Options on health insurance

Alex M. Azar, U.S. secretary of health and human services, published an interesting OpEd in the Washington Post, describing a clever health insurance innovation. HHS will allow “temporary” health insurance, including a guaranteed renewability provision. The HHS announcement is here and the official rule on the Federal Register here.

Americans will once again be able to buy what is known as short-term, limited-duration insurance for up to a year, assuming their state allows it. These plans are free from most Obamacare regulations, allowing them to cost between 50 and 80 percent less.

Insurers will also be able to sell renewable plans, allowing consumers to stay on their affordable coverage for up to 36 months. Consumers can also buy separate renewability protection, which will allow them to lock in low rates in their renewable plans even if they get sick.

The big news to me is guaranteed renewability. You sign up now, and you are guaranteed rates don’t go up if you get sick.

The last sentence is the most intriguing. Long ago, before the ACA made all of this sort of innovation illegal, United Health started offering the option to buy health insurance. Pay money now, and any time you get sick you can still get health insurance, at the pre-stated rate. (Under the ACA that option is now called a cell phone, but the insurance is a lot more expensive and many doctors and hospitals don’t take it.)

It sounds like HHS is allowing this again. But I couldn’t figure out from a quick read whether the guarantee only lasts 36 months, or if they can sell that option for a longer date. It sounds like the plain guaranteed renewability is only 36 months, the length of the contract.

For newcomers to this blog, guaranteed renewability and the option to buy health insurance is the key to escaping the preexisting conditions problem in a free market for health insurance. I’m delighted to see the idea take hold, if at the edges. Great tress grow from saplings.

The trouble is, that most of the things you worry about happen in a time frame more than 36 months. I want guaranteed renewability for life! If I get cancer in 22 months, knowing I can keep health insurance for another 14 is not that helpful. (Much more here, especially “health status insurance.”)

You may ask, then, why only 36 months? As I piece it together, the ACA, which is still law, has a little carve out for temporary insurance, defined as a contract that last 12 months. Anything longer must meet the list of mandates. It sounds like HHS was pretty clever within the constraints of the law, allowing them to be renewed, so 12 months can turn in to 36. I presume you can sign up with another company after 36 months? But you lose the guaranteed renewability so the new company may charge you a lot.

Unless, perhaps, they really are letting insurance companies offer the right to buy health insurance as a separate product, and that can have as long a horizon as you want? If they haven’t done that, I suggest they do so! I don’t think the ACA forbids the selling of options on health insurance of arbitrary duration.

I also notice “if their state allows it.” Many blues states likely will not, on the illusion that they can keep healthy wealthy people buying Obamacare policies to cross subsidize the others. (Or just out of pigheaded “resistance.”) The oped addresses that nicely. People are increasingly not buying unsubsidized exchange policies. (Or, buying them, getting 3 months of doctor’s appointments out of the way, then quitting, see here.) So, most people buying these plans will be currently uninsured, not defectors from exchanges. (And the wisdom of funding charity care by massive cross subsidies (here and here) is questionable anyway.)

The law’s skyrocketing subsidies have kept subsidized insurance enrollment fairly steady — although more than 50 percent below what was once expected. But Americans who make too much to receive subsidies have begun to opt out of the insurance market en masse. An independent analysis found that the entire unsubsidized individual insurance market shrank by more than 40 percent from the first quarter of 2016 to the first quarter of 2018. In other words, Obamacare has forced unsubsidized Americans to choose between unaffordable insurance and no insurance at all. 

Some have raised concerns about the possibility that short-term plans will pull healthy consumers out of the Obamacare exchanges, driving up premiums. But estimates from the Centers for Medicare & Medicaid Services actuary suggest any such premium increases would be minimal and would not affect subsidized consumers. This is, in part, because those without subsidies who were previously enrolled in Obamacare plans have already left those plans in droves because of premium hikes under the law. For these consumers, short-term plans can offer an affordable option. Our decision to allow renewability and separate premium protections could also allow consumers to hold on to their short-term coverage if they get sick, rather than going to the exchanges, which improves the exchange risk pools. 

Let us see if, say, California, says “what a nice idea!”

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