AgileHealthInsurance Report | 08-25-2015

Why are Consumers Turning to Term Health Insurance over Obamacare Plans?



Term health insurance participation has risen as consumers have faced the reality of the high costs and utilization issues within the Affordable Care Act. In 2015, Deloitte found only 30 percent of Obamacare exchange enrollees were satisfied with their current plans. This percentage was much lower than the percentages of enrollees satisfied with their employer-sponsored plans (42 percent), Medicaid plans (48 percent), and Medicare plans (58 percent). Overall, 46 percent of people with qualified health insurance were satisfied with their current plan.1

Price was a main driver of dissatisfaction with Obamacare plans. According to the Deloitte study, 35 percent of dissatisfied Obamacare enrollees that bought their plan on a public health insurance exchange felt that they were paying too much for their plans. Moreover 40 percent of exchange enrollees who switched plans between 2014 and 2015 switched to get a lower price. In addition to price, people who switched Obamacare plans also cited wanting broader coverage and better alignment with their personal needs as reasons for switching plans.2

High out-of-pocket costs for Obamacare

Nearly half (46 percent) of respondents in a December 2014 New York Times/CBS News poll described health care costs as a hardship, up from 36 percent the previous year.3 In addition to paying premiums, enrollees in Obamacare plans must also pay deductibles, copayments and coinsurance for their own health care. A HealthPocket study found individual deductibles for the cheapest type of Obamacare plans, bronze plans, cost over $5,000 on average in both 2014 and 2015.4 Individual deductibles for silver plans, the most popular type of Obamacare plans by enrollment, were nearly $3,000 in both 2014 and 2015.5 Enrollees must pay the full cost of their deductible before their plan will cover any of their health care costs.

Obamacare plans also have maximum limits on out-of-pocket costs that enrollees will have to pay. After the enrollee has paid the limit amount in out-of-pocket costs, the plan will pay the remainder of the enrollee’s covered health care costs. HealthPocket found maximum limits on out-of-pocket costs for bronze and silver plans in 2015 were about $6,000 on average for an individual. In addition to high deductibles and maximum out-of-pocket limits, Obamacare plans had 34 percent higher drug copayments and coinsurance fees than individual plans in the pre-reform market.6

Many enrollees go without health care because of the high deductibles, coinsurance and copayments. A 2015 Commonwealth Fund study found 33 percent of insured adults making less than $23,000 a year opted not to receive any health care because of the cost7. A report from the Baker Institute found the cost of health insurance was the main cause for uninsured Texans not getting coverage, with 57 percent saying cost was the main factor for not buying insurance.8

Lower Prices for Term Health Insurance Plans

For all age groups, term insurance premiums are much less expensive than Obamacare premiums. Term insurance premiums for 30-year-olds are 73-76 percent less expensive on average than premiums for Obamacare bronze plans. A monthly term insurance premium is less than $70 on average, but an Obamacare bronze plan premium is over $260.

For 40-year-olds, term health insurance premiums are 65-69% less expensive, and for 50-year-olds, term insurance premiums are 55-59% less expensive.9 Obamacare premiums for 40-year olds are nearly $300 per month, and Obamacare premiums for 50-year-olds are over $400 per month.

Since term insurance plans are not considered to be qualified health plans under the Affordable Care Act, term health insurance enrollees must pay the ACA penalty for not enrolling in a qualified health plan. In 2015, the uninsured penalty for an individual is the greater of $325 or 2 percent of their household income above the tax filing threshold.

People can get an exemption from the uninsured penalty if the cheapest available marketplace or job-based plan costs more than 8.05 percent of their household income. Therefore people with income under the federal poverty level do not have to pay the uninsured penalty. For people that are exempt from the uninsured penalty, term insurance is much less expensive than Obamacare.

Obamacare’s Narrow Networks

One of the main complaints about Obamacare plans has been that their provider networks are not broad enough. For one Obamacare enrollee in Manhattan, New York, the nearest in-network provider was 15 miles away in Connecticut.10 An Avalere study found the average number of in-network providers for plans on 2015 Obamacare insurance exchanges was 34 percent less than the average number of in-network providers on commercial plans offered outside the exchanges.11

Exchange plan networks had 76 percent as many hospitals as off-exchange plan networks, but only 58 percent as many oncology and cardiology specialists.12 Term insurance plans usually have broad provider networks. However, some term insurance plans have a preferred network, and getting care outside the network could result in higher out-of-pocket costs for the enrollee.

Coverage in Obamacare and Term Health Insurance Plans

All Obamacare plans are required at minimum to cover the essential health benefits defined in the Affordable Care Act: ambulatory patient services, hospitalization, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, maternity and newborn care, pediatric oral and vision care and emergency services. Term insurance plans are not required to cover all of the essential health benefits because they are not considered to be qualified health plans under the Affordable Care Act. Term insurance plans are also not required to cover pre-existing conditions, but Obamacare plans cannot deny coverage based on pre-existing conditions.

Another difference between term insurance and Obamacare is that term insurance plans use medical underwriting, while Obamacare plans do not. Therefore Obamacare plans will provide coverage for enrollees regardless of their medical history, and Obamacare applicants will not have to answer questions about their medical status. However, term insurance applicants may be asked questions about weight, height, and pre-existing conditions including diabetes, liver disorder, heart disease, cancer, stroke, alcohol abuse, and AIDS. Term insurance applicants may be rejected based on their answers to the application questions.

Although Obamacare plans are required to cover all of the essential health benefits, many other medical services are excluded from most Obamacare plans. A 2014 HealthPocket study found 99 percent of Obamacare plans excluded long-term care and 92 percent excluded cosmetic surgery. Other services mostly commonly excluded by 2014 Obamacare plans included adult dental care (89 percent), weight loss programs (88 percent), and acupuncture (84 percent). Although pediatric vision care was an essential health benefit in the Affordable Care Act, adult vision care was not an essential health benefit. Eye exams for adults were excluded in 61 percent of 2014 Obamacare plans.13

Flexibility of Term Health Insurance Plans

People can only enroll in Obamacare plans during each year’s annual enrollment period, unless they qualify for a special enrollment period. Eligibility for special enrollment periods can be triggered by life events that involve a change in family status, such as birth of a child, marriage or moving. If a consumer does not buy an Obamacare plan during the annual enrollment period and they do not qualify for a special enrollment period, they cannot buy an Obamacare plan until the next annual enrollment period.

Consumers can enroll in term insurance plans any time of the year. At AgileHealthInsurance.com, consumers can find a plan, fill out their application and pay for their plan -- all in one online session. Term insurance plans also have the flexibility to be cancelled at any time.

Simplicity of Term Health Insurance Plans

Both Obamacare plans and term health insurance plans have premiums, deductibles and maximum out-of-pocket cost limits. However, Obamacare plans can have different copayments or coinsurance percentages for over a dozen categories of health care services, including emergency room services, inpatient hospital services, primary care visits, specialist visits and outpatient surgical services. Obamacare plans can also have different copayments or coinsurance percentages for generic drugs, preferred brand drugs, non-preferred brand drugs and specialty drugs.

Term health insurance plans only have one coinsurance percentage for all health care services. This makes it easier to compare term plans and determine which plan will be the best bargain for you. With Obamacare plans, it is more difficult to compare costs since you need to know the service category for each medical service, and you need to know which services occurred before and after the deductible was paid.

Summary

For the 70 percent of Obamacare exchange enrollees who are unsatisfied with their current Obamacare plans, term health insurance provides a less expensive alternative with broader provider networks and more flexibility. Obamacare plans are notorious for their narrow provider networks, and they cost more than twice as much as term health insurance plans on average.

With term health insurance, you can get health care coverage and see your preferred doctors for just a fraction of the price of Obamacare. Term health insurance also gives you the flexibility to enroll in a plan at any time, even during the times when you cannot enroll in Obamacare plans. If you are uninsured or dissatisfied with your current health plan, then term health insurance may be the best option for you.

  1. Gregory Scott, Paul Lambdin, Rod Kleinhammer. Public health insurance exchanges. Deloitte. http://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/health-care-consumers-health-insurance-exchanges.html
  2. Ibid
  3. Trudy Lieberman. Wrong Prescription? July 2015. Harper’s Magazine. http://harpers.org/archive/2015/07/wrong-prescription/
  4. Kev Coleman, Jesse Geneson. Obamacare 2014 Average Deductible & Other Out-of-pocket Costs. December 12, 2013. HealthPocket. https://www.healthpocket.com/healthcare-research/infostat/2014-obamacare-deductible-out-of-pocket-costs
  5. Kev Coleman. 2015 Obamacare Deductibles Remain High But Don’t Grow Beyond 2014 Levels. November 20, 2014. HealthPocket. https://www.healthpocket.com/healthcare-research/infostat/2015-obamacare-deductible-copayment-coinsurance-out-of-pocket
  6. Kev Coleman, Jesse Geneson. Drug Coverage & the Affordable Care Act. February 13, 2014. HealthPocket. https://www.healthpocket.com/healthcare-research/infostat/prescription-drug-coverage-and-affordable-care-act
  7. New Survey: More Americans Could Get Needed Healthcare and Afford to Pay their Medical Bills in First Year of ACA Enrollment. Commonwealth Fund. January 15, 2015. http://www.commonwealthfund.org/publications/press-releases/2015/jan/biennial-health-insurance-survey
  8. Vivian Ho, Elena Marks. HRMS Issue Brief. July 30, 2015. Baker Institute. http://bakerinstitute.org/research/hrms-issue-brief-13/
  9. Agile Health Insurance. Study Shows Major Premium Savings for Term Health Insurance as Compared to Entry-Level Obamacare Plans. February 18, 2015. https://www.agilehealthinsurance.com/term-health-insurance/article/obamacare-vs-term-health-insurance-premiums
  10. Elisabeth Rosenthal. Insured, but Not Covered. February 7, 2015. New York Times. http://www.nytimes.com/2015/02/08/sunday-review/insured-but-not-covered.html
  11. Chris Sloan, Elizabeth Carpenter. Exchange Plans Includee 34% Fewer Providers than the Average for Commercial Plans. July 15, 2015. Avalere. http://avalere.com/expertise/managed-care/insights/exchange-plans-include-34-percent-fewer-providers-than-the-average-for-comm
  12. Ibid
  13. Kev Coleman, Jesse Geneson. Top 10 Healthcare Services Excluded Under Obamacare. February 26, 2014. HealthPocket. https://www.healthpocket.com/healthcare-research/infostat/top-10-excluded-services-obamacare

AFFORDABLE CARE ACT TAX. Term health insurance is health insurance outside of the Affordable Care Act ("Obamacare"). It does not include all ten of the minimum essential benefits of Obamacare and it does not cover pre-existing conditions. To learn more about the tax, its exemptions, and how to calculate the affordability of term health with the tax, see here. To learn more about the differences between Term health insurance and Obamacare, see here.