President Donald Trump intends to reverse the late-2016 Obama administration regulation that restricted short-term health insurance coverage to less than three months. Despite the fact that the short-term market existed for decades prior to the Affordable Care Act (ACA), there are fears that this regulatory move by the Trump administration may drive up premiums in the ACA market by drawing away healthy enrollees.
Consequently, we can expect highly politicized coverage as well as a rehash of various myths ascribed to this insurance category.
Based on a random sample of 100,000 short-term insurance buyers, the average age of a buyer was 36.3 years old at the time of application. This means the average age of a short-term health-insurance enrollee was roughly the same as the average American (37.9 years old). With respect to older customers within the sample (people ages 55 through 64), they accounted for 13% of buyers, which is actually a slightly higher representation of this older age group than is found in the U.S. (12%) as a whole.
The typical short-term health insurance application includes five to seven eligibility questions depending on the insurance company. The purpose of the questions is to ensure applicants do not have expensive chronic health conditions that are ill suited for a temporary insurance product whose enrollees pay premiums for less than a single year. A 2016 study by eHealth Inc. found only 13% of applicants were rejected for short-term coverage.
The most common reason given by consumers for buying short-term coverage is job loss. According to the Bureau of Labor Statistics, the ensuing unemployment period averages six months. Consequently, the cost of short-term coverage needs to be very low given the income loss for many during this period. For a 30-year-old in 2017, the average short-term premium was $79 a month. In comparison, the average premium nationwide for bronze plan coverage was $311 for a 30-year-old without subsidies. For a 50-year-old, the average short-term premium was $198 a month while the average unsubsidized premium for a bronze plan was $489.
Some critics of short-term health insurance argue the product is “junk insurance.” However, when comparing average deductibles in 2017, short-term insurance averaged $3,434, which was $2,658 less than the average deductible for an entry-level bronze plan.
While it is true that short-term plans cover fewer benefits than ACA plans and exclude health conditions that began prior to purchasing the insurance, these plans do include all major benefit categories including coverage of doctor and specialist visits, emergency care, x-rays, lab tests, and hospitalization. Drug coverage is included in some but not all plans.
This myth was the primary reason offered by the Obama administration for reducing the maximum coverage period of short-term plans from 364 days to “less than three months.” However, actual market data does not support this claim. When analyzing a random sample of consumers enrolled in short-term plans prior to the three-month restriction, the average effective term of a short-term policy was 201 days (6.7 months).
Moreover, only 9% maintained short-term coverage beyond the statutory maximum of one year for a single policy. These customers did so by reapplying for a new short-term plan with an effective date that started after the expiration of their existing plan, either from the same or a different insurance company.