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Why Short-Term Healthcare Plans Cost Less
Congress has enacted laws surrounding short-term healthcare plans, and these developments could save consumers money each month. These customized health plans often have much smaller premiums than major medical healthcare, but they’re not without risks.
While the nation debated healthcare throughout the 2018 midterm elections, a quiet revolution was happening in the healthcare industry. At the center of it all were short-term healthcare plans. Originally designed to act as a temporary policy while people waited for other healthcare coverage to begin or to bridge the gap between jobs or adverse life events, they became a viable long-term option.
As Americans began evaluating their coverage for 2019 , many of them were surprised to discover that short-term healthcare plans cost significantly less than those offered on the government’s marketplace exchange. In many cases, in fact, premiums were considerably lower.
You may be wondering why. The answer is a bit complicated.
It’s a Trade-off
An estimated 27 percent of all younger adults have some medical condition that’s “preexisting” – such as diabetes, asthma, and hypertension, among others – that was diagnosed or treated before coverage began. Under plans that meet the requirements of the Affordable Care Act (ACA), insurers can’t refuse to cover you or charge you more if you fall into this category even if you’re actively in the middle of an expensive and long-term treatment plan for cancer.
In the government marketplace exchanges, those insurers can’t limit their risk by denying coverage to the sickest individuals. They can’t limit benefits to enrollees or offer a 55-year-old waiting for a heart transplant a different policy than a healthy 18-year-old.
Under the government model, many young, healthy Americans paying into the system would subsidize the sickest enrolled in the plan. The problem was that the youngest consumers were less likely able to afford ACA-compliant coverage.
Under an ACA policy, everyone has the same coverage, and insurers anticipate that those in the marketplace exchange programs would be sicker than someone with an individual plan on the open market. In other words, if a consumer could get insurance at a lower cost elsewhere, they wouldn’t be on the government program.
Short-term healthcare plans can refuse to enroll you or limit the services you receive. Therefore, the people on these plans aren’t as sick, the insurer’s risk is reduced, and the savings the company realizes is passed on to the consumer in the form of a lower premium.
Due to this, insurers are able to offer short-term coverage at premiums as much as 54 percent lower than ACA-compliant plans. People are flocking to these short-term plans.
What consumers should realize when evaluating their options is that the lower premium comes with some risk.
ACA major medical plans must meet governmental guidelines called “minimum essential coverage” (MEC), which are strict standards of what expenses will be accepted. Because short-term healthcare plans only offer limited benefits and don’t meet the government level of coverage, they cost insurance companies less to provide.
For instance, insurance companies have found that eliminating prescription drug coverage reduces premiums by an estimated 13 percent—even after adjusting for the reduction from excluding people with preexisting conditions. But that means higher drug prices for people on these plans, which needs to be taken into account when deciding to enroll.
Insurers realize savings by reducing benefits. Mental health treatment and substance abuse programs account for 4.2 percent of the expenses claimed so often these aren’t covered.
Similarly, maternity care accounts for about 3.4 percent of medical expenses claimed under private insurance. However, there’s often limited or no coverage for pregnancy under short-term healthcare plans.
Limited benefits result in about a 16-percent savings on premiums. But if you need those services, you’ll be paying full market price for them.
Short-term plans can be custom designed, which will also affect the premiums. ACA plans must cap out-of-pocket costs that patients pay.
Temporary plans can set dollar limits on coverage, raise or lower copayments and deductibles, or set levels to coverage limits. All of these factors result in smaller premiums.
The lower premiums available through these plans will likely attract people who are young and healthy, especially if they don’t qualify for ACA subsidies. In turn, this is expected to leave the sickest individuals on the government marketplace, driving up their premiums.
For many folks, lower premiums are very enticing, but they do come with certain risks. Unlike major medical coverage, those in temporary plans could become ill or injured and find they’re not covered. They could be left holding a very expensive bag.
In conclusion, if you’re healthy and willing to take some risks, short-term healthcare plans are a viable option.
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