Short-term health plans have traditionally been used for temporary coverage for travelers or workers in employment transition. Recently, such “skimpy health plans” have become a long-term option for many individuals in the health insurance marketplace. This shift comes with far-reaching consequences for health insurance in America and ideological debates between political parties.
In October 2018, the Trump administration passed regulations allowing short-term health insurance plans to cover individuals for up to one year, with an option to renew the coverage for three subsequent years. This marked a striking departure from the ACA’s firm stance on short-term health insurance plans’ being limited to three-month, temporary coverage. For some, this was a victory: it allowed the freedom to choose cheaper plans and not face penalties or limitations as short-term health plan members often did under the ACA. Others viewed this not only as a setback to ACA preservation efforts but also as an overarching threat to the quality of insurance in America. Underlying this divide are contested ideas of freedom and choice for individuals and the quality and stability of the healthcare market. Regardless of the political clash and difference in ideology, this legislation brings very real consequences to the industry of insurance providers.
Individuals who opt for these cheaper “short-term” plans and renew them for the long-term face high financial risk. Short-term health plans do not offer the recommended minimum healthcare coverage that the ACA established as precedent for all long-term health plans. Not only this, but such plans are exempt from having actuarial value of over 60%, which is the minimum value permitted by the ACA for long-term plans. Thus, these plans likely hold the patient accountable for greater than 40% of all healthcare costs. This is an exorbitant amount of cost-sharing on the patient, not to mention the number of services not covered that the patient would be liable for, including out-of-network services, preexisting conditions, preexisting pregnancies, counseling and several nonemergent treatments.
In response to the loosened restrictions, firms have begun promoting their short-term medical plans. United Healthcare offers several options, the cheapest of which has a deductible of $12,500, coinsurance of 40% after deductible and coinsurance out-of-pocket maximum of $10,000.
Arkansas BCBS also offers a short-term health insurance plan with similar extent of coverage: the cheapest plan has a deductible of $7,500 and coinsurance on medical costs of 30%. Humana and Anthem, alongside many other firms, offer similar policies with high cost-sharing and limited benefits.
These plans are not without controversy. Several lawsuits and federal investigations have raised questions about the quality of insurance offered and discriminatory practices against individuals with preexisting conditions. But the willingness of firms to offer such plans remains seemingly uninfluenced by the political scrutiny.
The Trump administration recognizes that such insurance plans are not for everyone. Yet it contends that the choice of low-cost plans should still be available. The legislation allows individuals to extend this type of coverage for multiple years, creating a financial risk for healthy young people who may experience an unexpected medical issue and likely underestimate the often randomness of the associated healthcare costs.
In fact, this legislation creates a strong incentive for young and healthy people to opt out of the ACA health insurance market, in turn destabilizing the patient pool by making it older. Yearly premiums will likely rise for the millions of individuals who depend on the ACA marketplace.
Corporate Insight’s Health Plan Monitor will continue to track insurance-related legislation and consider its consequences—both intended and unexpected—on the industry and its consumers.