Despite Vermont generally ranking among the healthiest states in the country and having a high rate of health coverage, Vermont’s health insurance market is struggling and premiums are rising.

In August, NFIB Vermont examined some of the problems plaguing Vermont’s individual and small group health insurance markets and steps that policymakers can take to improve options for small businesses, workers, and others in the state.

This post looks at an outside-the-box idea from Idaho that could allow states to create more affordable health coverage options.

What are Idaho’s “Enhanced Short-Term Plans?”

Like many states at the time, Idaho’s individual health insurance market was at a tipping point in 2018. Between 2014 and 2018, individual market health insurance premiums increased by 91%.

Following failed attempts to obtain a waiver from the federal government to allow “state-based” individual market plans that did not meet all federal requirements, the state turned to short-term limited duration (“short-term”) plans as a stopgap. With the blessing of the federal government, Idaho permitted health insurers to offer a new type of coverage under short-term plan regulations that attempted to strike a balance between comprehensive coverage and consumer affordability.

The result was a novel product called “Enhanced Short-Term Plans” (ESTP), which was established by legislation in 2019. These plans were made possible by relaxed federal rules on short-term plans that took effect in 2018 and allowed short-term policies to be effective for up to 364 days and renewed for a total of 36 months.

Those rules were repealed in 2024 and replaced by a three-month cap on the initial term of short-term plans and only one additional month of renewal. The federal government has signaled it will again relax short-term plan regulations beginning in late 2025 or early 2026.

Where traditional short-term plans are generally regarded as strictly catastrophic coverage, Idaho’s Enhanced Plans incorporate some features of fully regulated individual market plans.

Notably, ESTPs must be issued to anyone regardless of health risk and premiums cannot vary based on gender. Insurers who offer ESTPs must also sell individual market plans that comply with federal regulations. When an enrollee reaches the maximum duration of their ESTP, they must be offered a choice of reapplying for ESTP or purchasing a fully regulated individual market plan.

Moreover, ESTP regulations mandate coverage for outpatient services, emergency care, hospitalization, maternity and newborn care, mental health and substance abuse disorder services, prescription drugs, rehabilitation treatment, laboratory services, and preventative care.

The most significant difference is that ESTP premiums can be set based on health risk – this is what makes them a much more affordable option for many people. Idaho limits ESTP premium increases for those with adverse health claims to no more than 15% upon reapplication, shielding those who experience serious health issues during the life an ESTP from market-rate increases.

And comprehensive plans remain available due to the requirement that an insurer who sells an ESTP also offer fully regulated individual market plans.

Could ESTPs be a model for Vermont?

As strange as it may sound to hear Idaho touted as a model for health insurance reform in Vermont, Vermonters in the individual and group health insurance market badly need more affordable options. ESTPs offer a blank slate for lawmakers from both parties to craft a balanced, affordable coverage option that works for more people in the state.

Vermont currently limits short-term coverage to a maximum term of three months with no renewals, so lawmakers would need to create a new law establishing its own version of ESTPs or modify the three-month limitation and give the Insurance Commissioner power to set ESTP regulations.

As Idaho learned in the process of designing ESTPs, policy choices that seem detrimental to one group of people may ultimately end up benefiting everyone.

For instance, federal regulations severely constrict premium variance between younger and older enrollees, which has the effect of making insurance less desirable or prohibitively expensive for many young people. Ultimately, this leads young people to drop coverage or opt against it in the first place, leaving the risk pool older and generally less healthy.

But when artificial restrictions are lifted and more young, healthy people enter the commercial insurance market, the improved risk pool can bring down prices for people across the age spectrum.

ESTPs and other recent regulatory changes offer lawmakers a rare opportunity to get creative and develop new, affordable options. States are not required to follow Idaho’s model; they can make their own policy choices using the short-term plan framework.

ESTPs can also be used with recent innovations in pre-tax and tax-free health savings and primary care delivery to create more affordable, well-rounded options for people.

What are the concerns with ESTPs?

One of the concerns with ESTPs and short-term plans in general is that it’s not always well suited for people with chronic health conditions. This discussion largely centers on three policy choices:

Guaranteed Issue requires insurers to offer health coverage to anyone who wants it regardless of their health risk or claims history.

Guaranteed Renewal requires insurers to, in part, allow policyholders to renew their coverage without regard to health risk or claims history.

Modified Community Rating prohibits pricing health insurance coverage based on health risk or claims history, among other factors.

These policy choices come with a cost, as academic researchers have found that Guaranteed Issue more than doubles the price of premiums and Community Rating can increase premiums by another 20%.

Idaho’s ESTP law includes guaranteed issue and renewal (to the extent allowed by federal short-term plan regulations) but has only a limited form of Community Rating. As noted above, these plans can be priced based on health experience although increases upon reapplication are limited by the ESTP law.

And, as previously discussed, ESTPs are required to cover a more limited benefit set than individual market plans.

For some lawmakers on both sides of the aisle, allowing premiums to vary based on health risk – even if people are guaranteed the option to buy it – and narrowing the mandatory benefit set to reduce costs may be hard to swallow. Health risk, however, includes conditions acquired as a result of lifestyle choices and not just hereditary issues or other conditions not directly linked to personal behavior.

Lawmakers here could adopt a different version of health risk rating or tweak other regulations to achieve a better balance between comprehensiveness and affordability.

A second concern about ESTPs and short-term plans generally is that their low prices will lure younger and healthier people away from more expensive comprehensive coverage in the individual market. In turn, critics say this will leave the individual market risk pool sicker and drive up prices for those who remain.

This concern highlights the affordability problem in the individual market, but research from both short-term plan skeptics and proponents estimates the impact on the individual market premiums to be negligible or nonexistent. In 2024, Paragon Health Institute found the individual market in states that maintained more favorable short-term plan regulations to be in better shape than states that restricted or effectively barred short-term plans.

Why should Vermont lawmakers consider ESTPs?

As has been discussed for years, having comprehensive coverage doesn’t mean that Vermonters can afford to use it. Vermont has the highest sticker prices for fully regulated individual market coverage in the country and group coverage premiums are no picnic either.

Insurers and many hospitals in the state are on the brink financially, leaving long wait times and pricey out-of-pocket charges even for those with comprehensive coverage.

Vermont badly needs more affordable options and Idaho’s ESTPs offer one road map for providing them.