There’s a lot of buzz today about President Trump’s executive order on health care and the Affordable Care Act.
We want to steer clear of the politics.
Much of what’s included in the executive order won’t have much immediate impact because it will take a long time to be implemented. So we’ll talk about association health plans at a later date.
But relaxing the rules on short-term health insurance could have an immediate impact on how our clients approach Open Enrollment next month, so let’s dig in.
Short-Term Health Plans and the Affordable Care Act
Short-term health insurance plans have never been subject to the rules and regulations of Obamacare. This is because they, by definition, aren’t permanent plans – they are purchased for less than 365 days.
This means, among other things, they don’t have to cover preventive care, they can exclude pre-existing conditions from coverage, and they can even deny coverage to people based on their health history. (In most cases, the application includes a few yes/no questions about conditions or diagnoses in the last 5 years).
It also means they don’t qualify as “compliant” plans under the ACA, meaning that someone using these plans instead of an ACA-qualified plan could face penalties on their taxes.
Did Obamacare change short-term health plans?
No. When the Affordable Care Act was passed, nothing really changed with short-term health plans, other than the possibility of being fined if you didn’t have an ACA-compliant plan.
Why did people continue buying short-term health insurance plans?
Price. That’s a simple question to answer. Because short-term plans could exclude very unhealthy people and pre-existing conditions, don’t typically cover preventive care, and because by nature they aren’t in place a long time, they are priced much better than Obamacare plans.
So individuals and families who don’t qualify for subsidies in Obamacare began looking at short-term plans as an alternative. These people knew they needed protection (a safety net) in case something happened, but weren’t as concerned about the more robust mandated coverages in Obamacare. In many cases, even when factoring in the penalty for not having an ACA-qualified plan, it just made a lot more economic sense.
So why the executive order?
Sometime in 2015 or 2016, the federal government issued new regulatory guidelines that mandated insurers could only issue a short-term health insurance policy for a maximum of 90 days. So today’s executive order, as it pertains to the length of short-term health plans, actually seems to be reversing a regulatory change that originated in government bureaucracy, not in the Affordable Care Act itself.
Now, if the executive order mandates that people with short-term health insurance policies are exempt from the individual mandate, that would seem to be a change to the law.
What does the executive order mean for Open Enrollment this year?
The price of individual health insurance plans is going up for 2018, sometimes quite sharply. In South Carolina, non-subsidized premiums are going up on average around 35%. In Georgia and some other places, the increase could be even sharper.
People who receive subsidies will not feel the impact of those higher prices, but those who do not receive subsidies will be hit pretty hard by higher premiums.
Short-term health insurance plans have continued to be an alternative for healthy people who do not qualify for subsidies. By lifting the 90-day maximum length of such plans, the executive order makes it simpler and easier for people to choose this kind of coverage.
We still don’t know if short-term plans will be exempt from the individual mandate, which would be a massive game-changer. (Stay tuned.) But even if the penalty is enforced, when you factor in the potential cost of the penalty, short-term health plans may very well still be more cost effective for many people. (We actually have access to an online calculator that we can use to help you make these calculations).