Short-term health plans were originally meant to last 90 days to serve as gap coverage for consumers who were between jobs or transitioning from one health plan to another. But a new federal final rule allows states to sell short-term plans that can last up to 364 days and may be renewed for up to 36 months. These health plans are often inexpensive but also don’t cover as many medical services and can deny coverage to consumers with pre-existing conditions. Yet, these yearly, renewable plans now compete with plans that comply with the Affordable Care Act (ACA). Can the ACA marketplace survive if healthy people turn to these short-term plans for coverage?
The Trump administration’s decision to expand the sale and renewal of short-term health plans was one of many recent actions meant to destabilize the ACA market.
But so far insurers are proceeding cautiously, and few have yet to introduce renewable plans to the market, according to Modern Healthcare. Shaun Greene, senior vice president at AgileHealthInsurance, a brokerage firm, told the publication that LifeShield National Insurance Co. may be the first to come to the market with a renewable, 364-day plan sold in Alabama.
The LifeShield short-term plan has an attractive hook. Enrollees who pass the medical underwriting process for determining insurability and choose to renew the plan don’t have to go through a rescreening process when they renew in year one or two. Although the insurer can deny coverage of a pre-existing condition during the initial enrollment, it will cover medical conditions that arise during the coverage period and without limitation, according to Modern Healthcare.
Some worry that these types of plans may steer younger, healthier consumers away from standard individual-market plans, taking them out of the ACA pool, which offer plans with more comprehensive coverage and consumer protections. That would leave only older patients and those with pre-existing conditions in the pool, which would likely lead to higher insurance costs.
Can short-term plans co-exist with ACA plans?
In a piece for MarketWatch, Greene writes that he believes short-term health insurance can co-exist peacefully with ACA plans. The short-term health insurance, he says, is a good option for those who need affordable coverage for accidents and illnesses, but an ACA plan is a much better choice for consumers who may need maternity care coverage or who play extreme sports.
“Together these products address the diverse needs of American consumers. Shouldn’t our goal be to maximize insurance coverage in America?” he asks in the piece.
Jason Abaluck, associate professor of economics at the Yale School of Management, says in an article for Yale Insights that the new regulations regarding short-term health plans do allow people who otherwise wouldn’t have coverage to now purchase inexpensive coverage for the entire year. This “should make them better off,” he says, but the expansion of short-term health insurance will likely worsen adverse selection.
In addition, Abaluck says that healthy people may be made worse off because if they do want to choose an affordable plan on the ACA exchange, it may not be available if short-term health insurance is available and driving up the price of the ACA plans.
“For this reason, my policy preference would be to limit the availability of short-term plans either to individuals with a true short-term need (the 90-day variant) or individuals who can demonstrate that ACA subsidies are not sufficient to make full coverage affordable. This way healthy people in general would not have an incentive to opt out of exchange plans,” he says.
Confusion in the marketplace
Kevin Mowll, executive director of RISE, says the Trump administration’s move to allow the states to approve short-term plans has only introduced confusion in the marketplace. The initiatives introduced around the individual marketplace have come in piecemeal and in some cases, contradictory spurts.
“First, with this move toward short-term plans, the federal government has provided states with a lot of leeway as to what kinds of short-term plans might be offered, what qualifies as ‘short-term,’ and how pre-existing conditions will be addressed or protected,” Mowll says. “The result is a mishmash of formulas, many of which consumers will find confusing and perhaps offering a false sense of security of having insurance coverage that is sparser than they understand.”
The market has already seen higher ACA premiums due to interference with the individual mandate, Mowll says. Market prices will also be affected by these short-term policies. And though many may say these products provide more insurance market options, Mowll says they further damage and erode the stability of the ACA marketplace and undermine coverage for millions of Americans.
However, Mowll says that insurance carriers have proven to be highly resilient and adaptive in the last several years. “Undoubtedly,” he says, “the savvy players will now also accommodate the waves yet to be created by these short-term policies, concentrating on the local markets they serve, under the state-level jurisdictions in which they compete.”
Furthermore, he says, “the resilience of the ACA marketplace has surprised many and, to some extent, it has defeated the attempts to destabilize and collapse it so far. Our hope is that the mettle of these issuers will again prove itself when faced with yet another challenge.”