When ACA costs are too high, consumers turn to short-term insurance

When prices for insurance under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) get too high, consumers are more often turning to short-term coverage as a more cost-effective option, according to a report by CBS News.  The monthly premium for a short-term plan is on average about $500 less for a family of three than that of a plan purchased on the ACA’s health insurance exchanges, which makes sort term coverage an attractive option for those who can’t afford ACA coverage.

On average, a family of three will pay a monthly premium of $283 for a short-term plan, which is about $500 less per month than coverage through a major medical plan, according to (non-ACA) online health insurance marketplace eHealth. Before the ACA, eHealth sold about 60,000 short-term policies per year, a number that more than doubled in 2014 and 2015, with approximately 140,000 policies sold over both years.

Lower costs, higher risks

While the cost of short-term plans may be more effective, consumers are making compromises in other areas. Some short-term plans lack coverage for prescription drugs, for example, and other exclude specialized coverage, such as maternity care. Most notably, unlike health insurance under the ACA, short-term policies refuse to cover preexisting conditions. Moreover, consumers must reapply for coverage annually and may be denied if their health care costs are too high—a concept that is also forbidden under the ACA.

“This is exactly the kind of coverage the ACA was designed to get rid of,” said Kaiser Family Foundation Senior Vice President Larry Levitt to the Wall Street Journal (WSJ). Consumer advocates worry that buyers do not understand the limits and risks involved with short-term policies, or that consumers do not realize they may qualify for subsidies that can dramatically reduce the cost of a plan purchased on the ACA marketplace.

Even though short-term plans such as these do not qualify as individual coverage under the ACA, triggering the tax penalty for lack of coverage, the cost of a short-term plan plus the tax penalty may still be less expensive than paying for a marketplace plan. In 2015, an individual who went without coverage for more than three months can expect to pay the higher of a percentage of his or her taxable income or a flat rate, with a maximum penalty of $975 for the 2015 tax year, CBS News reported.

Causing trouble for the ACA business

Short-term plans can put the ACA marketplaces at risk, as they can draw away healthy consumers who are needed to keep the marketplaces running as expected. Then, they add to the costs of ACA plans by buying coverage only when they have health needs. This can “cause some real problems for the market,” said Timothy S. Jost, a professor at Washington and Lee University, to WSJ. Increasingly, insurers, such as Anthem Inc. and UnitedHealth are beginning to sell short-term plans, saying that the plans fill gaps in coverage.