Short-term Plans Are Not Junk Insurance

Townhall.com ^ | February 2, 2020 | Young Voices Advocates

[Kaslin]

Editor's note: This column was authored by Chris Medrano.

Americans from every walk of life have good reason to dread the rising cost of medical care. Thankfully, in 2018 the Trump administration gave people more options by loosening restrictions on a less expensive plan type, called short-term plans. These plans aren’t required to follow the Affordable Care Act’s (ACA) mandates, which is why Obama heavily restricted them in 2016 — to force more people into the ACA. But thanks to Trump’s deregulation, the CBO predicts that 2 million people will enroll in these plans by 2023. 

Unfortunately, though, some politicians would like to see these plans restricted again. 

They claim they’re a risk to consumers because they have fewer benefits and don’t comply with the ACA’s mandates. But these attacks are misplaced. Short-term plans can be great options for Americans who are in between jobs, self-employed, or simply don’t need all the mandates the ACA forces insurance plans to provide. 

Moreover, outlawing short-term plans would force middle-class consumers to decide between coughing up thousands of extra dollars to insurance companies, or forgoing insurance altogether. To understand exactly why that’s the case, and why short-term plans were such a welcome relief to many consumers, it’s important to remember how the ACA’s mandates caused premiums to soar. 

The mandates require insurance companies to cover a greater number of benefits and limit how much insurers can charge people with preexisting conditions. Predictably, that caused premiums to rise. A 2017 Forbes article cites Ehealth data showing premiums in the non-group market rose dramatically the four years after the ACA’s regulations went into effect. Premiums for plans covering all ages rose between 56-63.2% each year from 2013 to 2017. For perspective, premiums for the same plans rose by less than 10% the four years before the ACA went into effect.  

Middle-class Americans who make too much to receive any subsidies to help pay for ACA coverage, then, are the ones who feel the full brunt of those premium increases. That’s why, according to the Wall Street Journal, 20% of people who didn’t qualify for subsidies left the ACA altogether in 2017. 

Short-term plans, on the other hand, cost considerably less. In 2018, the Centers for Medicare and Medicaid Services noted “[the] average monthly premium for an individual in the fourth quarter of 2016 for a short-term, limited-duration policy was approximately $124, compared with $393 for an unsubsidized individual market plan.” 

One major reason ACA plans have narrower networks is that the ACA’s mandates encourage insurance companies to dilute the quality of their plans to avoid sick people — a phenomenon Cato Institute scholar Michael Cannon has written on at Health Affairs. One report from Avalere reveals 72% of ACA plans have narrow networks. This underscores how the ACA’s one-size-fits-all approach to insurance has unintended consequences that harm consumers.

Despite the clear demand for short-term plans, many politicians continue to exhibit a paternalistic attitude toward consumers. Rather than acknowledging how the ACA’s higher costs and narrower networks have hurt many Americans, they point to instances when patients who bought short-term plans were surprised to find the plan didn’t cover as much as they thought they would. 

Insurance companies that commit fraud or purposefully mislead customers about the limits of their coverage should certainly be held liable. But outlawing short-term plans altogether would only harm those who receive coverage that fits their needs. Such proposals also ignore a fundamental problem of the U.S. healthcare system: All patients — even those covered by the ACA — are one accident or sickness away from massive bills. The demand for short-term plans and the ACA’s shortcomings demonstrate that more options — not fewer — are what patients need.

[Moonman62]

Here’s a proposed solution that is cited in the posted article:

https://www.healthaffairs.org/action/showDoPubSecure?doi=10.1377/hblog20180103.932096&format=full

A Better Option: Incentive-Compatible Insurance

Health systems are like marriages. They succeed only to the extent that the participants actually want to be there. A health system that enjoys the support of only one political party, or that requires consumers, insurers, and government officials each to act against their perceived self-interest, is unlikely to deliver secure, sustainable access to high-quality care for the sick. A more sustainable system is one in which the majority sees it as in their financial self-interest to participate and that reserves coercion only for those cases where voluntary cooperation fails.

There is considerable evidence that a voluntary system of health insurance—in which all parties want to be there—continually strives to make access to care more affordable and secure for those who develop expensive medical conditions. It is no coincidence that it was in markets free from guaranteed-issue mandates or community-rating price controls that insurers developed innovations such as guaranteed renewability and preexisting conditions insurance. Guaranteed renewability (as noted in Part 1) emerged as a response to virtuous incentives to make coverage better for the sick, protected enrollees from “risk reclassification” when they developed expensive conditions, and provided more secure access to care than employer plans. Preexisting conditions insurance made those protections available at an 80 percent discount—at least, until Obamacare outlawed both of these innovations.

Congress can make coverage more affordable and access to care more secure by repealing or letting consumers opt out of Obamacare’s preexisting conditions provisions and other health-insurance regulations. A study conducted by McKinsey and Company for the Department of Health and Human Services estimated that the preexisting conditions provisions are the primary reason individual-market premiums are rising so rapidly. Repeal or an opt-out would free the vast majority of exchange enrollees to purchase low-cost, guaranteed-renewable coverage—or even lower-cost preexisting conditions insurance—at any time of year. In addition to greater freedom, those consumers would gain something else they currently lack: sustainable, long-term protection against the cost of illness.

A minority of exchange enrollees would be unable to find or afford coverage at actuarially fair premiums. As a matter of political reality, reform will include some form of subsidy for this group. One option is a high-risk pool. High-risk pools likewise exhibit quality and affordability problems—in part because they too suffer from government pricing errors. Yet, a voluntary insurance market combined with government high-risk pools need not be perfect to outperform Obamacare. The more direct, transparent, and equitably financed a high-risk pool’s subsidies are, the more politically sustainable those subsidies will be. Moreover, any imperfections of a high-risk pool are as much a feature as a bug. To the extent that government pricing errors lead to suboptimal quality in high-risk pools, they create incentives for people to purchase insurance in the voluntary market.

A proposal by Sen. Ted Cruz (R-TX) represented a true compromise between the warring tribes. As originally conceived, the Cruz compromise would allow insurers to sell non-Obamacare-compliant plans, so long as they continued to offer compliant plans to all comers. Exchanges would essentially become high-risk pools. Subsidies to those with preexisting conditions would become transparent. Healthy enrollees could only obtain non-compliant plans if there were enough political support for the level of subsidies necessary to entice insurers into offering compliant plans. Most important, the availability of guaranteed-renewable insurance would reduce the need for government subsidies by providing a voluntary and thus sustainable way to subsidize those who cannot afford the care they need.

The Trump administration could achieve much the same thing through executive action by redefining short-term health plans to allow them to be guaranteed renewable. Such a step would free consumers from all of Obamacare’s health-insurance regulations, even federal health insurance regulations that predate the Affordable Care Act. Creating a “freedom option” through executive action, moreover, would not condition the availability of non-compliant plans on the availability of compliant plans, as the Cruz compromise would. If the Trump administration proceeds with its plans to redefine short-term health plans, Obamacare supporters may want to give the Cruz compromise a closer look.

[msrngtp2002]

Real life...before Obamacare I owned a company. We paid 75% of everyone’s health insurance that included drug costs. Premium for a single person was 475 per month, 1200 deductible we paid the deductible. Obamacare went into effect...same coverage, same people premium became 850 per month with a 4000 deductible. We just have our employees a 575 per month raise - it was our best option, and they all (including owners) had to buy our own.

[Twotone]

I happily signed up for one of these ‘short term’ plans to get my insurance costs from over $700 to under $300 a month. At least I’m healthy with no current issues. Two more years & I’m on Medicare.