Undoing Short-Term Health Plans Is Bad Policy

Last week, President Joe Biden signed several executive orders that aim to kick-start his administration’s approach to health reform. He’s re-opening the exchanges in the three dozen states that use HealthCare.gov for three months, from February 15 through May 15. And he’s directing federal agencies to re-examine several rules promulgated by the Trump administration, most notably one that permitted short-term health plans to last up to one year and be renewed for up to three.

Scrapping this rule would be bad policy. Short-term plans are an important part of the country’s healthcare infrastructure. Limiting access to them will deny affordable coverage to hundreds of thousands of Americans, including those that desperately need it while they’re temporarily out of work because of the pandemic.

Americans typically turn to short-term health insurance for several reasons. They may be between jobs and need temporary coverage before they’re able to get it through work once again. They may be new entrants to the workforce, in search of their first job and the coverage that comes with it. Or they may simply want less comprehensive, less costly coverage than what’s available on the exchanges.

Consider a hospitality worker whose hotel is currently well below capacity. Perhaps she was furloughed but has a guarantee she can return to work when the hotel returns to normal occupancy levels.

Our hypothetical worker has a few options. She could simply go uninsured and hope she doesn’t end up needing care. But that’s risky.

She could stay on her employer-sponsored insurance plan by covering the premium under the terms of the federal COBRA program. That option can be costly. The average annual premium for a single employee is more than $7,400.

Our worker could sign up for a plan on the Obamacare exchange, where even skimpy plans can cost a lot. The average premium for a bronze plan—the least generous level of coverage—this year is $328 per month. The median deductible for such plans is nearly $7,000.

Or our hotel worker could choose a short-term plan. At present, these plans can last up to a year, and insurers can renew them for up to three years. But they’re not available everywhere. Many states have set the maximum duration at less than a year. Some ban them outright.

Short-term plans are typically inexpensive—as little as $100 a month. That’s a fraction of the cost of exchange or COBRA coverage.

Critics contend that short-term plans harm consumers by providing less than comprehensive coverage. Short-term plans don’t have to adhere to Obamacare’s essential health benefits mandates and can vary premiums according to a beneficiary’s health status or history.

But many people can’t afford or don’t want the comprehensive coverage that short-term plans’ critics have in mind for them. An exchange policy may require someone to spend thousands of dollars in premiums and deductibles before coverage kicks in.

In fact, millions of people would rather go uninsured than pay sky-high prices for exchange coverage. In 2019, there were nearly 30 million uninsured Americans. Of those, about three-quarters said that they were uninsured because coverage, even on the Obamacare exchanges, was not affordable.

Of course, people have to read short-term policies carefully to determine how they address pre-existing conditions or whether they cover desired hospitals or doctors. They may not be a great fit for people with serious health risks who may need a lot of care. But they can be. According to research from the Manhattan Institute, a 60-year-old smoker in the Atlanta area can find a short-term plan that costs less than an exchange plan and offers a similar level of benefits.

Hundreds of thousands of Americans signed up for short-term plans when the Obama-era restrictions were lifted in 2018. The next year, another 600,000 opted for short-term plans, bringing total enrollment to roughly 3 million.

Short-term plans can be an attractive option for Americans in need of affordable coverage, especially those who will return to work once the pandemic subsides and the economy fully re-opens. It would be counterproductive for the Biden administration to ban an affordable source of coverage for millions of people at the outset of his term.

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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