Short-Term Insurance Plans Offer A Much-Needed Escape From Obamacare

Several patient advocacy groups recently sued the Trump administration to overturn an August 2018 rule that expands access to short-term health insurance plans. They argue that short-term plans, which they deride as “junk insurance,” violate the Affordable Care Act.

The courts ought to toss this meritless lawsuit. The new rule is legal and sensible — and will allow millions of Americans to purchase more affordable insurance that fits their needs.

Obamacare requires all conventional health plans to cover an extensive list of benefits, including prescription drugs, mental health services, maternity care, and substance abuse treatment.

Many people — young people in particular — don’t want or need such comprehensive coverage. They just want bare-bones plans that protect them from financial calamity in the unlikely event they sustain a broken bone or face an unforeseen hospital stay.

Obamacare also requires conventional plans to charge all customers in a given age group the same rate, regardless of their health status or history. In addition, the law caps premiums for older people at three times the level of those for younger people, even though older patients are about five times costlier to insure, on average.

These mandates have raised costs for insurers. So they’ve had no choice but to hike premiums. Between 2013 and 2018, individual market premiums more than doubled.

People shopping on the individual market have been desperate for more affordable options.

Initially, many turned to short-term insurance plans, which are less expensive than exchange plans because they don’t have to comply with Obamacare’s mandates. The insurance agency HealthMarkets reported that sales of short-term plans increased 150%  between 2013, the year before Obamacare and its mandates went into effect, and 2015.

This early surge in short-term plan enrollment posed a threat to Obamacare’s exchanges, which depend on premium dollars from younger, healthier enrollees to balance out the higher costs of older, sicker customers. If healthy enrollees instead opted for short-term plans, the exchanges would implode — or so the Obama administration feared.

So in late 2016, the Obama administration cracked down on short-term plans. It cut their maximum duration from 364 days — just under a year — to three months. The administration also barred enrollees from automatically renewing them.

The restrictions made short-term coverage too risky for many people. Because they are not subject to Obamacare’s regulations, short-term plans can take customers’ health status into account when determining premiums. Short-term insurers can also refuse to cover people with expensive pre-existing conditions.

Many people couldn’t risk falling ill after purchasing a three-month plan — and then being locked out of the insurance market altogether until the next open enrollment season for Obamacare’s exchanges.

That was the Obama administration’s intent. They wanted to “force” people into the exchanges by making any alternatives unpalatable.

This August, the Departments of Treasury, Labor, and Health and Human Services finalized a joint rule that effectively overturns the 2016 Obama administration restrictions. Starting in 2019, short-term plans can once again last 364 days. And insurers can renew them for up to three years.

Many consumers will flock to these plans. The administration expects 600,000 to enroll in just the first year. The Congressional Budget Office projects 2 million will sign up by 2023.

It’s easy to see why. On average, the cheapest short-term plan for a family of three costs just $116 per month. The average lowest-priced bronze plan on Obamacare’s exchanges, by contrast, costs $862 each month, according to a 2018 study of plans in 40 metropolitan areas conducted by insurance website eHealth.

Many Obamacare supporters are trying to prevent consumers from accessing short-term coverage. California lawmakers recently bannedplans of less than one year. And the coalition of patient advocacy groups that has sued the Trump administration hopes to get an injunction blocking the rule while their case makes its way through the courts.

At a late October hearing, Senior Judge Richard Leon of the U.S. District Court for the District of Columbia urged the plaintiffs to drop their request for a preliminary injunction. He appeared sympathetic to the administration’s argument that the short-term rule would expand coverage to people who are currently priced out of the Obamacare exchanges. “These people, who are young, are not buying insurance,” he said. “At least with this way, they’d have insurance.”

Judge Leon is right. Consumers should be free to choose the health plans that best meet their own financial and health needs. For millions of Americans, that means affordable, no-frills short-term coverage.

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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