionally identical to the one the Departments are considering today left Jeanne Balvin with $97,000 in unpaid medical bills.

The risks of canceling STLDI plans after four months are so substantial, the Departments propose to warn consumers about those risks. The proposed “Notice to Consumers” would require all STLDI marketing and plan materials to state, in part:

When this policy ends, you might have to wait until an open enrollment period to get comprehensive health insurance.

From one perspective, it is noble that the Departments have compassion enough to warn would-be STLDI enrollees about what will happen to them after the Departments throw them, sick and vulnerable, out of their health plans. From another perspective, a good rule of thumb is that if a product feature is so dangerous that it requires a 14-point-type warning label, regulators should not mandate it.

Misleading Descriptions of STLDI Plans vs. ACA Plans

The NPRM expresses the Departments’ desire to protect consumers from “misleading or aggressive sales and marketing tactics that obscure the differences between comprehensive coverage and STLDI,” tactics to which “underserved populations may be particularly vulnerable.” The NPRM directly conflicts with these goals by aggressively misleading consumers and the public at large about the merits of STLDI plans versus ACA plans, as well as the Departments’ own proposal.

It is false and misleading to tell the public, and to propose requiring STLDI issuers to notify consumers, that STLDI plans are categorically “not comprehensive coverage.” Non-partisan authorities such as the CBO affirm that 95 percent of STLDI plans provide comprehensive coverage. On some dimensions, STLDI plans demonstrably provide more comprehensive coverage than ACA plans (see below).

In certain circumstances, indeed for most of the year, STLDI plans offer more comprehensive coverage than all ACA plans. Consumers are generally free to purchase STLDI throughout the year and coverage can take effect as early as one day after an enrollee applies. By contrast, federal law generally prevents consumers from enrolling in ACA plans for 910 months of the year. Consumers may purchase ACA plans only during narrow “open” or “special” enrollment periods. Even then, there can be a lag of up to two months before ACA coverage takes effect. Outside of those narrow enrollment windows and lagged start dates, ACA plans offer consumers zero coverage: no essential health benefits, an annual coverage limit of $0, and unlimited out-of-pocket exposure.

Even if the Departments define “comprehensive coverage” as plans that provide the same benefits as ACA plans, it is still misleading to state, and require STLDI issuers to state, that STLDI plans are categorically “not comprehensive coverage.” Were consumers to demand plans that cover the same benefits as ACA plans with the same cost-sharing structure, STLDI issuers could provide those features—and still with broader provider networks and lower premiums than ACA plans. In that case, STLDI plans would be more comprehensive than ACA plans across all dimensions, all year round. The only obstacle to STLDI issuers selling such plans is a lack of consumer demand. Unless the Departments believe consumers would never voluntarily choose ACA coverage and cost-sharing—not even alongside broader networks and lower premiums—the Departments should not categorically state that STLDI plans are “not comprehensive coverage.”

It is further misleading for the Departments to describe ACA plans as categorically providing “comprehensive health insurance.” Some ACA requirements have the effect of making ACA plans more comprehensive. Other ACA requirements have the effect of making ACA plans less comprehensive. The net result is that on many dimensions, ACA plans are less comprehensive than many STLDI plans.

The centerpiece of the ACA’s regulatory scheme is its community-rating price controls. This set of requirements makes coverage less comprehensive by effectively penalizing issuers unless they “avoid enrolling people who are in worse health” by designing plans to be “unattractive to people with expensive health conditions.” At the same time the ACA purports to end discrimination against the sick, its centerpiece penalizes issuers unless they engage in “backdoor discrimination” against the sick that “undoes intended protections for preexisting conditions.”

One example is network breadth. The ACA’s community-rating price controls effectively penalize ACA plans unless they make their networks narrower than their competitors’ networks. “Narrow networks existed before the implementation of the ACA, but they have grown more common as a result of it.” According to surveys, broad provider networks accounted for 80 percent of individual-market plans in 2013, when networks reflected consumer preferences, but only 21 percent of Exchange plans in 2020. The CBO confirms that ACA provider networks are often less comprehensive than STLDI provider networks.

Another example is prescription drug coverage. The ACA’s community-rating price controls penalize issuers unless they make drug coverage less comprehensive than their competitors’ drug coverage. These “protections” thus ration care for patients with costly chronic illnesses including multiple sclerosis, infertility, substance abuse disorders, hemophilia, severe acne, and nerve pain. The “I Am Essential” coalition of 150 patient groups identified numerous examples of such discrimination against patients with cancer, cystic fibrosis, hepatitis, HIV, and other illnesses.

Rather than guarantee comprehensive coverage, these provisions create a race to the bottom by ceaselessly penalizing any ACA plan that is more comprehensive than its competitors. The resulting gaps in coverage harm patients. Excessively narrow networks “jeopardize the ability of consumers to obtain needed care in a timely manner.” The ACA’s drug-coverage gaps cost patients thousands of dollars per year. The “I Am Essential” coalition writes that such discrimination “completely undermines the goal of the ACA.”

Even “currently healthy consumers cannot be adequately insured.” It is false and misleading for the Departments to describe ACA plans as providing “comprehensive coverage” when the centerpiece of the ACA’s regulatory scheme is actively eroding coverage for all enrollees.

Finally, it is highly misleading for the Departments to propose to cancel STLDI plans after four months and to require STLDI issuers to warn their potential customers about these risks, without also informing consumers that is the Departments themselves that are responsible for creating those risks.

The Departments’ Proposal Is Not Reasonable

The Departments have the authority to interpret (and reinterpret) ambiguous statutes so long as their interpretation is reasonable. The interpretation of “short-term, limited duration insurance” that the Departments propose in this NPRM is not reasonable. An interpretation that cancels all STLDI plans after four months and prohibits renewals directly and starkly conflicts with and undermines Congress’ express goals, as well as the Departments’ stated goals.

Congress has not given the Departments explicit guidance as to the meaning of the statutory phrase “short-term, limited duration.” Yet decades of congressional legislation clearly evince:

  1. Congress wants consumers to have access to STLDI plans that are exempt from federal health insurance regulation.
  1. Congress’ primary goals with respect to health insurance regulation are to reduce gaps in health insurance, to reduce the number of uninsured, and to shield the sick from medical underwriting.
  1. Since the enactment of the ACA, Congress has moved away from negative incentives (i.e., penalties) to induce consumers to enroll in ACA plans in favor of positive incentives (subsidies).

Canceling STLDI plans after four months and prohibiting renewals conflicts with each of these elements of Congress’ plan.

The Departments’ proposal conflicts with Congress’ regulatory scheme by treating the STLDI exemption as an aberration or a lesser part of federal law. The STLDI exemption stands on an equal footing with all other provisions of federal law. The same lawmaking process that created the ACA and the remainder of the PHSA also created the STLDI exemption. Indeed, the STLDI exemption predates most federal health insurance regulations, including the ACA. The D.C. Circuit held that the STLDI exception is “[an] exception Congress created” and “Congress expressly elected not to set up a Hobson’s choice between purchasing ACA-compliant insurance and forgoing coverage altogether. . .it did not foreclose other options.” (Emphases in original.)

Congress has never once sought to shorten STLDI plan durations. It has never expressed any dissatisfaction with the 12-month initial contract terms that have prevailed for all but two years of the STLDI exemption’s 27-year history. It has never demonstrated any desire to prohibit consumers from renewing STLDI plans. The Departments have no warrant to favor other provisions of federal law over the STLDI exemption, nor to favor other health insurance over STLDI plans, as this proposal would do.

The Departments’ proposal conflicts with Congress’ regulatory scheme by taking the opposite of the consistent approach to health insurance coverage that Congress has. Decades of legislation clearly show that Congress’ goal in this area of health reform has been to reduce gaps in health insurance; to reduce the number of uninsured; and to reduce discrimination against the sick, in particular by shielding the sick from medical underwriting.

Canceling STLDI plans after four months and prohibiting renewals would increase gaps in health insurance, increase the number of uninsured by 500,000 individuals according to the CBO, and increase discrimination against the sick, including by exposing patients with preexisting conditions to medical underwriting. The NPRM would mandate the very practice of stripping coverage from the sick that the Departments said the ACA would end.

Finally, the Departments’ proposal conflicts with Congress’ regulatory scheme by employing a tactic that Congress disfavors. The Departments propose to encourage consumers to enroll in ACA plans by exposing them to greater financial and health risks if they enroll in the “wrong” health plans (and then requiring issuers of those health plans to advertise those penalties). Since 2010, Congress has moved away from negative incentives (i.e., penalties) to induce consumers to enroll in ACA plans in favor of positive incentives (subsidies). In 2017, Congress eliminated the financial penalties it had previously imposed on taxpayers who fail to enroll in “minimum essential coverage.” In 2021 and 2022, Congress opted for subsidies rather than penalties to induce consumers to enroll in ACA plans.

Even if Congress still favored penalizing consumers who do not enroll in ACA plans, the Departments have identified no statutory authority or support for their proposal to impose these burdens on STLDI enrollees. Nowhere does Congress grant the Departments such a warrant. The Departments’ depiction of Congress’ intent leans heavily into the passive voice: STLDI “is primarily designed,” “was not intended,” “was initially intended,” etc.. Yet the Departments supply no evidence of these designs or intentions. Just as the passive voice presents a verb without an actor, the Departments present a claim about congressional intent without any support.


This proposal is not an attempt to protect consumers. Quite the contrary: it would expose consumers to greater risk by reducing the consumer protections available in the STLDI market. It would increase the number of uninsured by 500,000 and expose sick patients to canceled coverage, uninsurance, and avoidable financial and health risks.

The problem that the Departments seek to redress is not that STLDI plans offer inadequate coverage but that they offer many consumers a perfectly reasonable alternative to ACA plans, and consumers are choosing the alternative that is better for them. For better or worse, Congress leaves STLDI plans free to compete with ACA plans. The Departments should respect Congress’ handiwork.

I respectfully request that the Departments adhere to Congress’ goals, set aside this NPRM, reaffirm the current rules regarding STLDI plans, and affirm that the PHSA grants the Departments no authority to regulate standalone renewal guarantees.

Thank you for your time and attention.


Michael F. Cannon

Director of Health Policy Studies

Cato Institute

How Do You Solve a Problem Like Maria’s? Rescind Biden’s Short‐​Term Plans Proposal.

Michael F. Cannon

President Biden has proposed requiring insurers (1) to cancel short‐​term health insurance plans after four months and (2) to refuse to re‐​enroll those patients. I’ve written previously about how these changes would increase the number of uninsured U.S. residents by 500,000.

The Biden administration believes those changes are necessary to force people into ObamaCare plans. They may be right. The non‐​partisan U.S. Congressional Budget Office reports that for many consumers, short‐​term plans offer a better deal than ObamaCare. Short‐​term plans often “have lower deductibles or wider provider networks,” the agency writes, at premiums “as much as 60 percent lower than premiums for the lowest‐​cost [ObamaCare] plan.”

But not everyone who loses access to short‐​term plans can just enroll in an ObamaCare plan. Congress generally prohibits those folks from enrolling until the following January. So Biden’s proposal would throw short‐​term plan enrollees, many of whom will have expensive illnesses, out of their plans and leave them with no coverage for up to 12 months.

Even then, ObamaCare will still be unaffordable for many people. I know one such individual personally. Let’s call her “Maria.”

Julie Andrews as Maria in The Sound of Music (1965).

Maria is an immigrant and postulant. That is, she is entering a monastery this year to study to become a nun. When she enters, her annual income will fall below the federal poverty line of $14,580. That’s plenty low to qualify for Medicaid but Maria’s immigration status makes her ineligible.

An ObamaCare plan would cost Maria at least 33 percent of her annual income, i.e., four times the 8.5 percent threshold that ObamaCare considers “affordable.” Why? She would have to pay the full $4,821 premium herself because (ironically) her income will be too low to receive a subsidy.

Fortunately, under current rules, there’s a more affordable option. Maria could purchase a series of one‐​year short‐​term plans. She would have many options, with premiums ranging from $1,100–$5,300 per year and deductibles ranging from $1,000–$10,000.

Crucially, a short‐​term plan would not require Maria to violate her religious beliefs. ObamaCare is so much more expensive in part because it would require her to purchase coverage for contraceptives and maternity care. One of those things violates her religious beliefs; neither of them she needs. Short‐​term plans leave Maria free to follow her conscience by declining to pay for contraceptives.

President Biden is a self‐​described pro‐​immigrant Catholic. His proposal would nevertheless require this immigrant and aspiring Catholic nun to pay contraceptives‐​coverage‐​laden premiums that are four times higher that what Biden himself considers affordable.

Despite its title, the “Affordable Care Act” made health insurance less affordable for millions. Short‐​term plans can help. Biden should rescind his proposal to limit them.

The Ugliest Agency in Washington

Michael F. Cannon

Earlier this week, the press shop at the U.S. Department of Health and Human Services (HHS) spent taxpayer dollars to host a live‐​tweet, in the voice of the HHS building, to respond to press reports that HHS’s building is the ugliest in in Washington, D.C.

If I worked in that shop, I too might spend taxpayer dollars on gimmicky stunts to distract attention from the harms the Food and Drug Administration (FDA), Centers for Disease Control and Prevention (CDC), and Centers for Medicare & Medicaid Services (CMS) do to patients.

When I read the live‐​tweet, it was even worse than I expected. HHS staff made the shameless claims that the department recently “insured a record number of people with quality, affordable health care coverage” and “provided the tools to fight COVID for free.” These claims are a jaw‐​dropping mockery of the hundreds of millions of patients whom HHS has harmed and whose earnings the agency has wasted.

“Quality…health care coverage”?

They can’t mean Medicaid. The most reliable evidence that exists on the quality of Medicaid coverage comes from the Oregon Health Insurance Experiment (OHIE). The OHIE was a randomized, controlled trial, which means that if you believe something other than what it shows, you should abandon that belief. The OHIE “did not find evidence that Medicaid coverage improved physical health,” even though “the[] physical health measures were chosen explicitly because clinical trials have shown that they can respond to medication within this [study’s] time frame.”

They can’t mean Medicare. As I detail elsewhere, Medicare has repeatedly shut down life‐ and cost‐​saving quality innovations. Medicare’s price‐​control commission—officially, the Medicare Payment Advisory Commission, or MedPAC—has complained for decades that the program penalizes high‐​quality care and encourages low‐​quality care:

2003: “[Medicare] generally fails to financially reward higher‐​quality plans or providers. Medicare’s beneficiaries and the nation’s taxpayers cannot afford for the Medicare payment system to remain neutral towards quality. Change is urgently needed…[Medicare] is largely neutral or negative towards quality. All providers meeting basic requirements are paid the same regardless of the quality of service provided. At times providers are paid even more when quality is worse, such as when complications occur as the result of error.”

2006: “Evidence shows beneficiaries do not always receive the care they need, that too often the care they do get is not of high quality, and that in some places where they receive more care there are also poor outcomes…Patient safety also continues to present a troubling picture.”

2021: “There is also substantial use of low‐​value care…that has little or no clinical benefit or care in which the risk of harm from the service outweighs its potential benefit. We estimate that, in 2018, between 22 percent and 36 percent of beneficiaries in traditional FFS Medicare received at least one low‐​value service…Low-value care has the potential to harm patients by exposing them to risks of injury from inappropriate tests or procedures and can lead to a cascade of additional services.”

They can’t mean ObamaCare. Its supposed preexisting‐​conditions provisions are encouraging “poor coverage” for patients with costly illnesses, costing them thousands. As I report elsewhere:

Economic research provides evidence that these “protections” are forcing insurers to engage in such discrimination against patients with multiple sclerosis, infertility, substance abuse disorders, hemophilia, severe acne, nerve pain, and other conditions. Patient advocacy groups have alleged such discrimination against patients with cancer, cystic fibrosis, hepatitis, HIV, and other illnesses. Across all Obamacare plans, choice of doctors and hospitals has grown narrower, and drug coverage has gotten skimpier

Indeed, this form of discrimination against preexisting conditions is arguably worse than the kind it (mostly) displaced. Unlike discrimination in pricing and enrollment, discrimination in plan design harms all consumers. It not only “undoes intended protections for preexisting conditions” but creates a marketplace where even “currently healthy consumers cannot be adequately insured.” Patient‐​advocacy groups insist discrimination in plan design “completely undermines the goal of the ACA.”

They can’t mean short‐​term plans. The Congressional Budget Office (CBO) says short‐​term plans often “have lower deductibles or wider provider networks than plans in the [Obamacare] market.” HHS is currently trying to reduce the quality of short‐​term plans by forcing insurers to cancel them after four months, leaving sick enrollees with no coverage for up to one year. The CBO estimates HHS’s proposal would leave half a million U.S. residents with no health insurance at all.

“Affordable health care coverage”?

HHS can’t mean Medicare. Despite the trillions HHS spends on Medicare, effective medical care is still unaffordable for many enrollees. As I report elsewhere:

11 percent of Medicare enrollees overall, 20 percent of enrollees “in fair or poor self‐​assessed health,” and 23 percent of Black enrollees report “delaying getting medical care because of cost, needing medical care but not getting it because of cost, or problems paying or inability to pay any medical bills.”

Medicare is so unaffordable, Congress has had to increase the Medicare tax 28 times since its inception. That’s an average of one tax increase every two years.

It still hasn’t been enough to keep up with runaway Medicare spending. How do we know?

HHS can’t mean Medicare or Medicaid. These two programs are almost solely responsible for the federal government’s long‐​term debt problem. They are the only major category of federal spending consuming a rising share of GDP. Net interest on the federal debt is rising as a share of GDP because Medicare and Medicaid are growing.

Outlays, by Category

Most of that growth is Medicare. The CBO writes, “Spending on Medicare is projected to account for more than four‐​fifths of the increase in spending on the major health care programs over the next 30 years.”

Composition of Outlays for the Major Health Care Programs

They can’t mean ObamaCare. ObamaCare plans are so expensive, Congress is subsidizing enrollees earning up to $600,000 per year. No, that’s not a typo.

They can’t mean short‐​term plans. The CBO says short‐​term plans provide lower deductibles and wider provider networks than ObamaCare at premiums “as much as 60 percent lower than premiums for the lowest‐​cost [ObamaCare] plan.” HHS is trying to destroy quality, affordable health insurance and force people into low‐​quality, unaffordable health insurance.

“Provided the tools to fight Covid‐​19”?

HHS can’t mean the FDA. For several months in 2020, the FDA blocked the use of safe, effective COVID-19 diagnostic tests. Epidemiologists called the move “insane.”

They can’t mean the CDC. When the FDA finally stopped blocking all COVID-19 diagnostic tests, it approved only one: the CDC’s. The CDC promptly contaminated its test kits with the coronavirus, rending disease containment efforts “useless.”


When HHS boasts about its track record of quality and affordability, remember Colette Briggs.

Colette Briggs

Colette is a little girl with cancer. If HHS had just left her alone, she would have had affordable, secure health insurance coverage. Instead, we saw headlines like, “Parents of 4‑Year‐​Old with Cancer Can’t Buy ACA Plan to Cover Her Hospital Care.” Why?

The benevolent U.S. Department of Health and Human Services cancelled the Briggs family’s health plan, forced them into an ObamaCare plan, increased their premiums, and pushed the providers Colette needed out of their ObamaCare plans. What happens inside the HHS building left Colette’s family scrambling to get a little girl with cancer the medical care she needed. The flaks who staged this live‐​tweet stunt should explain to Colette and her parents how HHS offers “quality, affordable health care coverage.” I would be happy to arrange the meeting.

The outside of the HHS building is ugly, but not as ugly as what happens on the inside.

Obama, Biden Have Mislead More Health Insurance Purchasers than Short‐​Term Plans Ever Will

Michael F. Cannon

A week or so ago, friend and HuffPost reporter Jonathan Cohn emailed me:

Consumers frequently don’t understand what they’re buying [when it comes to short‐​term, limited duration insurance (STLDI)], or how STLDI might be different from an ACA‐​compliant plan. In part, because companies selling STLDI aren’t always clear on what the plans do/​don’t cover. [In other words], there’s an inherently high risk for confusion—and opportunity for exploitation/fraud—in the way the market exists now. What do you think about this argument?

Cohn ultimately turned that topic into this article.

It contains a number of inaccuracies and misleading characterizations.

  • Cohn laments gaps in STLDI plans without noting that government regulation was responsible for many of those gaps. When Jeanne Balvin lost her STLDI plan in the middle of an episode of diverticulitis, leaving her with $97,000 in unpaid medical bills, it was because the Obama administration required her carrier to drop her after just three months.
  • Cohn fails to note similar gaps in ObamaCare plans. When Obama threw Balvin out of her STLDI plan, ObamaCare denied her coverage until the following January. Indeed, for 10 months out of the year, STLDI plans have fewer gaps than ObamaCare plans because, with few exceptions, ObamaCare denies coverage to everybody outside of a narrow window in November and December. I guess ObamaCare’s coverage gaps don’t matter?
  • Cohn portrays rules that President Trump put in place in 2018 as widening such gaps. In fact, Trump’s rules increased consumer protections in STLDI plans by filling in the gaps that Obama had created. Trump’s rules would not have required Balvin’s insurer to drop her.
  • Cohn inaccurately casts the new STLDI rules that President Biden just proposed as an effort to “intervene in markets, in order to protect people from risk and guarantee a level of economic security.” In fact, Biden’s proposed rule deliberately exposes sick people to greater risk by stripping them of their health insurance after just four months and leaving them with no health insurance for up to 12 months, much as Obama did. Biden’s rules would make health insurance less universal. Congressional Budget Office estimates suggest they would leave some 500,000 consumers who would otherwise have health insurance with no coverage at all.
  • Cohn writes that while ObamaCare imposed new regulations on most forms of health insurance, “The Affordable Care Act…made an exception for ‘short term/​limited duration’ plans…But it allowed the federal government to regulate these plans.” Nothing in that quote is true. Congress exempted STLDI from nearly all federal health insurance regulations not in 2010 when it passed the ACA but back in 1996 when it passed the Health Insurance Portability and Accountability Act (HIPAA). ObamaCare didn’t create the exemption for STLDI, touch that exemption, or give regulators any more authority over those plans than HIPAA already did. If anything, ObamaCare signaled that Congress wanted to protect patients from coverage cancellations, not mandate coverage cancellations, as Obama did and Biden seeks to do. ObamaCare’s silence on the STLDI exemption suggests Congress had no problem with the rules at the time, which allowed such plans to last 12 months.

You get the idea.

The main reason I’m here today, though, is to give a fuller response to the question of whether STLDI plans mislead consumers. Cohn quotes me in his article. (Thanks, friend!) But he used only part of my response to his question. Here’s my full response, which I have lightly edited for public consumption.

Barack Obama misled more people about ObamaCare plans than insurers will ever mislead people about short‐​term plans. ObamaCare plans are themselves notorious for misleading consumers via inaccurate provider directories. So are Medicare Advantage plans. Medicare’s trust funds are an institutionalized, ritualized lie. Do any of the people who want to eliminate short‐​term plans propose eliminating those plans?

It’s a complete[ly disingenuous] argument. Health insurance is complex. Few consumers will ever have full information. Every health insurance plan will have enrollees who didn’t understand what they were getting.

When there is an information problem, you don’t ban the product. You fix the information problem. Many car dealers are shady. Do we ban cars? No. We don’t even ban used cars. We deal with the information problem.

The 2018 Trump rule mandates that short‐​term plans disclose that they are not ObamaCare plans. I imagine this mandate ironically makes short‐​term plans more attractive to consumers as often as it makes them less attractive.

I italicized the two sentences Cohn selected for his article. As you can see, those two sentences don’t really capture my broader point that complaints about STLDI plans misleading consumers are disingenuous. In any case, such deception in no way justifies throwing patients out of their STLDI plans after four months.

Worse, those two sentences in isolation could give the impression that I don’t care about the costs of people misleading consumers about their health plans. I would go so far as to say I care a lot more than STLDI opponents do because I also care when Medicare or Medicaid or Medicare Advantage plans or ObamaCare plans or Medicare’s trustees or Congress or Obama, Trump, or Biden do it.

The irony of Cohn’s article is that, while purporting to explore the important issue of shadowy figures misleading consumers about health insurance, he ignores the biggest example of that problem in this whole fracas.

When he was running for president in 2019, Biden, like his former running mate, promised that he would let people keep their health plans:

@michaelfcannon A new proposal from President #Biden would *mandate* the very practice of canceling #HealthInsurance for the sick that Biden promised #Obamacare would end. More: https://​the​hill​.com/​o​p​i​n​i​o​n​/​h​e​a​l​t​h​c​a​r​e​/​4​0​8​7​3​9​6​-​b​i​d​e​n​s​-​n​e​w​-​p​l​a​n​-​t​h​r​e​a​t​e​n​s​-​h​e​a​l​t​h​-​c​o​v​e​r​a​g​e​-​f​o​r​-​m​o​r​e​-​t​h​a​n​-​h​a​l​f​-​a​-​m​i​l​l​i​o​n​-​p​e​ople/ #CatoHealth @C@Cato Institute ♬ original sound — Michael F. Cannon

Biden’s STLDI proposal breaks that promise. Turns out what Biden meant was, “If you have private health insurance, you can keep it–but only for four months.”

Biden misled millions of health insurance purchasers. More than any STLDI insurer ever will. But HuffPost readers would never know.

The Original Sin of U.S. Health Policy

Michael F. Cannon

Health care in the United States is such an expensive mess, no one wants to take credit for it. Patients and their families go out of their minds dealing with it. Health care devours a growing share of workers’ earnings every year. Politicians in other countries use “American health care” as an epithet. Politicians in the United States either run against U.S. health care or run away from it.

How did things get this bad?

A new online publication explains that the root cause of the United States’ health care woes is not market failure or corporate greed or even World War II‐​era wage controls. “The Original Sin of U.S. Health Policy” explains that the blame lies with…the federal income tax.

When Congress created the (second) federal income tax in 1913, it did not foresee–it could not possibly have foreseen–that growth in medical innovation, incomes, and financial services would increase demand for medical care, medical insurance, or employer provision of both. Since Congress had been silent on the question of how the new income tax would treat employer‐​purchased medical care and health insurance, it fell to Treasury bureaucrats to answer. Sometime in the 1920s, those bureaucrats decided employer‐​provided group insurance would not be subject to the new tax. From that moment, the federal income tax effectively created a penalty on individual control of medical and health insurance decisions that continues to this day.

A new publication from the Cato Institute.

That implicit penalty causes or exacerbates every single problem that consumers and policymakers have confronted since. Medicare and Medicaid (1965), the HMO Act (1973), certificate of need regulation (1974), FSAs (1970s), COBRA (1985), HIPAA (1996), MSAs (1996), HRAs (2000s), HSAs (2003), SCHIP (1997), the HITECH Act (2009), the Affordable Care Act (2010), the No Surprises Act (2020), etc., are all efforts to fix problems that Congress itself created when it enacted the federal income tax. More often than not, these “solutions” exacerbate the very problems they attempt to solve, and thus ironically spur calls for even further government intervention.

The tax exclusion for employer‐​sponsored health insurance distorts labor markets, the financial sector, and the health sector. It compels workers to purchase coverage that is more likely to drop them when they are sick. It discriminates against low‐​wage workers, women, obese workers, older workers, and others with expensive medical conditions, on whom its implicit penalties fall hardest.

Restoring workers’ rights and making health care more universal requires cleansing U.S. health policy of its original sin.

Dear Health Reporters: Prep for Biden’s Proposed Rule on Short‐​Term Plans

Michael F. Cannon

The Office of Management & Budget (OMB) has announced its approval of a proposed rule on so‐​called “short‐​term limited duration insurance” health plans (STLDI). The administration could release the proposed rule at any time.

Health reporters need to keep in mind when covering Biden’s proposed STLDI rule: just about anything the administration proposes would eliminate consumer protections and throw sick people out of their health plans. If the proposed rule shortens STLDI contract terms, limits the number or duration of renewals, and/​or prohibits renewal guarantees, it will gut consumer protections and throw sick patients out of the health insurance that is protecting them and their families.

Some background. Congress exempted STLDI plans from all ObamaCare regulations. Current STLDI rules, which the Trump administration put in place in 2018, allow the initial plan contract to last 12 months and allow consumers to renew the initial contract for up to 36 months. Longer contract terms and renewals protect patients. They shield patients both from losing their coverage and from reunderwriting (read: higher premiums) after they get sick. Current STLDI rules even extend those consumer protections beyond 36 months by recognizing that federal law imposes absolutely no restrictions on insurers selling standalone “renewal guarantees” that allow sick patients to enroll in a new STLDI plan without reunderwriting after 36 months.

The U.S. Court of Appeals for the District of Columbia rejected an attempt by ObamaCare insurers to strip these consumer protections from the STLDI plans with which they compete. (A cheeky move even by DC lobbyist standards.) The court wrote that, were the government to grant the ObamaCare insurers’ request, STLDI enrollees “could be ‘subject to re‐​underwriting’ every three months, could see a ‘greatly increased’ premium, [and] could be denied a new policy ‘based on preexisting medical conditions.’” The court further held, “Nothing in [federal law] prevents insurers from renewing expired STLDI policies.”

We don’t know the content of Biden’s proposal to change current STLDI rules, but OMB writes:

This rule would propose amendments to the definition of ‘short‐​term, limited‐​duration insurance’ under section 2791(b)(5) of the Public Health Service Act. The rule’s proposals would be designed to ensure this type of coverage does not undermine the Affordable Care Act, including its protections for people with pre‐​existing conditions, the Health Insurance Exchanges, or the individual, small group, or large group markets for health insurance in the United States.

That is the ideologically charged, smokescreen rhetoric that ObamaCare supporters use when they want to protect ObamaCare insurers from competition by stripping consumer protections from patients in STLDI plans.

First of all, ObamaCare is the junk coverage here. Economic research shows ObamaCare’s preexisting‐​conditions “protections” have eroded coverage at a cost to sick patients of thousands of dollars per year, and even “currently healthy consumers cannot be adequately insured.” ObamaCare has caused individual‐​market provider networks to narrow significantly since 2013, when network breadth reflected consumer preferences. ObamaCare premiums are skyrocketing to the point where Congress is offering subsidies to households earning $600,000 per year. STLDI plans offer more flexibility and choice, protect conscience rights, offer broader provider networks, cost up to 70 percent less than ObamaCare plans, and can even reduce ObamaCare premiums by improving ObamaCare’s risk pools. ObamaCare supporters criticize STLDI for charging actuarially fair premiums. But federal law allows STLDI plans to do so. Moreover, ObamaCare’s risk‐​adjustment program literally tries to emulate actuarially fair premiums because actuarially fair premiums minimize insurers’ incentives to avoid or shortchange the sick. If actuarially fair premiums are as bad as ObamaCare supporters say, why are ObamaCare supporters trying to emulate them?

The important thing for health reporters covering the proposed rule to know, however, is that just about any way Biden proposes to limit STLDI plans would in fact strip actual consumer protections from actual sick patients. That includes:

  • Shortening STLDI contract terms
  • Limiting the number or duration of renewals
  • Prohibiting renewal guarantees

Any one of these steps would cause sick patients to lose their coverage and likely leave them unable to purchase an ObamaCare plan. (STLDI plan termination does not trigger an ObamaCare special enrollment period.) We know what happens when restrictions on STLDI plans eliminates these consumer protections, because it happened to Jeanne Balvin. It isn’t pretty.

If Biden tries to eliminate standalone renewal guarantees, he may trigger a lawsuit. The Public Health Service Act grants the federal government no authority at all to regulate those novel insurance products.

Additional resources:

Medicare Is Not Taxing or Coercing Merck, Just Reducing Its Government Subsidies

Michael F. Cannon

Pharmaceutical giant Merck is suing Medicare, claiming new drug‐​pricing reforms that Congress enacted in last year’s Inflation Reduction Act coerce the company into selling its wares to the program at below‐​market prices. In the Wall Street Journal, attorney Daniel Troy opines that the new rules violate the First and Fifth Amendments. Big, if true.

What’s really happening here is that Merck is making tons of money off the taxpayers and wants to keep the gravy train rolling. So the company is offering whatever bad arguments it can to prevent any reductions in its Medicare subsidies.

First, a few preliminaries.

  • The price Medicare should pay for all medical goods and services is $0.00. Anything that moves the actual price in that direction is a good thing. Some argue that is a recipe for failing to hit the market price. But that gets it exactly backward. Pushing the Medicare price toward $0.00 is the only way to get market prices.
  • Medicare’s administrative prices are government price‐​setting. But they are not coercive price controls. Providers are always free to walk away.
  • Every single time providers—and especially pharmaceutical companies—complain about Medicare “price controls,” it is meritless rent‐​seeking. Because they amount they should be getting from Medicare is $0.00.

Merck argues, to the contrary, that it is not free to walk away. It claims Congress is forcing the company to sell to Medicare at a price to which the company does not consent. If Medicare is truly coercing Merck, that’s bad, mkay? But it isn’t.

Here’s how the IRA’s new process for setting Medicare drug prices works.

  1. If Medicare selects a Merck drug for price negotiation, Merck has until October 1 to enter into an “agreement” to negotiate a “maximum fair price.” Medicare’s opening bid must be at least 25 percent less than the current price.
  2. If Merck does not enter into an “agreement” by October 1, “a noncompliance period would begin” that could result in “excise tax liability” for Merck.
  3. If Merck enters into an “agreement,” it must sell the drug to Medicare at whatever price Medicare negotiates/​dictates or pay an “excise tax.”
  4. Merck may terminate the “agreement” for any reason, but the termination does not take effect until 11–23 months after Merck announces it. In the meantime, Merck must continue to sell the drug to Medicare at the price Medicare negotiated/​dictated.

Is this actual coercion? Is it a takings in violation of the Fifth Amendment, as Merck alleges? No. Merck is rent-seeking—and hoping its use of the right shibboleths will trick conservative and libertarian legal scholars into rallying to the company’s cause.

First, Both Merck and the government are wrong to describe those “excise taxes” as taxes. Merck’s own lawyers admit, “the excise tax is suspended if the manufacturer has no relationship with Medicare or Medicaid.” Taxes are compulsory; these “taxes” are optional. Ergo, it’s not a tax. The correct way to think of those payments is that Merck would be rebating to the government a portion of the subsidies it receives from taxpayers through Medicare and Medicaid. In essence, those rebates are an across‐​the‐​board reduction in the prices Medicare and Medicaid pay for Merck’s products. No one is taxing Merck, just reducing their government subsidies.

Since those “excise taxes” are not taxes, the government is not compelling Merck to enter an “agreement.” Merck is free to decline. If the resulting rebates Merck must pay mean its government “book of business” is unprofitable, it can walk away from federal health programs.

Not even the 23‐​month period that Merck would have to continue selling the drug to Medicare at the Merck‐​unfriendly price is coercive. Merck has received plenty of notice of that condition. Merck was aware of that provision as Congress debated the law in 2021. And when Congress passed it. And when President Biden signed it in August 2022. And when Medicare announced in March 2023 how it would be implementing these provisions. Merck has had and will continue to have plenty of opportunities to avoid those conditions. It could have avoided them at any time from when Congress began debating them in 2021 until now. It could avoid them today. It could avoid them by refusing to enter into an “agreement.” At any of these points, Merck could avoid these conditions of Medicare participation without coercion.

What about the argument that threatening Merck with exclusion from government programs is effectively coercion because Medicare and Medicaid represent a yuge part of Merck’s business? We can firmly reject this argument, too.

Is it coercion when people don’t want to buy what you’re selling at the price you’re selling it? Were all those employers who didn’t hire you coercing you? Do patients coerce hospitals when they switch to lower‐​price competitors? Then neither is this. Losing business hurts. But it’s not coercion.

The fact that people would even think to equate Merck losing government business to coercion shows just how much government dominates health care in the United States. The fact that some people—including many limited‐​government conservatives—would rather let the government overpay than threaten Merck’s profit margins is an example of how all that government domination introduces moral hazard into these decisions.

Since no part of this process is coercive, Merck’s other claims of coercion (compelled speech, etc.) are also inaccurate.

In case we needed more evidence that Merck is just rent-seeking—that is, attempting to gouge taxpayers—the company describes the prices it currently receives from Medicare as reflecting “fair market value” and Medicare’s current drug‐​pricing rules as “a free‐​market approach based on market‐​driven prices.” Troy describes what Medicare pays as a “market price.”

These are major tells. There are no market prices in the U.S. health sector. What Sherry Glied says of health care prices in general is especially true of Medicare prices: “There is no reason to believe that current prices provide incentives that reflect either underlying costs or consumer preferences.” A good rule of thumb is that if an industry claims the price it receives from government reflects fair market value, that price is too high.

It is conceivable, though inadvisable, that federal courts might disagree with me. They may decide to impose notice requirements more stringent than common sense requires. They may choose to define what Congress is doing in this case as coercive. If so, those decisions would mark breathtaking opportunities for special interests to follow in Merck’s footsteps by taking advantage of taxpayers.