Short-term policies predate the Affordable Care Act and aren’t required to follow its regulations. For decades, they were marketed as temporary coverage to people who, for example, were between jobs. By design, short-term policies were not renewable and coverage typically lasted for three to six months.
Presently, under rules issued during the Barack Obama administration, they can provide coverage for only up to three months. The Trump proposal, however, would allow short-term policies to last up to a year.
That is an important distinction because allowing the policies to last longer makes them easier to substitute for plans regulated by the ACA. Coupled with rising premiums for ACA plans, the short-term option could become more attractive to a lot of people.
While around 56 percent of people with ACA-regulated plans qualified for tax credits to pay for their coverage in 2017, others — nearly 7 million people — weren’t shielded from premium increases.
Compared with policies that meet ACA standards, short-term policies are, indeed, cheaper — as a recent study I co-authored shows. Two websites selling such short-term plans list premiums as low as 20 percent of the cheapest marketplace plan.
But here’s where those trade-offs come in.
For starters, short-term policies cover less. None of the policies we reviewed covered maternity care; 71 percent don’t insure prescription drugs; 62 percent excluded substance-use treatment; and 43 percent excluded mental-health services.
When these benefits were covered, it was often limited. For example, some plans capped the mental-health benefit at $3,000. The cheapest plans also applied high deductibles and other cost sharing that exceeded $20,000. By contrast, marketplace plans cover essential benefits with no dollar caps and limit annual patient cost sharing to $7,350.
Insurers also medically underwrite short-term policies, meaning they won’t sell them to just anyone. We estimate about 1 in 4 adults under the age of 65 has a “deniable” condition — such as diabetes, cancer, HIV/AIDS or pregnancy — that would make it impossible to buy a short-term policy. Applications specifically ask about these conditions, and a “yes” answer will get you turned down.
Other preexisting conditions might not trigger a denial, but they often will be flagged so that no related treatment is covered. If a healthy applicant buys a short-term policy and then gets something scary — such as cancer — he or she could be screened again for evidence the condition existed, undiagnosed, when the policy was issued. If so, treatment won’t be covered; otherwise, coverage will end at the policy term and no new underwritten policy will be offered.
Marketplace plans, by contrast, take all applicants, cover preexisting conditions and let you keep your policy and renew it even if you get sick.
Those are key trade-offs — lower premiums for less protection. But at the moment, fewer people may be willing to accept them. That’s because short-term policies don’t satisfy the ACA’s individual mandate, which means if you’re only covered by short-term policy, you could owe a penalty (either $695 or 2.5 percent of your income, whichever is greater).
But Congress eliminated that penalty, beginning in 2019. That change — along with the Trump’s administration’s decision to expand short-term regulations — could lead to more people buying short-term policies next year.
This will affect everyone in the individual market. For insurance, the risk pool is key. About 80 percent of health-care spending in any year is attributable to about 20 percent of people. For the risk pool to be stable and premiums affordable, the healthy 80 percent need to participate.
The risk pool is undermined anytime policies outside the ACA framework compete directly against policies that follow ACA rules. People will be more likely to leave the ACA pool if they can get by on skinnier short-term coverage. And they will be more likely to remain in the ACA pool, or return to it, when they can’t. That will further drive up the cost of ACA coverage. By one estimate, repeal of the mandate penalty, combined with increased short-term policy sales, could raise premiums for marketplace policies by another 18 percent next year.
People don’t buy health insurance in case they stay healthy. Overwhelmingly, they want protection against high medical bills in the event of serious illness or injury.
That’s the trade-off we face. Promoting short-term policies would give people the option of buying cheaper coverage while they are healthy. But it will make coverage more expensive once they get sick.
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