Health insurance company executives and health insurance marketers are celebrating the Trump administration’s release of a new short-term medical insurance final rule.
The final rule, set to appear in the Federal Register Friday, will let in issuer offer short-term medical insurance with in initial term of up to 364 days.
With extensions, the coverage can last for up to 36 months.
Under former President Barack Obama, regulators had capped short-term medical insurance benefit periods at three months — to keep the products from peeling younger, healthier consumers away from the individual major medical market, and to reduce the possibility that consumers might end up with much less coverage than they expected, or need.
Estimates of the number of people who have some kind of short-term medical insurance now range from fewer than 200,000 to up to 1 million.
Although the market is small, policymakers see it as important, because a provision in the Affordable Care Act exempts “excepted products,” including short-term medical insurance, from the underwriting rules and benefits rules that now apply to major medical insurance.
In a state with friendly regulations and regulators, an issuer of short-term medical insurance can hold premiums down by rejecting applicants with even minor health problems, excluding coverage for services such as mental health care, and cap annual benefits at any level the market will bear.
The ACA won’t let an issuer of new individual major medical coverage do any of those things.
Short-term medical insurance market watchers are now racing to come up with forecasts of how the new regulations might affect the market.
Here are five (very) early answers.
1. Short-term medical insurance could end up in an interesting horse race with Affordable Care Act public exchange plan coverage.
The ACA individual major medical open enrollment period is set to start Nov. 1 and run until Dec. 15.
Jan Dubauskas, the chief government affairs officers at HealtheDeals.com, a web-based health insurance supermarket division of the IHC Group, points out that the short-term medical insurance regulations will actually take effect in October — right before the individual major medical open enrollment period begins.
2. Short-term medical insurance distributors are predicting that they’ll have the capacity to meet any surge in demand that materializes as a result of the lifting of the duration cap.
Gavin Southwell, the chief executive officer of Health Insurance Innovations Inc., a major short-term medical insurance distributor and the parent of the AgileHealthInsurance quote service, said adding new and updated short-term medical insurance products to the company’s existing systems will take just a few days.
Training agents and updating quality control efforts should also be a quick process, Southwell told securities analysts today, during a conference call.
“Between now and Oct. 1 is plenty of time,” Southwell said.
3. The changes could affect premiums and underwriting rigor for some short-term medical insurance products.
Today, typical short-term medical insurance policies often cost consumers 80% less than major medical policies.
If more consumers see short-term medical insurance as an alternative to major medical, the issuers may have to use new pricing and underwriting strategies to avoid taking on too much claim risk.
Jeff Smedsrud, the co-founder of Pivot Health, a supplemental health insurance product quote service, notes in a blog entry about the new regulation that short-term medical policies with longer terms could be more expensive than policies with shorter terms.
“The longer insurance coverage is kept active, the greater the likelihood for larger claims being filed,” Smedsrud writes. “However, STM plans will still usually be less expensive than ACA plans because pre-existing conditions can be denied and coverage is limited.”
4. Users of short-term care insurance cannot use ACA premium tax credit subsidies to pay for the coverage today — but they might be able to use ACA subsidy money for that purpose in the future, if states ask federal regulators for permission to do that through the ACA Section 1332 waiver program.
Joel White, president of the Washington-based Council for Affordable Health Coverage, put out a statement welcoming the new regulation.
In the statement, he draws readers attention to this statement in the regulation packet:
States may be able to provide subsidies to purchasers of short-term, limited-duration insurance with funds provided under waivers authorized by section 1332 of PPACA should they choose to do so and should the waiver satisfy all applicable requirements.
5. Short-term medical insurance may lack many of the features of major medical insurance, but it is much, much cheaper.
A company that helped create the first web-based health insurance supermarkets, eHealth Inc., has put out a study showing that short-term policies have much lower premiums for typical purchasers than individual major medical coverage.
Federal regulators classify coverage as “affordable” if the cost is 8% of a household’s income, or $376 per month for a median-income household, eHealth says.
The company found when it ran its own survey that consumers classify “affordable” as meaning less than $200 per month, the company says.
For 38% of consumers, “affordable” means $100 per month or less, the company says.
For an eligible family of three, a short-term health insurance policy might cost just 2% of the median income, while the cost of major medical insurance for the same family could amount to 12.4% of the median income, according to an eHealth analysis.
— Read Feds Are Pushing Navigators to Promote AHPs, Short-Term Health, on ThinkAdvisor.