California just outlawed a form of health insurance that could save thousands of its residents millions of dollars.
Late last month, Governor Jerry Brown signed SB 910, which bans the sale of short-term health plans — those that last less than a year and don’t have to comply with Obamacare’s many cost-inflating mandates. The law effectively nullifies a recent Trump administration rule that expanded access to the plans, which are significantly less expensive than those for sale on the Covered California exchange.
Obamacare upended the individual insurance market by imposing costly regulations on all conventional health plans. Its guaranteed issue mandate requires insurers to sell plans to all customers, regardless of their health status or history.
Its community rating mandate prohibits insurers from charging sick enrollees more than healthy ones; they can only vary premiums according to age, tobacco use, and geography. And the essential health benefits mandates require all plans to cover a list of no less than 10 different medical services and procedures.
These regulations severely restricted insurers’ ability to manage risk. They could no longer price their policies to reflect each enrollee’s projected medical expenses, so they sharply hiked premiums on everyone to cover the cost of their very sickest customers. The price of the average individual market plan more than doubled between 2013 — the year before the mandates took effect — and 2018.
Mandating Higher Prices
However, Obamacare didn’t impose these mandates on health plans that lasted less than a year. Historically, people had used these short-term policies to fill gaps in coverage when they changed jobs or moved to different states.
Because these short-term plans were exempt from Obamacare’s costly mandates, they were far less expensive than exchange plans. While the average monthly premium for an Obamacare-compliant plan was $393 at the end of 2016, premiums for short-term policies averaged only $124.
People who were unwilling or unable to afford exchange plans started buying short-term plans instead. Between 2013 and 2015, sales of short-term plans at HealthMarkets, an insurance agency, grew roughly 150%.
In essence, short-term plans offered an escape hatch from ObamaCare.
The Obama administration saw this trend as an existential threat to the exchanges. So in late 2016, it released a rule banning short-term plans that lasted longer than three months.
The three-month limit made these plans too risky for many consumers. If an enrollee developed a serious medical condition, his insurer might not renew the policy at the three-month mark. And Obamacare usually only allows people to enroll in exchange plans at the end of the year. So folks who opted for short-term plans could risk going months without insurance.
The Trump administration reversed the Obama-era rule this summer. Insurers can now offer short-term plans of up to 364 days in duration. They can also renew those plans for up to three years.
But liberals have been quick to try and dismantle the move. Just last week, Senate Democrats tried and failed to overturn the president’s expansion.
While many Americans will enjoy the benefits of short-term plans, Californians will be left out. Supporters of the statewide ban on short-term plans say that they’re protecting patients from “junk insurance.” SB 910’s sponsor, Sen. Ed Hernandez, said that short-term plans “subject people to huge healthcare bills, barely cover any services and give people a false sense of security.”
Those assertions are misleading. Short-term plans don’t always cover the same benefits, such as prescription drugs and pediatric dental services, as exchange plans. And as even Alex Azar, the Trump administration’s Secretary of Health and Human Services, has said, short-term plans “may not be the right choice for everybody.”
But individuals without employer-sponsored insurance deserve choices — especially when their only other option, coverage through the exchanges, is so unaffordable.
Average individual premiums in California have soared from $373 in 2014 to $503 in 2018. And they’re set to rise 8.7% in 2019. Roughly one-third of the more than 3 million state residents without uninsured cite the high cost of coverage as the reason why.
Short-term plans certainly provide more protection than going uninsured. But by banning the plans, California’s leaders would apparently rather that many of their fellow residents remain uncovered.