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A new hole world

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PPACA World was supposed to make short-term medical insurance obsolete by eliminating holes in Americans’ major medical coverage.

The Patient Protection and Affordable Care Act (PPACA) underwriting restrictions, insurance standards, public exchange system and health insurance purchase subsidies were supposed to bring on a new age – a day when every man, woman and child could use an insurance card to get high-quality care from a high-quality provider in a high-performance network.

So much for that.

This year, Americans still have many of the old holes they always had in their coverage, and they’re discovering new ones. PPACA World now operates (when it manages to operate) side by side with a parallel health insurance universe that might be called the New Hole World.

The consumers in the New Hole World include healthy people who:

  • Are not eligible for the exchange plans (such as people with visa problems)
  • Tried to buy exchange coverage and have no idea whether they actually have it
  • Find that PPACA-compliant coverage for people their age is absurdly expensive
  • Think the provider networks available with the PPACA-compliant plans they can afford are awful
  • Travel frequently and would rather not have to buy travel insurance just to see a doctor on the road, outside of an exchange plan provider network that can fit on the back of a napkin
  • Paid for exchange coverage (or non-exchange coverage from an insurer that’s coordinating the non-exchange enrollment period with the exchange enrollment period) a little late and face gaps in coverage ranging from one day to about six weeks in length

PPACA includes many consumers – including losing access to individual or group major medical plans – who will enroll in exchange plans through a special enrollment period. In some states, non-exchange insurers may be trying to avoid anti-selection by coordinating their own individual coverage enrollment periods with the exchange enrollment period system. The problem is that some consumers who fail to plan carefully could end up with coverage gaps.

Suppose Jane Doe loses her job June 30. If she applies for exchange coverage from July 1 through July 15, she’ll have insurance in place Aug. 1. If she procrastinates and submits her application from July 16 through July 31, she won’t have insurance until Sept. 1. In this case, she might want short-term medical insurance to fill the gap.

Some consumers who qualify for subsidized exchange policies would rather buy something else because they hate the idea of using coverage that has anything to do with PPACA. In states with balky exchange enrollment systems and expensive non-exchange products, consumers see buying short-term medical insurance as a way to get covered without being on hold for three days. Other consumers have actually signed up for coverage through the exchange and need backup coverage because something went very, very wrong.

Ryan Kennelly of Illinois Health Agents Inc. said he has run into several consumers with good incomes who tried the public exchange website and accidentally ended up in Medicaid. “We’re still looking into why they’re in that and trying to get them out,” he reported.

Health Insurance Innovations Inc., a publicly traded company that gets much of its revenue from distributing short-term medical products for insurers, says application volume was 50 percent higher in the fourth quarter of 2013 than it was in the fourth quarter of 2012.

Andrew Bard, vice president of sales at HCC Medical Insurance Services, one of the insurers active in the short-term medical market, said business at his company has also been great. “We’ve had an extremely high spike in sales in December and January,” he said.

Dale Ehrgott of Advanced Insurance Consulting, the parent of, an insurance sales site, said he hopes insurers will continue to support the market for short-term medical insurance. “It’s a great product,” Ehrgott said. “It fills a perfect niche.”

In most states, a short-term medical insurance policy is a policy with a coverage term ranging from one month up to 11 months. PPACA exempts short-term medical insurance from the new PPACA health insurance underwriting, pricing and benefit design standards, and most states apply fewer rules to the products than they do to ordinary major medical coverage.

The result is that issuers can keep short-term medical premiums down the old-fashioned way: By rejecting applicants with health problems; refusing to cover preexisting conditions; declining to cover certain types of care, such as mental health care or routine maternity care; and imposing annual benefits caps.

Consumers who have short-term medical coverage and develop a chronic health problem while covered may find that they are unable to qualify to renew the coverage – or to buy any other medically underwritten coverage – after the policy term ends.

Under PPACA, commercial short-term medical insurance does not qualify as “minimum essential coverage” – the kind of major medical policy that can help individuals get out of paying the PPACA “shared responsibility” penalty. For 2014, the penalty for failing to have PPACA-compliant major medical coverage will be $95 per individual and $285 per family, or 1 percent of income, whichever is greatest. But many people, including people who can show that exchange coverage is unaffordable, can get out of paying the penalty, and the cost of the penalty is, obviously, much less than the cost of having to deal with a broken arm or a heart attack without health insurance.

The cost of a typical short-term medical policy ranges from $50 to $300 per month and is often much lower than the cost of a major medical policy with the same deductible. In Kansas City, Mo., for example, a healthy 49-year-old woman might pay about $300 per month for bronze-level coverage with no annual or lifetime benefit limit but a $5,000 deductible, and only about $100 per month for short-term medical coverage from a well-known carrier with a $5,000 deductible and a respectable $2 million benefits limit.

Eighteen health insurers, 14 life insurers and one property-casualty insurer put information about short-term medical operations in the annual statements they filed with state insurance regulators, according to the SNL Financial database of statutory insurance industry filings. The insurers generated a total of $82 million in short-term medical premium revenue by insuring 73,000 lives, with an average of about $1,100 in premiums per covered life.

The insurers in the market include UnitedHealth, several of the Blue Cross and Blue Shield carriers, HCC Medical Insurance Services, Assurant Health, American Republic Insurance Company and Independence Holding Company.

HII, the publicly-traded short-term medical distributor, says it sells its products through 10,000 licensed brokers. If 10,000 U.S. agents sold at least one short-term medical policy in 2012, and insurers spent 50 percent of their U.S. short-term medical revenue on commissions, the average short-term medical commission volume would still be just $4,000 per agent. Although a handful of wholesalers and agents may make far more than that, it seems likely that many producers get just a few hundred dollars in short-term medical commission revenue per year.

But agents and brokers say the product can be a good tool for meeting longtime customers’ needs and attracting new customers who understand the value of personal protection. One question is whether regulators will continue to let the short-term medical be, or whether they will get itchy rulemaking fingers.

Traditionally, regulators in states with an active approach to insurance regulation have objected to short-term medical underwriting strategies and benefits limits. Short-term medical is not even available in some states, including Massachusetts, New York and Vermont.

In the past two years, PPACA supporters have been attacking one type of health coverage that could siphon healthier customers away from PPACA-compliant plans: Self-insured employer-sponsored health plans. Short-term medical insurance could get similar attention.

In January, Bloomberg Businessweek published an article with the headline, “The Trouble with Short-Term Health Plans in the Age of Obamacare.” The reporter acknowledged that the big short-term medical insurance issuers put many warnings about their products on their websites, but he also referred to quotes from an analyst who thinks companies are marketing short-term medical policies too aggressively. And he downplayed a quote from Michael Kosloske, chief executive officer of HII, who pointed out that PPACA exchanges have been aggressive about hawking plans with ultra-skinny networks and high out-of-pocket costs.

In part because regulatory concerns would affect the short-term medical market, some issuers have pulled back from the market over the years. In Illinois, for example, UnitedHealth’s short-term medical products were not showing up on health insurance sales sites in early January. Brokers were also having trouble getting orders into Assurant Health’s short-term medical sales system.

But rating agencies have been praising health insurers that are still in the game for using short-term medical insurance to reduce their reliance on products heavily affected by PPACA. In November, A.M. Best Company gave Independence Holding Company an excellent financial strength rating, based in part on a belief that the company’s short-term medical line might be only marginally impacted by PPACA.

At HCC Medical Insurance Services, Bard said his company is optimistic about short-term medical. “We think it’s a very viable market for the long-term,” he noted. Bard added that some carriers pulled out of short-term medical a few years ago because of uncertainty about how PPACA would affect the products. “Those carriers are coming back,” he said.

Interest in the market may be affecting how insurers relate to wholesalers and retailers. In a November earnings call, Kosloske said that producers are flocking to HII because commissions in the short-term medical market are so much more stable than commissions in the traditional major medical market.

In October, 385 brokers started selling HII short-term medical products in just one week, Kosloske said. “We literally have a land grab of small-group brokers,” he added.

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