If ever there were an award for the best “buyer beware” story, a tale detailing the pitfalls of short-term health insurance would certainly rise to the top of the list of nominees.
Short-term term policies — not to be confused with association policies I’ve written about before — are hitting the market once again, sanctioned by the federal government and pushed by insurers and agents. These policies are sold for short durations such as three months, six months or a year, but coverage can be for as long as three years under rules set by the Trump administration.
They are being marketed as an alternative to Affordable Care Act policies and presented as a way for people to obtain insurance without paying exorbitant premiums. Indeed their low premiums — as much as 54 percent less than an Obamacare policy — are the main attraction.
“We guarantee that you always get the lowest price available on all the Short Term health insurance plans we sell,” promises AgileHealthInsurance, an online seller. If you Google “Obamacare policies,” you’ll see other enticing ads such as “Cut your Health Insurance Costs! Many Health Plan Options for $99/mo or less” and “Find Affordable Health Insurance — Quote to Card in 8 minutes.”
But if you fall for the pitch and buy one of the newly resurrected short-term policies in eight minutes, you’re likely to be in big trouble if you get sick. Health insurance is complicated and hard to understand.
Perhaps sellers are banking on that.
First off, these policies are not required to cover anyone with preexisting health conditions, a key point not well understood by the public, which has gotten used to the fact that those requirements are included in Obamacare policies. The short-term policies are returning to the pre-Obamacare days when insurers could deny coverage for conditions like asthma, diabetes, and glaucoma. A history of ear infections could be enough to disqualify a child from getting insurance.
Sometimes people could get insurance but not for the very conditions for which they actually need the coverage. It was common to see policies that excluded coverage for all diseases of the respiratory system or the circulatory system but extended it for ailments affecting other parts of the body.
Now because insurers are allowed once again to carefully scrutinize an applicant’s health, it’s possible to sell the cheapie policies some of the Internet advertising is promoting.
A second limitation of the new short-term policies is the coverage itself. Unlike the ACA offerings, these policies don’t have to cover the 10 essential benefits that include maternity coverage, mental health benefits, and prescription drugs. The Kaiser Family Foundation has identified some plans that do not cover maternity care, and only 57 percent of the plans the foundation surveyed covered mental health.
A policy from UnitedHealthcare’s Golden Rule subsidiary, a company known for “cherry-picking” customers who constitute the lowest risk — meaning those who are healthiest and unlikely to generate claims — limits its pharmacy benefit to a maximum $3,000. Its lowest level option offers only a discount drug card, which entitles someone to a discount at point of purchase.
Higher levels of coverage provide a “preferred price card” meaning people pay at point of service, trying to get the lowest price. Then they can submit their claims to the insurance company. Once the deductible is met, people pay only their coinsurance up to the maximum benefit of $3,000.
Note: These arrangements are not the same as a full-fledged drug benefit, which pays a far greater share of someone’s drug costs.
Companies selling short-term policies are not paying out much in claims, says Katie Keith, a principal in Keith Policy Solutions and a part-time faculty member at Georgetown University’s Center on Health Insurance Reforms. Some policies pay out in claims only about 30 or 40 percent of every dollar they collect in premiums while Obamacare policies must pay at least 80 percent.
Keith says that consumers may be wasting their money on premiums for these short-term policies because companies have many ways to deny claims.
Earlier this year, a group of consumer representatives to the National Association of Insurance Commissioners commissioned a study and found that the public struggled to understand the marketing brochure for a popular short-term plan. Consumers didn’t understand the concept of the plans, and mandated federal disclosures were ineffective and went largely unnoticed.
In other words: Buyer beware!