Background on Short-Term Health Plans:
A short-term health plan is a health plan that does not provide the essential minimum benefits offered by ACA compliant health plans on state exchanges or through employers.
Unlike state-exchange and employer-based health plans, insurance companies can refuse to sell short-term plans to people with pre-existing conditions.
Also, unlike state-exchange and employer-based health plans insurance companies can base premiums on a person’s health status.
A recent report by the Democratic staff of the House Energy and Commerce Committee and a paper by the Kaiser Family Foundation paper identify several general problems with short-term health plans. These problems include:
- Denials of benefits for life-saving procedures including treatments for cancer and heart surgery.
- Strict limits on reimbursements for hospital stays, surgeries and for doctors. Limits include $500 per policy period for doctor visits, a $1,000 daily limit on hospital reimbursements, a $500 maximum for emergency services, and a $2,500 maximum for surgery services.
- Denial of benefits by requiring extensive documentation after a procedure has been conducted,
- Rescission of coverage
- Lack of automatic renewability. By contrast, since 1996 federal law guaranteed renewability for all other individual health insurance plans.
- Existence of annual and lifetime benefit caps. Caps on other plans are prohibited by the ACA.
- No annual cap on cost sharing, another departure from ACA rules.
- No minimum loss ratio. ACA plans have a minimum loss ratio of 80 percent.
A second paper by the Kaiser Family Foundation discusses the extent to which short-term health plans covered mental health services, substance abuse, outpatient prescription drugs and maternity care. The paper found that:
- 43 percent of plans lacked coverage for mental health services, 62 percent did not cover substance abuse, 71 percent did not cover out-patient prescription drugs and no plans covered maternity care. In seven states all available short-term health plans lacked coverage in all categories.
An issue brief written by IHPI concludes increased use of short-term health plans will result in increased coverage gaps for pregnant women.
The literature provides numerous examples of people with short-term health plans being responsible for large bills despite ostensibly having insurance.
- The report by the Energy and Commerce committee describes several situations. In one a patient received a $14,000 bill for two-day hospital stay for pneumonia. In another the short-term policy only paid $7,000 on a $35,000 bill for an emergency procedure.
- A CBPP paper citing work by the American Cancer Society Action Network found that a person with a short-term health plan diagnosed with breast cancer would pay $40,000 to $60,000 out-of-pocket compared to less than $8,000 for a person with an ACA marketplace plan.
Are short-term health plans beneficial?
Most economists oppose government restrictions on financial products that leave low-income people exposed to substantial financial risk. This laissez-faire attitude resulted in the use of subprime mortgages large levels of mortgage defaults and a catastrophic financial collapse.
Most economists also do not oppose the use of short-term health plans based on their view that some insurance is better than no insurance.
My view is that many people with short term health insurance plans including the person with a $60,000 out-of-pocket bill for breast cancer and the person with a $25,000 bill for emergency room services are de-facto uninsured.
Short-term health plans with arbitrary benefit packages and large gaps of coverage do not effectively limit household financial risk. By contrast, high deductible health plans HDHPs, discussed here, require considerable cost sharing do cap total risk.
The expansion of short-term health plans facilitated by the Trump Administration executive order does more than unnecessarily increase financial risk for households that choose short-term health plans. The plans will attract younger healthy adults who receive pay all or most of their state exchange health insurance premium. (The premium tax credit for state exchange health insurance is age-rated leaving many middle-income young adults are responsible for their entire premium. Go here for a discussion of this issue.)
Short term health plans are a bad product that creates additional problems for society.
The growth of short-term policies creates unmanageable risk for policy holders, creates coverage gaps for women who get pregnant, and weakens state-exchange markets.
Alternatives to short-term health plans:
A strong case can be made for prohibiting insurance contracts with vague arbitrary features or contracts that often fail to protect individuals from catastrophic losses. Such a prohibition would increase the number of uninsured but decrease the number of people with insurance who are de-facto without protection.
The most effective way to reduce use and problems from short-term health plans is to create viable lower-cost comprehensive alternatives to short-term health plans.
A lower-cost catastrophic but comprehensive option:
A proposal offered by Senator Alexander and Senator Murray for a new catastrophic health plan offered on state exchanges would substantially reduce premiums and would provide much better coverage than short-term plans. The catastrophic option would have high deductibles and higher cost sharing but would not allow for the arbitrary benefit exclusions that characterize short-term plans. Catastrophic plans of this type could be improved by the expansion in health savings accounts proposed here.
Reinsurance or Medicaid above an annual cap.
Short term health plans reduce costs by imposing annual and lifetime limits on reimbursed health expenditures; however, the annual limits eliminate access to health services and increase financial risk for people with health expenditures above the limit.
One way to keep premium reductions achieved from annual and lifetime reimbursement limits and still protect patients that reach the limit is to allow access to Medicaid once the limit on the health plan is reached. This type of cost-sharing arrangement was first described in this SSRN paper.
It should be possible for the Biden Administration and certain states to implement cost sharing through a Medicaid waiver, which allows states to use Medicaid funds to pay health expenditures for people with health expenditures over their annual cap.
A Public Option:
Another way to eliminate inadequate short-term health insurance plans is the creation of a public option through increased access to Medicaid or Medicare.
Existing public options provide comprehensive health insurance and quick reimbursements to health care providers. Medicaid and Medicare reimbursement rates are low compared to many private insurance plans and some providers do not accept Medicaid or Medicare.
There is also concern that a widely available public option could crowd-out private insurance. However, the combination of a public option and a more generous subsidy for health savings account contributions would likely not crowd out private insurance if the HSA subsidies were only available for people with private insurance.
Most economists with their pro-market even laissez-faire approach do not support prohibitions against less than complete financial products. These economists did not appreciate the damage done by the growth of the subprime mortgage market and do not currently appear to understand problems created by short-term health insurance plans.
Short-term health plans undermine state-exchange insurance markets and have crowded out proposals for the creation of more viable low-cost insurance options. The adage “some insurance is better than no insurance” is glib advice when arbitrary benefits do not cover serious health problems and the cheap insurance product undermines the market for comprehensive insurance.