We asked Jim Hammond from The Hertel Report about short-term health insurance plans that aim to provide coverage for more Arizonans at a low price. Are they too good to be true?
AzHHA: Governor Doug Ducey just signed a bill regarding short-term insurance plans, so there’s support for this effort. What problem does this bill solve?
Jim Hammond: Gov. Ducey’s recent signature on a law allowing short-term plans (STP) to be offered for one-year terms, renewable for up to three years, matches the federal statute. This opens a market for plans that offer something different, and probably less comprehensive, than plans adhering to rules set forth in the Affordable Care Act (ACA). These plans are expected to be cheaper than the ACA plans, offering more affordable options to folks that cannot afford the full coverage offered by ACA plans. These plans offer options for younger Arizonan’s and can act as a bridge to Medicare for people in their late 50’s and early 60’s.
AzHHA: You mentioned that these plans would be less comprehensive. What is the risk of this type of plan?
Jim Hammond: The most impactful difference is that these short-term plans can exclude coverage for pre-existing conditions. These plans will be doing individual actuarial underwriting, which requires a medical application. So, if you have a medical condition and you share that in your application, the plan may exclude coverage for services related to that condition. Also, if you do not disclose a medical condition and later seek treatment for such condition, the insurance company can find out about your condition from previous claims activity and deny those claims.
Other significant differences from ACA plans is that certain services can be carved out of coverage. The one that gets a lot of attention is maternity coverage. In the ACA plans, maternity coverage is included in every plan. Older Americans past childbearing age and sterile women have complained that they are forced into buying something they don’t need. With the short-term plan, maternity can be carved out. So can preventive care, or imaging, or even hospital care. Also, the ACA requires plans to have no annual or lifetime maximum benefits. STPs can limit an annual payout to say $50,000. If a policyholder has a significant hospitalization, the carrier may not pay the entire cost of care, leaving the policyholder with a significant “balance-bill”.
So, the message here is that folks that are well, and don’t expect to be sick, may find a cheaper plan with an STP. However, the consumer must be aware of the limitations in their policy. Caveat Emptor, buyer beware. The ACA was named the affordable care act for political reasons. It could have been called the healthcare consumer protection act, ensuring that all plans covered preventive care and protected the consumer from devastating costs and potential bankruptcy. These STPs are not held to that standard. The risk is that folks save money on these plans and then get very sick and plan limitations leave the consumer with unpayable debt.
AzHHA: How would short-term plans impact the overall market?
Jim Hammond: These plans are touted to offer more choice to US citizens. This is certainly true. The folks that choose these plans may be younger and less sick than their counterparts that choose ACA plans. This will pull out “good risk” from the ACA plans and could result in higher premiums. Higher premiums could then drive the next wave of “young and well” out to these less comprehensive plans. This creates a “death spiral” in the market where premium increases drive out the well, resulting in a worse case-mix for those remaining in the ACA plan market.
AzHHA: What would the perfect solution to this issue be?
Jim Hammond: With these short-term plans, and other non-ACA compliant plans, consumer awareness of the limits of these products will help folks make informed decisions and not be surprised later when claims are filed to the insurance companies and denied. If the plans were required to tell the purchaser what, if any, differences there are from ACA plans, folks can make more informed decisions.
AzHHA: So what is the message you leave our readers with?
Jim Hammond: Ultimately, these plans may meet the needs of some Arizonan’s. The risk is that folks buying these plans get very sick or badly injured and the limits result in bad debt to providers and bankruptcy for the family.
Jim Hammond has worked in the Arizona healthcare industry for 30 years. He has experience with payors and providers of all types, including medical management companies, Medicaid health plans, commercial health plans, physicians, IPA’s, hospitals and integrated delivery systems. Jim currently operates his own consulting firm, Professional Healthcare Solutions. PHS offers consulting services in the fields of managed care contracting, network development, strategic planning and accountable care. He has extensive knowledge of the Affordable Care Act.
Jim also operates The Hertel Report, an industry information company that publishes a newsletter, hosts a website and connect the healthcare community through meetings and networking events. Jim is a frequent speaker on healthcare topics, as well as moderating The Hertel Report State-of-the-State meetings, which are attended by leaders of the Arizona healthcare industry.