I work for a small company whose health plan is outlandishly expensive. A friend of mine mentioned that he just got coverage through a short-term health insurance plan – and is saving a lot of cash in the process. Are those a good idea? I have a wife and daughter, so I don’t want to pursue something that ends up being worthless. – Calvin, Rocky River, Ohio
There’s little the current occupant of the White House does quietly. However, extending the duration of short-term health insurance policies is something that has flown under the radar for a lot of consumers.
During the Obama years, folks could only be on one of these plans for three months. But when Trump strolled into the White House, his administration expanded the maximum duration to 364 days – and it enabled patients to renew them twice. What was originally intended as a Band-Aid for people in between jobs suddenly became a long-term option for getting coverage.
The appeal of short-term insurance is pretty obvious: the plans are a hell of a lot cheaper than individual policies you’ll find elsewhere. In fact, the Kaiser Family Foundation estimates that consumers pay 54 percent less in premiums compared to plans sold on an exchange. Given the huge bite that insurance takes out of the average American’s paycheck, that’s a lot of savings – at least on the front end.
The reason these plans are so cheap? You guessed it – they skimp out on coverage. Notably, issuers can deny coverage to people with pre-existing conditions, which means pretty much any ailment you’ve sought treatment for within the past two years.
On top of that, short-term insurance plans have fewer restrictions in terms of what expenses they cover than Affordable Care Act (ACT)-compliant plans. So you may find that the plan you’re shopping for doesn’t cover things like pregnancies, substance abuse treatment or prescription drugs (though some offer a discount on those). In some cases, they won’t foot the bill for injuries sustained during an auto accident or things like organ transplants, either.
Looking at the data, it’s not hard to see why insurance carriers would want to enter the market. According to an analysis by Modern Healthcare, the biggest provider, United Healthcare Group, spent less than 40 percent of its premium revenue on paying claims last year. Remarkably, some companies dished out even less. That’s in sharp contrast to ACA-compliant plans, which are required to return at least 80 percent of their premiums to customers.
Make no mistake about it. These plans can make sense when they’re actually used for short-term needs. If, for instance, you’re in between jobs and you’d need to sell your house to get COBRA coverage, it’s a nice option to have. But is it a good substitute for more robust medical coverage over the long haul? If it’s all you can truly afford, sure. Otherwise you probably want to go elsewhere.
A better alternative might be looking at your employer’s least expensive plan, even if it comes with a high deductible. At least you’ll know that, should something happen to you or one of your family members, you won’t have some tight-fisted insurance carrier tell you that you’re S.O.L. And because you can pair high-deductible plans with a health savings-account, you can get a tax break on any expenses you pay out of pocket.
Ostensibly, expanding access to short-term plans was about increasing choice for consumers; there’s no doubt it does just that. But, combined with the elimination of the individual mandate, it’s clearly a way to weaken Obamacare as well. The fewer healthy people who sign up through an exchange, presumably the more expensive ACA plans become.
At any rate, it looks like these extended “short-term” health plans may be here to stay. A group of plaintiffs, including the Association for Community Affiliated Plans, sued the Trump administration over its expansion of these insurance policies, arguing that it amounted to an end-around of the ACA. But in July, a federal judge sided with the president.
Whether their cheaper price tag is worth the added risk to your family? You have to come up with the verdict on that one.