One of the ideas behind the Affordable Care Act was to enable more Americans to afford health care coverage. But it turns out that some consumers are snubbing the ACA and picking another path: short-term coverage.
The reason behind the surge in demand for these health care products comes down to one word: cost. The average monthly premium for a family of three on a short-term plan is about $283, or about $500 less per month than coverage through a major medical plan, according to eHealth, an online marketplace for health insurance. Before the ACA went into effect, eHealth said it sold about 60,000 short-term policies per year, but that more than doubled in 2014 and 2015, with about 140,000 of the policies sold for both of those years.
These short-term plans come with a serious dose of drawbacks, however. For one, none appears to cover prescription drugs, while others exclude certain coverage, such as maternity care, said Nate Purpura, vice president of consumer affairs at eHealth. On top of that, the plans can refuse to cover preexisting conditions, something that's forbidden under the ACA. Customers have to reapply for coverage every year, and they may be rejected if their costs are too high, which is also illegal under the ACA.
"You sign up for these plans and they carry you for 12 months, but then you have to reapply, so you're not guaranteed to be reenrolled in the plan," Purpura said. "Say you get cancer in the 11th month, you'd have to reapply for the next 12 months, and there's a chance you would be declined."
Those risks might be palatable to consumers who don't qualify for the Obamacare subsidies, which generally cut off at about 400 percent of the federal poverty level. For a family of three, the subsidy cutoff begins at about $80,000 of annual household income. While that's far higher than what most Americans earn, paying roughly $9,600 annual for health insurance coverage nevertheless represents a large bite of that income.
"That $500 difference is a car payment, that's a mortgage payment," Purpura said. "If you do the math on it, a lot of times people are figuring it's a wash, or they are saving money on a monthly basis" by buying a short-term policy.
Because the plans don't qualify as individual coverage under the ACA, they trigger the tax penalty for lack of coverage under the federal law. Even after adding that in, the short-term plans can still represent a savings.
Individuals who lacked health care insurance for more than three months in 2015 will pay a penalty with their taxes this year. The financial ding is based on either a percentage of one's household taxable income or a flat rate, depending on which is higher. The maximum payment is $975 for the 2015 tax year.
"Ultimately, this is about affordability," Purpura said. "People have to make financial decisions about what they can afford every month."
Traditionally, short-term plans were bought by people who were transitioning between jobs and needed coverage to hold them over until their new policy kicked in. The ACA appears to be giving the plans new life, thanks to consumers like Robin Herman, a 34-year-old business owner who told The Wall Street Journal she bought a short-term policy for herself in December because it reduced her costs by about 75 percent.
Even with the tax penalty, she said, "This is saving me a ton of money for the year." She added that qualifying plans under the ACA are "just not affordable."
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