AgileHealthInsurance Report | 2018-02-20
Fact Checking Five Myths About Short-Term Health Insurance
Over the past two years, discussions of short-term health insurance have become highly politicized and, as a consequence, the product has been unfairly criticized. Short-term plans have been an important part of the American health insurance market for well over three decades, providing temporary coverage for millions of Americans who lose their existing coverage due to transitions such as job loss, college student graduation/summer vacation, retirement before Medicare eligibility, or a change in Medicaid eligibility. Until 2017, the maximum period of a short-term policy had been capped at 364 days.
Some supporters of the Affordable Care Act (also known as the ACA or Obamacare) have criticized short-term plans, arguing that many healthy Americans (particularly young adults) were using short-term plans as an alternative to the ACA, which in turn forced ACA plans to charge higher premiums and made the ACA market less stable. Additional criticism focused on the fact that short-term plans, as transitional coverage, had different benefit designs than ACA plans and insurance companies could reject applicants based on pre-existing health conditions.
Although these critics did not offer empirical support for their argument that short-term plans was negatively affecting ACA enrollment, in October 2016 the Obama administration approved a new regulation that limited the maximum duration of short-term plans to less than three months (see the regulation here). This regulation became effective on April 1, 2017. However, this regulatory situation has now come full circle. On October 12, 2017, President Trump signed an executive order that directed regulatory agencies to consider allowing short-term insurance "to cover longer periods." Additionally on February 20, 2018, the Department of Health & Human Services (HHS) released a new proposed rule that will lift the Obama administration’s three-month restriction.
Given the pending change to the short-term health insurance market and the politicized commentary it will inevitably attract, the purpose of this report is to provide empirical data on the strengths and limitations of short-term health insurance and dispel five commonly argued myths about this form of coverage. AgileHealthInsurance.com is a leader in online short-term health insurance sales, and this report is based on analyses of actual purchasers of short-term health insurance.
What is Short-Term Health Insurance?
Before discussing some of the myths surrounding short-term health insurance, it is worthwhile to briefly explain the central characteristics of this type of insurance product. A short-term plan is designed to serve as temporary (and not permanent) major medical coverage. There is no standard enrollment period so this insurance may be applied for any time of year and plans can provide next day coverage. Short-term plans do consider health status during the application process and some conditions (e.g. morbid obesity or a heart attack in the past five years) will result in an application rejection. After application approval, an enrollee has access to a broad or even unrestricted doctor and hospital network. Short-term insurance networks can stretch across state lines, which reduce the risk of being out-of-network for important care and enables consumers to retain their preferred healthcare providers. While benefits can differ among short-term plans, all short-term plans include coverage for doctor visits, specialist visits, emergency care, x-rays, lab tests, and hospital services. Some benefits such as prescription drug coverage are not part of some short-term plans while some other benefits such as maternity care are almost never covered. Benefits apply to new medical events and do not cover health conditions that had begun prior to purchasing the insurance even if they continue during the short-term coverage period. Short-term plans have been around for decades and are offered by many insurance companies including well-known brands such as UnitedHealthCare.
Myth #1: Only The “Young and Healthy” Qualify For Short-Term Coverage
Short-term health insurance is purchased by individuals of all ages from 18 to 64. From AgileHealthInsurance.com’s random sample of 100,000 actual enrollees, the average age of an enrollee was 36.3 years old at the time of application. This means the average age of a short-term health insurance buyer was roughly the same as the average age of an American (37.9 years old). With respect to older enrollees within the sample (people ages 55 through 64), they accounted for 13 percent of buyers. 13 percent is a slightly higher representation of this older age group than is found in the U.S. (12 percent) as a whole.
Myth #2: Eligibility For Short-Term Insurance Is Narrow & Lacks Transparency
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 percent of applicants were rejected for short-term coverage. On AgileHealthInsurance.com, the questions are sufficiently brief that taken together they can be answered in a minute or two. Should any of the answers to these questions reveal ineligibility for coverage, AgileHealthInsurance.com alerts the user immediately and alternative products to short-term coverage are suggested. Among consumers who passed the short-term insurance eligibility questions and then submitted their applications through AgileHealthInsurance.com, over 99 percent were approved by the insurance company.
Myth #3: Short-Term Health Plans Are Not As Cheap As People Think
Short-term plans are designed to serve populations with an immediate need for low-cost 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 6 months. Consequently, the cost of short-term coverage needs to be low given the income loss for many during this period. When comparing the average short-term insurance monthly premium to the average monthly premium for an entry-level Obamacare plan (i.e. bronze plan), short-term plans clearly demonstrate that they are less expensive than long-term forms of major medical coverage.
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.
Myth #4: Short-Term Plans Are “Junk Insurance” That Provide Inadequate Coverage
Some critics of short-term health insurance argue the product is “junk insurance.” For example, one criticism is the claim that short-term coverage requires excessive out-of-pocket contributions before cost sharing begins. However, when comparing the deductibles of 2017 health plans, the average for a short-term insurance plan was $3,434, $2,658 less than the average deductible for an entry-level bronze plan ($6,092).
Looking at annual out-of-pocket limits, short-term medical coverage has a higher average out-of-pocket limit than ACA plans. The average cap on covered medical expenses for an individual enrolled in a short-term plan was $8,206 while the average cap on entry-level ACA bronze plans was $6,904 for individuals. In this comparison, the bronze plan had a $1,302 advantage over short-term plans. However, premiums paid by the insured do not count towards their out-of-pocket limits. As discussed earlier, premium differences between short-term plans and ACA plans can be quite substantial. For example, a 30-year-old’s average annual premium for a bronze plan without subsidies was $3,734 in 2017 compared to $958 in average annual premiums for a short-term 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.
Myth #5: Most Consumers Are Using Short-Term Plans As Long-Term Primary Coverage, Continuously Re-Applying For Years
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 3 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 percent 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.
Short-term health insurance fills a critical need for consumers who experience gaps in long-term health coverage. The most common gap is job loss and, given its average length of more than six months, was much better served by the historic 364-day term limit rather than the recent three-month restriction. Likewise, the 364-day term limit was also better suited to consumers who miss the ACA open enrollment period and are locked out of ACA insurance for a year. In light of these realities, the myths used to justify the three-month restriction on short-term plans neither protect consumer interests nor find support from the actual data on how these plans are used.
This report was authored by Bruce Telkamp, with market research provided by Shaun Greene and data research provided by Andrejs Ivanovs. Mr. Telkamp is the CEO of AgileHealthInsurance.com and had previously served as executive vice president at eHealth, Inc. Mr. Greene is the General Manager of AgileHealthInsurance.com and the former CEO of Arches Health Plan. Mr. Ivanovs oversees analytics at AgileHealthInsurance and has a masters in economics and finance from the University of California, Santa Cruz.
-  https://www.whitehouse.gov/presidential-actions/presidential-executive-order-promoting-healthcare-choice-competition-across-united-states/
-  "Median age of the resident population of the United States from 1960 to 2016." https://www.statista.com/statistics/241494/median-age-of-the-us-population/.
-  2010 census figures recorded 36,482,729 individuals between the ages of 55 and 64 while the total U.S. population was 308,745,538. This made the 55-64 age group 11.8 percent of the U.S. population at the time of the census.https://www.census.gov/prod/cen2010/briefs/c2010br-03.pdf
-  "146,000+ short-term application were submitted at eHealth in 2015: Of these, approximately 13% were declined." "Costs and Trends in the Short-Term Health Insurance Market, 2015." eHealth (April 2016). p.2. https://news.ehealthinsurance.com/_ir/68/20162/Trends%20and%20Costs%20in%20the%20Short-Term%20Health%20Insurance%20Market%202015%20-%20eHealth%20Report.pdf
-  Data was current for November 2017 for non-seasonally adjusted data. See https://www.bls.gov/news.release/empsit.t12.htm.
-  2017 premium averages are taken from https://www.healthpocket.com/healthcare-research/infostat/2017-obamacare-premiums-deductibles. 2018 premium averages are taken from https://www.healthpocket.com/healthcare-research/infostat/2018-obamacare-premiums-deductibles.
-  https://www.healthpocket.com/healthcare-research/infostat/2017-obamacare-premiums-deductibles
-  https://www.healthpocket.com/healthcare-research/infostat/2017-obamacare-premiums-deductibles
-  The average monthly premium for a bronze plan nationally was $311.17. Annually that expense is $3,734.04. https://www.healthpocket.com/healthcare-research/infostat/2017-obamacare-premiums-deductibles
-  A detailed analysis of a random sample of 25,000 short-term plan enrollees was performed that tracked enrollments by individual across insurance companies.