Short-Term Health Insurance Sales Spike

Sales of short-term health insurance, also known as gap insurance, have spiked since 2014 when many of provisions of the Affordable Care Act took effect, according to the Wall Street Journal article, Health Law Spurs Hunt for Cheaper Policies. These short-term health insurance policies are not compliant with ACA regulations so consumers must also pay applicable penalties for not having insurance that meets ACA standards.

The article shares the short-term health insurance policy of Robin Herman, a healthy 34-year-old marking firm owner from San Francisco.

Ms. Herman’s new policy, like many short-term plans, doesn’t cover pre-existing conditions, a limitation no longer allowed in full health coverage. Ms. Herman’s plan also caps total benefits at $1 million, another feature prohibited in ACA plans. It doesn’t cover most prescription drugs. To get the plan, Ms. Herman had to qualify as healthy by answering a questionnaire. ACA plans are sold to every consumer regardless of health status.

The article states that many young and healthy consumers are looking to short-term plans because they find the ACA plans prohibitively expensive. Since ACA policies must cover pre-existing conditions, consumers can always purchase an ACA policy if they develop health problems.

The short-term policies’ limits help keep premiums down. A survey by eHealth Inc. this year found that 51% of purchasers cited price as their reason, versus 39% who said they needed only temporary coverage.

It’s no surprise then that this is concerning with respect to the sustainability of the ACA marketplaces.

The short-term plans can siphon off healthy people who are needed to help make the ACA insurance business work. Those consumers then add to the costs of ACA plans if they buy coverage only when they have health needs. “You cause some real problems for the market,” said Timothy S. Jost, a professor at Washington and Lee University.

All in all, none of this is surprising. But it's significant because shows quantitatively (the article includes a lot more data that I didn’t include in this summary) that many consumers cannot afford ACA plans or simply don’t want or need the comprehensive coverage that ACA plans offer.