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AgileHealthInsurance Report | 2018-05-08

Price Advantage of Short-Term Insurance Over Obamacare Widens in 2018

On average, 30-year-olds would pay 80 percent less for short term insurance than for 2018 Obamacare bronze coverage

Price Advantage of Short-Term Insurance Over Obamacare Widens in 2018

Rates for Affordable Care Act (ACA) health insurance plans have seen staggering increases in the past two years while enrollment has declined during the same period.1 Bronze plans, generally the least expensive type of ACA plans, had their average market premiums increase 22 percent2 from 2017 to 2018. These plans are not only entry-level for standard "Obamacare" coverage but represent the most economically accessible ACA plans for unsubsidized consumers (with the exception of catastrophic plans that have special eligibility criteria). A previous AgilHealthInsurance study3 compared 2016 bronze plan premiums to short term premiums and found a price advantage among short term plans for consumers under age 50. In the interests of determining if this price advantage has changed, AgileHealthInsurance performed the study anew for 2018 bronze plans and short term health plans.

For a representative comparison of short term health insurance and Obamacare marketplace plans, short term insurance premiums were collected for male and female non-smokers ages 30, 40, and 50 in the most populous city in each of the 39 states that used Healthcare.gov for 2018 ACA enrollment. Since premiums typically reduce as deductible amounts increase, only short term plans that had deductibles and out-of-pocket caps commensurate to the averages for bronze plans were included to make the comparison more meaningful from a consumer perspective (especially given the different insurances represented by ACA and short-term plans).

Specifically, average premiums for Obamacare bronze plans were compared to average premiums for short term insurance plans available on AgileHealthInsurance.com with individual deductibles no higher than $5,000, individual out-of-pocket caps no higher than $6,000, and lifetime maximums no lower than $1 million. For 2018 individual enrollees, Obamacare bronze plans had an average deductible of $5,861 and an average out-of-pocket cap of $6,953.4 By law, ACA plans have no lifetime limits on benefits.

Across ages and genders, short term insurance plan premiums were on average 75 percent less expensive than unsubsidized Obamacare bronze plans, with premium savings averaging $352 per month. Men and women age 50 had the greatest monthly premium savings, $412 and $423 respectively. On average a 30 year-old’s premium was 80 percent less for short term insurance than for an unsubsidized 2018 Obamacare bronze plan. For 50 year-olds, short term premiums offered savings of 70 percent compared to bronze plan premiums.

In the 2016 ACA enrollment period, averaged across ages and genders, Obamacare bronze plans were 25% more expensive than the short term health insurance alternative.5 In dollars, the monthly premium difference averaged to only $65 per month. In fact, 50 year-old buyers in 2016 saw little premium difference, however today the landscape looks very different.

Demographics2018 Avg. Short Term
Insurance Premium
2018 Avg. Obamacare
Standard Bronze Premium
Difference ($)
Premium Savings for
Short-Term Enrollees
30 y.o. Male$70.12$379.40$309.2882%
30 y.o. Female$75.95$379.40$303.4580%
40 y.o. Male$91.91$426.81$334.9078%
40 y.o. Female$112.52$426.81$314.2974%
50 y.o. Male$184.49$596.74$412.2569%
50 y.o. Female$173.27$596.74$423.4771%

Short term health insurance plans are not considered to be qualified health plans under the Affordable Care Act, so enrollees in term insurance plans have to pay the "shared responsibility payment,"6 otherwise known as the Obamacare uninsured penalty in 2018 unless they qualify for an exemption. However, given the large savings in monthly premiums, short term insurance is often less expensive than Obamacare for many even after adding in the cost of the uninsured penalty. In 2019, the uninsured penalty will be eliminated for individuals.7

A 30 year-old with household income of $10,400 (the 2018 tax filing threshold) would be exempt from the uninsured penalty, so monthly short term insurance premiums would cost 82 percent less for males and 80 percent less expensive for females than a comparable Obamacare bronze plan. Past the $10,400 income threshold, an individual’s annual uninsured penalty is levied as 2.5% of each additional dollar of gross income. Even with a gross household income of $50,400, a 30 year-old male that pays the uninsured penalty still saves $225 a month on premiums with short term insurance and a 30 year-old female would save $220 a month. Comparing to the 2016 ACA Open Enrollment Period, the savings were only $50 per month and $22 per month for 30 year-old males and females respectively. The increase in price difference is primarily due to escalating Obamacare premiums, though short term insurance premiums in 2018 were slightly lower than those leading up to 2016.

Comparing Obamacare Bronze Plan Premiums and Short Term Health Insurance Premiums for Unsubsidized 30 year-olds Paying the Uninsured Penalty

$50,400
Household
Gross Income*
$60,400
Household
Gross Income**
$70,400
Household
Gross Income
$80,400
Household
Gross Income
Average 2018 Obamacare
Bronze Plan Premium
$379.40
$379.40
$379.40
$379.40
Average Short Term
Insurance Premium - Female
$75.95
$75.95
$75.95
$75.95
Average Short Term
Insurance Premium - Male
$70.12
$70.12
$70.12
$70.12
Uninsured Penalty (Monthly)
$83.33
$104.17
$125.00
$145.83
Savings for Female ($)
$220.12
$199.28
$178.45
$157.62
Savings for Female (%)
58%
53%
47%
42%
Savings for Male ($)
$225.95
$205.11
$184.28
$163.45
Savings for Male (%)
60%
54%
49%
43%
*Eligible for ACA Premium Tax Credit in AK and HI
** Eligible for ACA Premium Tax Credit in AK

There are several primary reasons to help explain the premium price gap between short term insurance plans and Obamacare plans, especially for younger enrollees. First, Obamacare plans must accept all enrollees, regardless of pre-existing conditions or poor health. Short term insurance plans, in contrast, can reject applicants who have expensive pre-existing conditions, cover a narrower set of core medical benefits, and short term plans do not cover medical costs associated with health conditions that existed prior to when the coverage became active.

The premium cost percentage saved by purchasing a short term insurance plan instead of an Obamacare plan is greatest for younger enrollees, although all age groups were presented with sizable savings. The Affordable Care Act stipulates that the premiums charged to oldest enrollees must not exceed three times the premiums charged to the youngest enrollees. On average this ratio is insufficient to cover the higher expected health care costs of older buyers so premiums charged to younger buyers must rise. While the measure protects older enrollees, it means that Obamacare premiums increased more for younger enrollees than older enrollees relative to premium costs in the pre-reform market.

It should also be noted that short term health insurance enrollees are not eligible for premium tax credit, while a premium tax credit is available to Obamacare enrollees whose income falls below 400 percent of the federal poverty level. In addition, cost-sharing reductions for silver Obamacare plans become available to enrollees whose incomes are no higher than 250 percent of the federal poverty level. A silver plan is the next least expensive type of Obamacare plans after bronze plans.

Conclusion

Among unsubsidized consumers, even entry-level bronze Obamacare plans can sometimes represent inaccessible coverage given limited budgets. For these consumers, short term plans often represent an affordable alternative to being uninsured. As demonstrated in our analysis, short term premiums represent savings of 69 to 82 percent for men and women. Even in the absence of a Obamacare penalty exemption, the savings are sizable.

Our analysis has also found that the price advantages of short term insurance over Obamacare bronze plans have increased since the original study of 2016 plans. Most importantly, 50 year-old enrollees now face the savings advantages in excess of those previously found for younger age segments.

Short term plans are not for all consumers. Obamacare will remain the obvious choice for consumers who by income or subsidy can afford ACA coverage. The Obamacare plans’ guaranteed issue provision and pre-existing condition coverage will also attract consumers who would not find coverage otherwise. Short term plans, in contrast, will continue to serve primarily consumers in need of temporary medical coverage as well as consumers at risk of going uninsured due to the affordability problems with ACA plans.

Methodology

AgileHealthInsurance surveyed premium quotes for 2018 Obamacare bronze plans and short term health insurance plans with individual deductibles no higher than $5,000, individual out-of-pocket caps no higher than $6,000, and lifetime maximums no lower than $1 million.

Data on Obamacare bronze plan premiums in 2018 was obtained from the QHP landscape file for the 2018 individual medical market. Data for short term health insurance plans is a comparable sample from the landscape of plans available through AgileHealthInsurance. Potential savings and price comparisons assumes that the applicant would qualify for underwriting from the carrier. Premiums were quoted for men and women ages 30, 40, and 50 in the most populous city in each of the 39 states using healthcare.gov in November 2017.

Author

Data research and figures were compiled by Andrejs Ivanovs, who oversees analytics at AgileHealthInsurance. Andrejs is a Masters graduate from the University of California, Santa Cruz.

  1. "Health law enrollment peaked at 12.7 million for 2016 and has declined every year since them." Associated Press. "Nearly 11.8M enroll in Obamacare plans in 2018." Modern Healthcare. (Feb 8, 2018). http://www.modernhealthcare.com/article/20180208/NEWS/180209913. Last accessed April 20, 2018.
  2. Kev Coleman. "Average Market Premiums Spike Across Obamacare Plans in 2018" HealthPocket.com (Oct 27, 2017). https://www.healthpocket.com/healthcare-research/infostat/2018-obamacare-premiums-deductibles. Last accessed April 19, 2018.
  3. "Premium Data for 2016 Shows that Short Term Health Insurance Costs 49 Percent Less than Obamacare for Younger Enrollees." AgileHealthInsurance.com. (Nov 19, 2015). https://www.agilehealthinsurance.com/health-insurance-learning-center/term-insurance-costs-less-for-younger-enrollees. Last accessed April 20, 2018.
  4. Kev Coleman. "Average Market Premiums Spike Across Obamacare Plans in 2018" HealthPocket.com (Oct 27, 2017). https://www.healthpocket.com/healthcare-research/infostat/2018-obamacare-premiums-deductibles. Last accessed April 19, 2018.
  5. "Premium Data for 2016 Shows that Short Term Health Insurance Costs 49 Percent Less than Obamacare for Younger Enrollees." AgileHealthInsurance.com. (Nov 19, 2015). https://www.agilehealthinsurance.com/health-insurance-learning-center/term-insurance-costs-less-for-younger-enrollees. Last accessed April 20, 2018.
  6. https://www.healthcare.gov/fees/fee-for-not-being-covered/
  7. Emily Bazar. "Ding Dong! The Obamacare Tax Penalty Is(n’t) Dead." Kaiser Health News. (Feb 28, 2018). https://khn.org/news/ding-dong-the-obamacare-tax-penalty-isnt-dead/. Last accessed April 20, 2018.

Short Term Health Insurance is health insurance outside of the Affordable Care Act ("Obamacare"). Health Benefit Insurance is comprised of fixed indemnity and may include supplemental insurance products and non insurance supplementary health products/services; it is not major medical insurance. Neither Short Term Health Insurance nor Health Benefit Insurance cover pre-existing conditions, they do not include all ten of the minimum essential benefits of Obamacare, and you may be subject to the Affordable Care Act Uninsured Tax (The 2017 Congressional Tax Reform Act does not eliminate this tax until 2019). You can learn more here.