Protecting consumers from Obamacare’s costs

Open enrollment in most of Obamacare’s exchanges ends on Saturday, Dec. 15. Consumers in seven states that run their own exchanges, including California and New York, have a little bit longer to purchase coverage.

Sign-ups thus far have been less than stellar. Through the first three weeks, only 1.9 million people have enrolled in the 39 states that use the federal exchange — a drop of about 350,000 compared to last year.

People are shunning the exchanges in part because the coverage available on them is expensive — and they’ll no longer face a fine for going without coverage as of Jan. 1. They want more affordable options.

Short-term health plans are those more affordable options. Federal rules enacted this year have made them viable for hundreds of thousands of Americans desperate for low-cost, bare-bones insurance.

The plans on Obamacare’s exchanges are subject to many expensive mandates and regulations. They have to cover 10 essential health benefits. Insurers have limited pricing flexibility. The healthy have to pay the same rates as the sick. Premiums for the elderly can only be three times what they are for the young, even though older people’s claims costs are typically five times those of the young.

As a result, exchange coverage is pricey. From 2013 to 2017, average annual individual premiums more than doubled, from $2,784 to $5,712.

Short-term plans don’t have to comply with Obamacare’s mandates, so they have more leeway with pricing. For example, rates for short-term plans can vary according to a person’s health status. A healthy person could pay much less for short-term coverage.

Short-term insurance pre-dates Obamacare. The Obama administration tried to regulate it out of existence by reducing its maximum duration from 364 days to three months. It did so in order to “nudge” people into the exchanges. People were unlikely to buy short-term plans if doing so left them without coverage for up to nine months of the year.

Earlier this year, the Trump administration restored the old rules on short-term plans, permitting them for up to 364 days once again. It also allowed insurers to renew those plans for up to three years.

Those changes are making health insurance more affordable. Consider an analysis of the insurance purchases made by online insurance broker eHealth’s customers during the first week of open enrollment.

The average monthly premium for an individual short-term policy purchased on eHealth that first week was just $110. By contrast, the average individual premium for a conventional, Obamacare-compliant policy was more than five times higher — $574 a month.

The average deductible on a short-term plan, per eHealth’s data, was $5,700 — slightly higher than the $4,500 average deductible on an Obamacare-compliant plan. But that $1,200 difference costs more than $5,500 in additional premiums.

Given the potential savings that short-term plans can deliver, many Americans will surely opt for them. The Trump administration estimates that 1.9 million people will enroll by 2022. The Congressional Budget Office puts the number at 2 million by 2023.

Critics of short-term plans claim they will destabilize the insurance market by attracting the young and healthy — and leaving the conventional insurance pool older, sicker and more expensive to care for. The cost of coverage for those who remain in that conventional pool would rise even higher.

But Obamacare’s exchanges have long struggled to attract the young and healthy. Obamacare’s architects projected that young people would need to account for about 40 percent of the exchange pool to keep rates stable. But those aged 18-34 have generally made up just over one-quarter of that pool dating all the way back to 2014, when the exchanges opened.

It seems unfair to deprive young people of more affordable insurance options. The American people tend to agree. Nearly two-thirds of voters support allowing consumers to buy short-term plans, according to a survey sponsored by the Foundation for Government Accountability. Even the majority of Democrats are on board.

Several blue states don’t seem to care. California, New York, Massachusetts and New Jersey have banned short-term plans outright. Illinois just set the maximum duration for such plans at six months.

Leaders in these states claim they’re protecting Obamacare’s exchanges. But they have things backward. Consumers are the ones who need protection — from Obamacare’s outlandish costs. That’s exactly what short-term insurance plans provide.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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