Buyer Beware: New Cheaper Insurance Policies May Have Big Coverage Gaps

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If you're looking for cheaper health insurance, a whole host of new options will hit the market starting Tuesday.

But buyer beware!

If you get sick, the new plans – known as short-term, limited duration insurance — may not pay for the medical care you need.

"These are a niche product, always have been," says Doug Badger, a visiting fellow at the conservative Heritage Foundation in Washington, and a senior fellow with the Galen Institute. "It's simply another choice for consumers that for many is more affordable than the other products available," he says.

Short-term health insurance isn't entirely new. But the Obama Administration issued regulations that limited them to just three months, and they couldn't be renewed.

The Trump Administration has changed that. Now people in some states will be able to buy policies that last a year, and consumers can renew them twice, for a total of three years' coverage.

The administration says that Affordable Care Act insurance is too expensive for some people and this provides people a way to buy a less expensive health insurance policy.

"They give people an additional option. Instead of remaining uninsured, they have a product that makes sense for them, a product that they can afford," Badger says. "It is something that in my view ought to be available to them."

But if you're considering one of these plans there's a few things to keep in mind. Short-term policies are regulated by the states, so they don't have to comply with the consumer protections laid out in the Affordable Care Act. This means insurers can refuse to offer these policies to people with pre-existing health problems, or charge people more who are likely to need medications and health care.

They also don't have to cover all the of the 10 essential health benefits that must be included in Affordable Care Act policies. Those benefits include maternity coverage and mental health care.

The average monthly premium for a benchmark Affordable Care Act policy was $481 this year, according to the Kaiser Family Foundation. But most people don't pay that much. Eighty-three percent of people who bought a plan during the open-enrollment period for 2018 qualified for subsidies from the government to help lower that cost.

You can find out what an ACA plan would cost, and if you qualify for a subsidy, by going to HealthCare.gov.

For those who don't qualify for subsidies, Badger says these short-term plans could help them.

But Allison K. Hoffman, a professor at the University of Pennsylvania Law School, says the plans aren't the solution to the problem of high priced insurance.

"The way that these plans answer that problem is saying, 'Well, we'll give you an alternative but that alternative is coverage that people call junk coverage or skinny coverage,' " she says. "So people have something called health insurance but it doesn't necessarily pay for all of their health needs."

Depending where you live, short-term plans vary widely. Massachusetts and Rhode Island, for example, require extensive coverage even for short-term policies. Maryland and Vermont passed laws to keep them limited in duration. Other states, like California and New York, effectively don't allow them at all.

But in some states, the options are plentiful. If you're considering one, be sure you understand what's covered, Hoffman says.

In Virginia, for example, short term plans are available for less than $70 a month, with a $5,000 deductible. One policy, offered by Stamford, Conn.-based IHC Group on the web site eHealthInsurance.com, doesn't cover prescription drugs unless you're inpatient in a hospital, and it doesn't cover prenatal care, mental health care or annual physicals.

UnitedHealthCare says it plans to offer short-term plans in several states. The company's web site shows policies that range from one with a $12,500 annual deductible for less than $80 a month to one with a $1,000 deductible for about $250 a month. The policies don't cover prescription drugs and only pay about 60 percent of the cost of hospital visits after the deductible and co-payment. And patients may have to get a physical to qualify at all.

A report by the National Association of Insurance Commissioners shows that short-term policies paid out an average 55 percent of their premiums in actual health care last year. Under the Affordable Care Act, insurance companies are required to spend 80 to 85 percent of their premiums on health care or refund money to their customers.

Aetna said it doesn't plan to offer short-term policies and four other major health insurers didn't respond to inquiries from NPR.

Hoffman worries that people who have become accustomed to the kind of coverage required under the ACA will be surprised when their short term plans leave them with big unpaid bills if they have an accident or become sick.

Still, President Trump and Health and Human Services Secretary Alex Azar say the whole point of expanding access to short-term insurance is to give people more choice, including the choice to buy insurance with few benefits.

HHS estimates that about 600,000 people will buy short-term policies next year and as many as 1.6 million could own them after five years.

The Congressional Budget Office, the nonpartisan research office that estimates the budget effects of policy proposals, gives a larger figure, estimating that about 2 million mostly healthy people will buy short-term plans. This could have the effect of driving premiums slightly higher on the ACA exchanges, because healthier people will leave the market, according to the CBO.