Short-Term Health Plans: Still Bad for Consumers and the Individual Market

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Toplines

    Short-term plans discriminate against people with preexisting conditions
    Allowing short-term plans to be extended will drive up individual market premiums

In June, 14 senators sent a letter to Secretary of Health and Human Services Tom Price urging the Administration to allow short-term health plans to be offered for longer than three months. The letter states that these plans offer “great value to people” and “real protection.” Our analysis of short-term coverage in the senators’ states finds the opposite: these plans, more often than not, discriminate against consumers with preexisting conditions and have high cost-sharing and numerous exclusions that result in minimal protection.

What is Short-Term Coverage?

Short-term plans are designed to fill temporary gaps in coverage. And yet, prior to 2016, some plans covered enrollees for an entire year. After becoming aware that some people were enrolling in short-term coverage as their primary coverage, instead of a comprehensive health plan, federal regulations limited short-term coverage to a duration of three months.

Federal regulators acted in part because they believed short-term coverage had been “adversely impacting the risk pool” in the individual market. Short-term coverage is medically underwritten, so individuals with preexisting conditions or high health risks are frequently denied. As a result, short-term plans are only an option for healthy people, some of whom are taken out of the individual market by enrolling in these substandard plans.

Short-Term Coverage Does Not Provide the Same Protections as Individual Market Coverage

Short-term coverage provides much skimpier coverage than plans sold in the individual market. In 2016, the largest insurer selling short-term coverage spent less than half of the amount they charged in premiums on medical claims and improving quality of care.1 By contrast, insurers in the individual market are required to spend 80 percent of premiums collected. The senators’ letter references data from the online health insurance website eHealth to support their argument that these plans provide value. Our analysis sampling the best-selling short-term coverage plans sold on eHealth in these senators’ states finds the plans provide poor coverage, particularly when compared with plans sold in the marketplaces, and minimal financial protection in the case of sickness or injury.2

Short-term coverage does not need to comply with consumer protections required of comprehensive health insurance. Unlike individual policies that comply with the regulations of the Affordable Care Act (ACA), insurers selling short-term coverage can deny enrollment to people with preexisting conditions and exclude from coverage services needed to treat those conditions. Questionnaires about health history are used by short-term insurers to identify and deny coverage to people with certain preexisting conditions, such as pregnancy, or to applicants who received medical “consultation, advice, or treatment” for conditions such as diabetes or heart disorder. Even if they are offered coverage, people with preexisting health conditions may never have claims paid under short-term coverage. Insurers may comb through members’ medical histories to determine if a service was for a preexisting condition in order to deny a claim. One of the three insurers offering best-selling plans through eHealth considers a condition preexisting if a member had symptoms within the prior five years “that would cause a reasonable person to seek diagnosis, care or treatment,” regardless of whether he or she received care.

What’s more, there are no federal requirements for short-term coverage to cover the ACA’s essential health benefits or limit cost-sharing. All of the best-selling short-term plans sold on eHealth exclude four categories of essential health benefits: preventive services, maternity care, mental health and substance use services, and prescription drugs. Other short-term coverage also excludes various services that would be covered as essential health benefits such as pain disorders, allergy treatments, and occupational and speech therapy.

 

Cost-sharing designs in short-term coverage leave members facing major, unpredictable financial risk. The out-of-pocket maximum for each best-selling plan is higher than that allowed in individual or employer plans under the ACA, when adjusting for the shorter plan duration. When considering the deductible, the best-selling plans have out-of-pocket maximums ranging from $7,000 to $20,000 for just three months of coverage. In comparison, the ACA limits out-of-pocket maximums to $7,150 for the entire year. 

 

Looking Forward

Federal policymakers are looking for ways to increase coverage choices for consumers in the individual market. But allowing plans that are only viable for healthy people to be offered for more than three months will further siphon healthy individuals away from traditional health insurance. This will result in a sicker risk pool in the individual market, drive up premiums, and put the individual insurance market at risk. Segmenting the market into separate pools of healthy and less-healthy people primarily benefits those insurers offering short-term coverage.

Instead of expanding short-term coverage, consumers of all health statuses and ages will ultimately be better served by federal action that encourages insurers to participate in the individual marketplaces. Short-term coverage does not offer “great value” or “real protection” to consumers. Instead, it puts members at risk and increases premiums for consumers in the individual market. Insurers are already reacting to signs that the Trump Administration is not committed to ensuring a robust individual insurance market. Loosening restrictions on short-term coverage will send yet another signal to insurers that the individual market will not be a stable business environment any time soon.  


Notes

1 According to data from the National Association of Insurance Commissioners, the average medical loss ratio (MLR) for short-term coverage in 2016 was only 67.4 percent, and the largest insurer had an MLR of only 47.5 percent. These calculations are not determined using the same formula as required of ACA-compliant plans.

2 For this analysis, we identified the “best-selling” or “most popular” plan available to a 40-year-old male shopping on eHealth in the 14 states the senators represent using the eHealth designation of “best seller”. The complete analysis included a review of 14 plans’ summaries of benefits and exclusions lists.  

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Publication Details

Publication Date: August 9, 2017
Authors: Dania Palanker, Kevin Lucia, Emily Curran
Contact: Dania Palanker, Assistant Research Professor, Center on Health Insurance Reforms, Health Policy Institute, McCourt School of Public Policy, Georgetown University
Citation:
D. Palanker, K. Lucia, and E. Curran, "Short-Term Health Plans: Still Bad for Consumers and the Individual Market," To the Point, The Commonwealth Fund, Aug. 9, 2017.

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