Short-term plans can skirt health law requirements
What a difference a day makes. Consumers who buy a health insurance policy good for only 364 days might save hundreds of dollars in premiums, but they could also find themselves without important benefits and charged a penalty for not having insurance next year.
Under the health care law, in January most issuers have to start accepting all applicants regardless of their medical conditions and offer plans with comprehensive benefits that limit out-of-pocket costs. But short-term medical plans, defined as policies with terms lasting less than 12 months, can sidestep all the law’s new requirements. A number of insurance vendors are taking advantage of this loophole and offering plans with skimpier coverage that last up to 364 days.
“I am concerned that health insurers will try to … sell people coverage that yes, may come with a cheaper sticker price, but that may expose them to significant financial risks down the line,” says Sabrina Corlette, project director at Georgetown University’s Center on Health Insurance Reforms.
In addition to inadequate coverage, consumers who rely on short-term plans will likely face a penalty next year for not having insurance because the plans don’t qualify as “minimum essential coverage” under the law. Plans that meet the standard must cover 10 “essential health benefits” and cover at least 60 percent of allowed medical expenses.
Also, consumers who buy plans that are sold through their state’s health insurance marketplace may be eligible for subsidies if their income is less than 400 percent of the federal poverty level ($45,960 for an individual or $94,200 for a family of four in 2013). Subsidies aren’t available for non-marketplace plans.
Arkansas Blue Cross and Blue Shield’s 364-day Essential Blue Freedom plans’ least expensive option would cost a 40-year-old Little Rock resident $114.04 per month, half the $231.38 premium for the least expensive bronze plan the carrier offers that meets health law requirements.
That Essential Blue Freedom plan’s $5,000 deductible is lower than the $6,300 for the bronze plan. But the cheaper plan doesn’t cover any pre-existing medical conditions, and only people who pass medical underwriting are approved. The website alerts shoppers that buying the plan may subject them to a penalty.
Young people and others without medical problems as well as those who aren’t eligible for subsidized coverage on the health insurance exchanges may find these plans appealing, says Max Greenwood, a spokesperson for the Arkansas BCBS.
“There are people who are looking for coverage options that are affordable and aren’t necessarily inclusive of the essential health benefits,” says Greenwood. The company started selling Essential Blue Freedom plans in July.
Other companies have the same idea. Health Insurance Innovations’ short-term medical policies offer coverage that lasts just shy of 12 months. The company's short-term plans are available in 44 states through licensed agents and online health insurance vendors such as ehealthinsurance.com.
A video on the company website encourages people to buy an “affordable bridge plan to 2014” because, it says, premiums are about half those of regular insurance and coverage is “similar.” Neither the video nor online materials explain that the short-term coverage doesn’t qualify as regular insurance under the law, and members will be subject to the penalty if it’s the only coverage they have.
Health Insurance Innovations CEO Michael Kosloske says agents that sell the plans use a script that explains the limitations to potential buyers. He says this type of plan is a good option for people who miss the annual open enrollment period.
“We think this fits perfectly with the exchanges,” he says. Short-term policies have been around for decades. With a term that typically lasts as long as three or six months, consumers often purchase them after graduating from school or while they’re between jobs. Once the major ACA provisions take effect in January, plans that fill gaps in coverage of less than three months—the length of time someone can go without having insurance before facing a penalty under the law—will still be useful, say experts.
In the last year and a half, however, more companies have been offering short-term plans that bump up against the 364-day limit, says Carrie McLean, director of customer care for online health insurance vendor ehealthinsurance.com.
“A few companies caught on to what was going to be happening with THE Affordable Care Act and thought … that could be an alternative option,” she says.
Consumers may not realize that a short-term plan, especially one that lasts nearly a year, doesn’t satisfy the law’s requirement to have insurance. An ehealthinsurance.com survey of 14,000 short-term policyholders in 2012 found that 20 percent thought a short-term plan satisfied the law’s requirement; 84 percent said they didn’t know.
Experts say some consumers who prefer less comprehensive coverage may make a calculated decision to pay the penalty for not having insurance in exchange for a lower premium. That may make some financial sense in 2014 when the penalty is a modest $95 or 1 percent of family income, whichever is greater. But it may be tougher to shrug off the fine when it grows to $695 or 2.5 percent of family income in 2016, they say.
"In future years as the penalty grows people may lose interest unless they’re strongly opposed to Obamacare," says Timothy Jost, a a law professor at Washington and Lee University who is an expert on the health law.
Aside from offering inadequate coverage, some experts say they’re concerned that the plans, which are mostly geared for people who are healthy, could skew a state’s insurance risk pool because it removes the less expensive people who are necessary to moderate the costs of those who are sick.
Like another strategy some insurers are employing this year -- allowing current policyholders to renew their individual plans in December and thus avoid the health law’s requirements for nearly a year -- 364-day plans help insurers appeal to healthy people who are relatively inexpensive to insure.
“It’s a way of cherrypicking,” says Jost.
Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.