Short-term health insurance coverage is almost worthless

The Trump Administration is promoting short-term health insurance products as an alternative to coverage under the Affordable Care Act. Much of the news coverage and political debate surrounding short-term products has emphasized that they threaten the viability of the ACA's unified risk pooling and exclude coverage of certain essential health benefits. However, a closer look at the scant publicly-available details of these products raises worries of a more basic problem: many appear to be low-value products that won't pay out the benefits consumers need and expect in a time of crisis, and will pay amounts that are disproportionately low in relation to their premium.

I reviewed short-term health product descriptions found on the eHealth and Agile websites. These websites are structured as aggregators of products, much as Orbitz and Expedia offer multiple travel services. The products described are those displayed as available to a 50 year-old non-smoking male in Philadelphia PA.

The two websites advertise offerings from seven different insurance companies; four of the seven's products are offered on both sites. Prices range from a low of $102.39/month to a high of $1478.74/month. (The average full price of an ACA plan in Pennsylvania is $700/month.) Survey research suggests that only a quarter of consumers are willing to pay more than $200 per month for health insurance, and the average subsidized premium for ACA plans is under $200.  Because this is also the upper range of the worker contribution for employer plans, we can surmise that most consumers ineligible for subsidies are looking for products priced below $200/month, so that was the focus of my inquiry.

Products in the $100-200/month range tend to be indemnity-type products that pay fixed amounts for needed services. Three of the seven companies advertise fixed-dollar indemnity products; a fourth had a fixed-dollar indemnity schedule posted among its form filings. A plan from company L (I have kept the names of companies anonymous), priced at $128.43/month, has a benefit of $1,000/day for hospitalization.  However, the average hospital day charge in the US is $5,220/day and the average inpatient length of stay is about 5 days. If the purchaser of this product goes to the hospital for 5 days he can expect a bill for $26,000. This product has a $5,000 deductible and 20% coinsurance. The maximum payout for the hospital stay is 5 x $800 or $4,000; but because that number is below the deductible, the consumer gets nothing.

Pre-existing condition exclusions in these products represent a limitation of unknown, but likely severe, scope. They typically exclude coverage not only for illnesses resulting from conditions for which the consumer received medical treatment, diagnosis, care or advice over the past five years but also "conditions that produced any symptoms which would have caused a reasonable person to seek diagnosis, care or treatment" within that five year period.

History has shown that insurers can sometime be aggressive in denying claims related to heart attacks, strokes, and even conditions more tenuously related to the cardiovascular system when the consumer has a history of high blood pressure—and 40 percent of adults aged 45 to 64 have been told they have hypertension.

A consumer might assume that sudden and unanticipated acute occurrences of previously asymptomatic illnesses, such as kidney stones, gallbladder disease, or appendicitis might be saved from this exclusion. But Plan L lists all three among five "conditions or procedures… limited to the specified amounts shown in the Schedule of Benefits." That schedule is not included in the document containing that limitation, nor is it available on the online System for Electronic Rate and Form Filing (SERFF) on which the Pennsylvania Insurance Department posts policy forms.

However, we can get some idea of what limited amounts might be paid from a document posted by a competing insurer, Plan S, which limits benefits for kidney stones to $1,500 and appendectomy to $2,500. An appendectomy costs, on average, $13,910. Incidentally, another paragraph in the Plan L document states that the 3-month policy offers no coverage, "during the first 6 months after the Certificate Effective Date," of cholecystectomy, which is gallbladder removal. The average cost of this procedure is $12,600.

It is the dream of the Trump administration—and nightmare of ACA defenders—that these products could be offered for longer terms, and become an attractive alternative to ACA products. But these hopes and fears are based solely on the legal status of short-term insurance as an exception to ACA regulation, not on the expressed desires of actors like Plan S or Plan L. My impression after this review is that the companies offering these products would have little enthusiasm for the increased risk of longer terms, since one reason they can expect low losses, and offer seemingly low prices, is the truncation of their responsibilities at the 90-day mark.  It's difficult to imagine that the professionals who advise farmers and small business proprietors with assets to protect would recommend these products to clients.

Consumers buy insurance for peace-of-mind, with an expectation that their losses will be covered in the event of a costly accident or illness. Short-term health products offer no such assurance. The challenge for regulators is to devise rules to protect unsophisticated consumers and, in so doing, spur competition so insurers offer products with greater value. They should be limiting these products, not expanding access to them.

Jackson Williams is director of regulatory affairs at Dialysis Patient Citizens, an advocacy organization for patients with kidney disease, and is a National Association of Insurance Commissioners' Funded Consumer Representative. He previously worked on health care quality and payment reform issues at the federal Centers for Medicare and Medicaid Services.