Short-Term Health Plans: What They Are and How They May Change Under Trump

The Trump administration is looking to extend the availability of short-term health insurance, offering alternatives to the comprehensive Obamacare plans.

If the administration were to finalize the proposal, the rule would allow individuals to buy health insurance policies outside the health insurance marketplace of the Affordable Care Act, also known as Obamacare, for a much lower price — but with very limited benefits.

Supporters of the expansion of the short-term plan see it as President Donald Trump keeping his campaign promise of providing Americans more options and access to cheaper health care.

“In a market that is experiencing double-digit rate increases, allowing short-term, limited-duration insurance to cover longer periods gives Americans options and could be the difference between someone getting coverage or going without coverage at all,” said Centers for Medicare & Medicaid Services Administrator Seema Verma, in a statement.

What are short-term health plans?

What could happen if young people abandon Obamacare for short-term plans?

What happens now?

Short-term, limited-duration insurance has been around for years. It was designed for individuals in a temporary health coverage gap, such as people in between jobs.

The Obama administration in 2016 issued a final rule to curb short-term health plans because of the limits on those plans that may prevent them from providing “meaningful health coverage.” The rule changed the definition of short-term health plans from those that lasted less than 12 months to those that last less than three months.

Short-term plans are not regulated by the ACA. They in general don’t cover preexisting conditions. Insurers could easily deny coverage to consumers with health conditions or charge a higher premium with no limit, according to the Kaiser Family Foundation. Short-term policies typically don’t offer all essential benefits, such as maternity care, prescription drugs, mental health care and preventive care, according to the KFF. Short-term insurers may also set a dollar limit on how much of a consumer’s medical services they will cover.

The biggest selling point of the short-term plans is their low price point.

The average monthly premium for a short-term plan in the fourth quarter 2016 was about $124, less than a third of the cost of an unsubsidized comprehensive Obamacare plan, according to the HHS.

Jesse O’Brien, health care advocate with U.S. PIRG, a public interest advocacy group, told MagnifyMoney that short-term plans may be a good option for young and healthy people without health coverage for a short period of time and they know how long the period of time is.

Atop that, they would also have to be lucky, because no one can predict whether they would have a medical emergency, and subsequently, get hit by huge medical expenses while on a short-term plan.

“It’s taking a bit of a risk because these plans are not very comprehensive,” O’Brien explained. “And they may not cover as much as people think.”

Short-term health insurance is intended to offer consumers protection against out-of-pocket costs for unexpected injury or hospitalization, according to eHealth, a national online health insurance broker.

Short-term coverage varies widely, as the plans are not subject to ACA regulations. In general, they cover doctor visits, emergency care and hospitalization. Consumers are subject to paying a deductible or a copay, depending on the plan.

Pro tip: know what you’re paying forIf you choose to buy a short-term plan, should its duration be expanded to 12 months, carefully read the fine print and check the provider’s reputation, said Cheryl Fish-Parcham, director of Access Initiatives at Families USA, an advocacy group for health care consumers. She said it’s crucial for plan users to know what they will and will not be protected against because there is no rule requiring coverage for a particular set of benefits. Many carriers have a lot of exclusions.

Even though it might be a reasonable option for some people in limited situations, short-term coverage really isn’t very good insurance for the long run, O’Brien said.

Short-term plans are cheaper upfront because insurers can discriminate against sick people with expensive conditions and deny coverage to them, O’Brien said, but it’s cheaper also because it simply covers less.

“People may not understand how much less it covers until they get sick or injured and their plans may not be there for them,” he said.

Short-term health plans are not subject to a rule called the Medical Loss Ratio, or the 80/20 rule, under the ACA: It requires insurers to spend at least 80 percent of the premium you pay on your medical claims, leaving them 20 percent to spend on administrative, overhead and marketing costs. (For insurance companies selling to large groups, the MLR is 85/15.) If insurers spend less than 80 percent of premiums on health care costs and efforts to improve the quality of your care, they have to send you a rebate for some of the premium you paid. Lawmakers designed the rule to hold insurers accountable for how they spend consumers’ money.

The KFF found that in 2016, short-term plans spent an average of 67 percent of people’s premiums on medical services, while the top two insurers in the short-term plan market — who together sold 80 percent of all short-term policies — only spent 50 percent of premium dollars on medical services. This means that less of what you’re paying upfront ends up going toward covering your health care expenses.

Fish-Parcham added that many short-term plans don’t have particular network providers, so you may be more likely you see doctors out of network. In that case, the plan user is on the hook for the remaining costs, Fish-Parcham said. When insurers have a network of preferred providers, insurers and providers have negotiated service pricing. Without such a network, there may be a large gap between what the provider bills you for the service you received and what the short-term insurer will pay for that service.

You may qualify for a short-term health plan now, but you can’t bank on it in the future.

Say you develop a medical condition during the time when you’re covered under a short-term policy. Fish-Parcham said you would likely be denied other short-term plans after, because you would now have a preexisting condition. At that time, you would have to wait until the next Obamacare enrollment window open to buy health coverage.

The short-term plans are essentially only available to the young and healthy who don’t have preexisting conditions.

Federal agencies estimate that in 2019, between 100,000 and 200,000 previous Obamacare users would leave the marketplace for short-term policies. Without those people sharing costs in the individual health insurance pool, the average monthly premiums for the left behind — those who do need comprehensive insurance — will rise, according to the agencies.

“Everybody at some point in their life is going to get sick and has something that could be a preexisting condition,” O’Brien said. “I think we count on a health insurance market be there that can help us in that situation. This new rule could really undermine that.”

In particular, unsubsidized Obamacare users — those who earn enough to rise above 400 percent of the federal poverty level — would be hit hard, experts say.

O’Brien explains that lower-income individuals who get subsidies through the ACA wouldn’t be impacted much. Many may choose to buy a short-term plan, but if they stayed with Obamacare, they would be insulated from the impact of the expansion of the short-term plans because subsidies increase as premium prices go up, he said.

But the middle and upper-middle class, especially those who haven’t reached the eligible age for Medicare, would suffer.

“If you are at 405 percent of the federal poverty line, and you are 60 years old, your premium is already very high,” O’Brien said. “And the subsidies aren’t there to insulate you from any premium increases that would be caused by this … it could really drive a lot of people out of the insurance market.”

Fish-Parcham argued that loosening rules on short-term plans would eventually affect subsidized Obamacare users, too, because fewer insurers may be willing to sell policies in the marketplace following the exit of the young and healthy.

The federal government is soliciting public comments on the proposal. The 60-day public comment period ends on April 23, after which the agencies can review the comments and revise the rule accordingly before publishing a final rule in the Federal Register. When issuing a final rule, agencies must describe and respond to the comments, and sometimes agencies withdraw the proposal in the post-comment period.

If the agencies finalize the rule, it would go into effect 60 days after the administration issues the final rule.

O’Brien said the likelihood of the proposal become a federal rule is “very high” because the administration has already taken other actions to undermine the ACA individual insurance market, like shortening the enrollment window and eliminating the individual mandate.

It’s unclear how long it would take the administration to finalize the rule, but O’Brien said it’s possible it could go into effect later this year.

The proposal came after Trump issued an executive order last October to expand the availability of short-term insurance plans and offer more low-cost health care choices for Americans.

Experts urge concerned Obamacare users — especially those who have purchased short-term plans and can speak from experience — to submit comments to the federal government.

There are four ways where you consumers can submit comments on the regulation: