Obamacare’s Unintended Consequences: People Buy Short-Term Policies

woman-with-childObamacare has driven individual health insurance premiums up so high people are forgoing comprehensive coverage in favor of short-term policies:

Robin Herman, the 34-year-old owner of a marketing firm in San Francisco, bought a short-term policy in December. The monthly cost of her short-term coverage, plus conventional ACA-compliant plans for her two children, is roughly one-quarter of what she would have paid for conventional health plans covering all three of them, she says.

“This is saving me a ton of money for the year,” she said, despite the penalty. Plans that comply with the health law’s rules cost more than her old pre-ACA policy and are “just not affordable,” she said.

(Anna Wilde Mathews,” Sales of Short-Term Health Policies Surge,” Wall Street Journal, April 10, 2016.)

Sales of these policies have doubled or more since 2014, according to sources cited by Ms. Mathews. This surely feeds into the problem that Obamacare enrollees are sicker than expected: The healthy candidates are choosing these policies.

Because these policies are underwritten for pre-existing conditions, the healthy can buy them. However, when the term is up, they are underwritten again. This is very perverse. Imagine if your term life insurance policy lasted only one year, after which you were underwritten again. If you had a heart attack, for example, your premium would jump dramatically next year, such that you could not afford it. The whole point of the term life insurance would be defeated!

That is not to say short-term medical insurance is completely wrong-headed. It is appropriate for exchange students and other visitors to the U.S. However, it would not usually be an appropriate choice for permanent residents of the U.S.

With Obamacare, of course, if these folks fall sick they can apply for Obamacare coverage at the next open enrollment, which starts November 1. This ability of healthy people to shun Obamacare until they fall sick is called a death spiral (because it drives up premiums in the Obamacare exchanges).

A properly functioning health insurance market would pool peoples’ risks of falling ill over the long term, not just the time it takes the earth to revolve around the sun once. Unfortunately, this cannot arise as long as Obamacare persists.

Comments (20)

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  1. Metro Health Care says:

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  2. Ron Greiner says:

    –This is very perverse. Imagine if your term life insurance policy lasted only one year, after which you were underwritten again.–

    John, that is exactly the way that 1 year term life insurance works and that is exactly why it is less expensive than 30 year term life insurance. People should be able to purchase the term of their choice. It’s called ONE option.

    We have been talking about Short-Term-Medical (STM) here at the NCPA blog forever and finally the media has decided to let the cat out of the bag. STM was censored by the media until last week and ehealthinsurance’s article in CBS News. I was curious why you or Devon didn’t mention STM first.

    Every STM article in the last week always says, incorrectly I might add, that STM consumers owe an IRS penalty. John you should write an article that explains when a couple’s lowest Obamacare Bronze plan costs $1,000 a month there is no IRS penalty unless the couple has a MAGI (Modified Adjusted Gross Income) of $150,000 a year.

    Also, a 55-year-old couple can only purchase 10-year-term on Individual Medical (IM) in the United States because of Medicare. In your so-called “properly functioning health insurance market” with your logic, Medicare is a disruption. But, Medicare does keep the premiums artificially low for a 60-year-old person to purchase IM because it at most is a 5 year term health policy.

    Also again, ehealthinsurance’s STM covers no Rx. That should make it cheaper. Their 140,000 STM policies will probably double this year because of the FREE ADVERTISING. This knowledge is very bad for Obamacare because STM knowledge pulls the healthy out of Obamacare and who does that leave?

    • Who buys a one-year term life policy? 85-year old people who want to shed their assets to qualify for Medicaid long-term care. But surely your business does not include ripping off Medicaid, right?

      • The Big Ham says:

        Tens of thousands of people buy annual renewable term policies. Frankly that’s what Obamcare has done to individual health policies. All they really are is annual renewable policies now.

      • Ron Greiner says:

        John, the NCPA was selling 1 1/2 year term COBRA health insurance to employees who were fired or quit the NCPA, exactly like all employers. I am the one who sold personable portable health insurance, not your organization.

        Then twist me selling insurance to people younger than 65-years-old into me ripping off Medicaid with 85-year-old people by stripping them of their assets to qualify for Medicaid is unbecoming of any PHD.

        Why didn’t you explain Short-Term-Medical and how it was a low cost option for healthy people? Everybody here was telling you about it yet you write this slanted post of: Obamacare’s Unintended Consequences: People Buy Short-Term Policies

        If I was in charge of the NCPA you can bet I would have posted about Short-Term-Medical long before 4/19/2016. Which would make me faster than you.

  3. Big Truck Joe says:

    Editors note: in the headline, please delete “unintended” and replace with “obvious”. Thank you.

  4. The Big Ham says:

    Well The NCPA is 4 years late reporting that healthy people have choices. Better late than never I guess. Now you should write about taking the savings you get for buying short term medical and purchase life insurance with living benifits. That way if you get cancer or have a heart attack and can not pass underwriting to purchase a new short term policy you would have the funds to buy an ACA compliant policy. After all receiving a $100,000 check from an insurance company if you are diagnoset would make it easier to buy a mandated plan.
    The great part is the cost of the short term policies and life and living benifit policies are still thousands cheaper than the ACA plans. Example of a client I helped last week.

    42 year old male 32 year old female 15 year old female. Had a ACA plan and was paying $900 a month for a $6000 deductible.

    Now they have a Short term medical with a $2500 deductibles and a $100,000 death benifit with $100,000 CI and $1500 monthly DI benifits for a total cost of $435 a month.
    Thank you Obama for completely destroying the market. Healthy people,have choices 👍

    • Ron Greiner says:

      Big Ham, I sold a STM to a woman yesterday that was uninsured and she said she was paying $100 a month at Walgreen for her High Blood Pressure Rx, Losartan, and it’s available at Goodrx.com for less than $10.

      When these employer-based plans charge workers a $20 co-pay for Rx does the insurance company get part of the over-charge in a kickback from the drug store?

      She now has life insurance with living benefits.

  5. Ron Greiner says:

    Big Ham, somebody at USA Central Command must have put out the word that it is OK to write about STM and take healthy people out of the expensive Obamacare Marketplace.

    USA Central Command has not given permission to write about Obamacare’s “Family Glitch” yet and MUM is still the word.

    When we do reform lets get rid of all non-profits because they are obviously setting an agenda for the DC Central Planners and riding shotgun for employer-based health insurance no matter what they say. Like Trump says, the system is totally rigged. Maybe that is why only 6% of the American people trust the propaganda of the media.

    Lucky that nobody tells Hillary what to say and she is volunteering that the Obamacare Family Glitch is a HUGE problem that needs to be corrected, when she is not coughing. I didn’t see one story this year about Obamacare’s Family Glitch during the Open Enrollment. This sounds impossible but it’s true. Our media is totally corrupt and controlled.

    • PJohnson says:

      Agreed that much of the media is corrupt or at least willingly misleading. But not controlled. They’re sold on their wrongheadedness and are what Lenin called “useful idiots”

  6. Jimbino says:

    This ability of healthy people to shun Obamacare until they fall sick is called a death spiral (because it drives up premiums in the Obamacare exchanges).

    This is incorrect. Changing one’s behavior in response to an insurance contract or mandate is properly classed as “moral hazard.” The tendency of drivers to be more careless once they are insured is the classical moral hazard.

    A “death spiral” ensues when healthy, young, childfree men eschew Obamacare because they are royally screwed by it, their premiums going to pay for women, breeders, the sick, the old and every breeder’s kids.

    Their sensible withdrawal from Obamacare will cause premiums for the rest to rise, perhaps just a bit to start with. Then young, healthy, childfree women, now paying more, come to their senses and back out of Obamacare too, again causing premiums to rise for those still left in the scam. Ultimately, only the infirm, paying super-high premiums, are left in the system. Since no insurance business can survive by “insuring” only the sick, Obamacare will die.

    This is the result we libertarians have the audacity to hope for.

  7. Bob Hertz says:

    This is a worthwhile debate, if everyone can tone down their favorite hobby horse a bit.

    The entire history of American health insurance since about 1950 is the effort of healthy persons to escape community rating.

    They have usually been abetted by insurance companies like Golden Rule in the individual market. Golden Rule may now be owned by United Health Care, but they have not changed their goal.

    Some will call it predatory when healthy persons grab lower rates. Jonathan Gruber used to mumble about the genetic aristocracy.

    I do not know the whole answer, but let’s keep talking.

    Also, two notes from an insurance veteran: Al, where do you find a life insurance policy with a $100,000 death benefit, a $100,000 critical illness benefit, and a $1,500 a month disability benefit? Assurity Life comes close but cannot do this.


    Ron, there was a very wealthy car dealer in MN who needed $1

  8. Bob Hertz says:

    Sorry I cut myself off:

    The car dealer needed $10 million of life insurance for debt protection.
    He literally bought non renewable one year term and took an exam every single year.
    He ran out of gas at about age 79.

    Almost all term life policies are renewable for 5-10 years or more.

    But short term medical can require medical questions every six or 12 months. That does create a risk for the insured.
    Not all illnesses begin right before open enrollment.

  9. Ron Greiner says:

    Bob, you say, “Some will call it predatory when healthy persons grab lower rates. Jonathan Gruber used to mumble about the genetic aristocracy.”

    Does Gruber think it is predatory for Life Insurance to do medical underwriting to determine premiums?

    I have never thought it was predatory for health insurance to do medical underwriting to determine premiums.

    Bankers might ask for life insurance on a one year loan. I can think of reasons why somebody might want term life insurance.

  10. Bob Hertz says:

    Many liberals think of life insurance as a personal choice, something you buy voluntarily, which makes underwriting acceptable.

    Whereas they see health insurance as a right of citizenship, therefore how dare an insurance company turn you down or charge a higher premium.

    Americans in a way seem to vacillate between social insurance (like Medicare), versus individual choice and underwriting. I think that we need a nuanced view to kind of take it all in and to make positive changes.

  11. PJohnson says:

    I’m part of the death spiral and have an STM. But mine are 6 month-long not the year-long that John Graham implies. And Ron Greiner’s math is correct for opting out of the Obama penalty. I can’t find a bronze policy for less than $500 a month and would have to have an MAGI of $75,000+ to be subject to it (it exceeds 8% of my income [though I think this has been bumped to 8.5%]). Further it can only be collected on tax refunds, not taxes owed. So unless you’re one of the all too many that thinks it’s great to get a “refund” – aka YOUR money interest free – you’ll never have to pay. And that assumes you’re caught. The IRS has admitted it doesn’t have the resources. AND one of my two STM providers last year sent me a 1095-somehing that says my policy did meet the Obamacare minimum requirements – even though it didn’t. Go figure.

  12. Marc says:

    Amazing that even when the government tries to eliminate the free market…the free market still comes to the rescue somehow.

    If we would go back to a system that gives incentives to those for staying healthy instead of punishing the healthy to pay for the known sick.

    Insurance is defined protection against UNKNOWN Risk…that is why it works.
    1 year term life and STM are great options.

    If STM did not exist….the uninsured rate would drive through the roof, making worse of an issue.

    Remember when you vote….look for someone that is actually looking to fix the problem (which is the law)..remove it and replace it.

  13. Bob Hertz says:

    Look out, sports fans!

    The federal government is preparing to slash the market for short term health insurance.