Where Obamacare Has Become Unaffordable, Short Term Health Insurance Can Help

UnaffordableSeth Chandler, Contributor

Next time you run into someone who minimizes the problems with Obamacare, I want you to introduce them to Fay. She’s a reasonably healthy 60 year old grandmother living in Fayette County, Illinois and earns about 450% of the federal poverty level ($53,460) working for a small employer that does not provide her with health insurance. Right now, if she wants the second lowest silver plan in her area, she needs to pay 28% of her pre-tax income in order to get it — $1,247 per month. Fay just doesn’t have that kind of money and thus lives in fear of medical bankruptcy should something go wrong.

Fay is imaginary, so your introduction will need to be metaphorical. But lots of people like her exist throughout the United States. In one third of the rating areas covered by the federal individual health insurance Exchanges, a 60-year old earning about 450% of the federal poverty level ($53,460) would need to pay at least 20% of their pre-tax income in order to pay for a typical Obamacare health insurance policy. Indeed, in over 70% of the rating areas for which policies are sold on healthcare.gov, the second lowest silver plan would cost at least 15% of a person like Fay’s income. To calibrate these facts, recognize that Congress wrote a law that basically says that someone earning just a bit less that Fay, say $47,400, should pay no more than about 10% of their income to purchase the same policy.

It’s clearly going to get worse. If premiums go up about 20%, which is a pretty conservative estimate for 2018, over 50% of the rating areas will feature health insurance premiums that bust the 20% barrier for people like Fay. And in 91% of the rating areas, people like Fay will be paying over 15% of their pre-tax income if they want health insurance on the Exchanges. And it’s not lavish health insurance either. These policies often have deductibles over $3,500 and out-of-pocket limits over $5,000. That, my friends, is crazy.

Moreover, it’s not just people of ages and incomes highly similar to Fay. There are a lot people who are going to find that the individual health insurance market has, for all practical purposes, collapsed, even as various pundits cheerfully point to the low number of areas in which it has not done so literally.

Let me draw another example from the middle class: Humphrey, a 50 year old from Key Largo, Florida earning a decent 500% of the federal poverty level ($59,400) per year as a self-employed termite exterminator. Humphrey will be deemed too wealthy to qualify for any Obamacare subsidies. He is going to pay the full gross premium, which is $853 per month — over 17% of his pre-tax income. That’s almost twice what he would pay if he killed fewer termites and earned about $48,000 instead.

Again, Humphrey (imaginary) is not alone. In 8% of the studied rating areas, those people are going to need to pay at least 15% of their pre-tax incomes in order to buy a typical Obamacare health insurance policy. Maybe 8%  is below your concern threshold.  But next year, Humphrey will have more company.  If gross premiums go up on average by 20%, about 27% of the studied rating areas will require 50 year olds like him to pay at least 15% of their pre-tax income if they want health insurance.  Again, the idea at the time of Obamacare’s enactment was that people shouldn’t have to spend more than 10% of their income on health insurance.

It didn’t used to be this way. Remember those halcyon days of 2014 when ACA proponents were boasting of how much lower than alleged expectations exchange premiums had come in. If we’d run a similar analysis back then, here’s what we would have found. In fewer than 2% of the rating areas would our 60 year old Fay earning 450% of the applicable federal poverty level have to pay at least 20% of their pre-tax income for a typical policy. And there’d be no rating area anywhere on the federal Exchanges where our 50 year old Humphrey earning 500% of the federal poverty level would have to pay 15% of their pre-tax income for a policy. In fact, there’d only be 7% of areas in which they’d have to pay more than 10%.  In most of the nation, the idea that people shouldn’t have to pay more than 10% of their income to get decent health insurance was arguably in force.  These statistics show that the world of Obamacare in 2017 and 2018 is an entirely different animal than it was back in 2014 when things started out.

We need to consider different Obamacare regulations in light of the changed Obamacare conditions.  We should not just let the ACA blunder on. One of the problems with the ACA — and I am fully aware that this was intended to be one of its virtues — is that it basically ended the unregulated individual health insurance market. That might make some sense if the regulated insurance individual health insurance markets were functioning properly. But when premiums cost this large a percentage of many individuals’ incomes in the regulated market, the destruction of imperfect alternatives becomes less of a virtue and more of a vice. Where Obamacare has effectively failed, there needs to be an alternative — today. Fay and Humphrey’s situations are simply unacceptable.

All of this has a particular policy implication with respect to short term health insurance policies, currently a subject of some controversy. These are policies that have a duration often well under a year and that have limitations and cost sharing requirements that often go far beyond what the ACA permits. In its final months,  the Obama administration tightly regulated their sale. They did so because federal law does not require them to comply with all of the Obamacare rules (no pre-existing condition limits, ceilings on out-of-pocket maximums, essential health benefit requirements, etc.) Among other things, the Obama rules said that short term health insurance policies (also known as temporary health insurance) could be immune from ACA rules only if their duration was three months or less and if tight restrictions existed against “auto-renewals.”

The reason to close off this escape valve was the same advanced by many Democrats in opposing recent Republican health plans that also would have permitted a less regulated market to co-exist with an Obamacare market. These alternative markets — be they regular health insurance or short term health insurance — tend to siphon the healthy away from the regulated market. As such, the regulated market becomes ever more a high risk pool, charging ultra-high premiums and costing individuals and a subsidizing federal government a boatload of money.

The Trump administration is apparently considering relaxation of the recent Obama rules.  Perhaps the “short term” could be longer than the 3 months than is current permitted. Perhaps policies could be renewed more easily. Liberal pundits and organizations such as the Commonwealth Fund have aspersed this possibility. Before others reflexively propagate their criticisms, however, they ought to consider whether letting more people purchase “short term health insurance policies” even with their many imperfections might actually be better than having no insurance at all.  Larry Levitt, for example, a massive ACA supporter from the influential Kaiser Family Foundation, has apparently acknowledged that perhaps short term insurance rules could be more flexible where, as in some few counties, there is no Obamacare insurer at all.

This same argument, however, that concedes the validity of short term health insurance in jurisdictions where Obamacare has literally collapsed applies with almost as much force in the many jurisdictions where, although there is an Obamacare insurer on paper, it has effectively collapsed because none of its policies are really affordable to my Fays and Humphreys of middle age and middle income. A very reasonable rule would relax the restrictions on short term health insurance for persons unable to purchase the second lowest silver plan for less than 15% of their income. Short term policies there could be permitted to last six months and permitted to auto renew.

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