For paying customers, there’s an increasingly popular way to opt out of a commitment to an Obamacare plan without running afoul of the law: Buy cheaper, short-term coverage that can be renewed on an annual basis.
It appears to be a low-risk — if not necessarily high-reward — solution to the problem of complying with the Affordable Care Act, one that saves customers money and offers them the flexibility to re-evaluate their decisions on a yearly basis. But it also may signal a quickening of the structural problem inherent in Obamacare’s financial philosophy.
That’s because as more people of a certain demographic go for short-term insurance, fewer are available to pay the lion’s share of Obamacare’s shared costs.
Fox News posits such a phenomenon could “put the government-subsidized plan into a death spiral,” as young, generally healthy people buy year-long “maintenance” insurance plans and stay away from more expensive Obamacare plans that offer too much coverage in exchange for too much money:
The plans, the only ones allowed for sale outside of ObamaCare exchanges, generally cost less than half of what similar ObamaCare policies cost, and are increasing in popularity as uninsured Americans learn they are required to get health coverage.
… As long as customers stay healthy, they can renew the short-term plans. If patients get sick while covered, the plans provide for their care until the end of the term, when customers can be declined. But such plans can work well with ObamaCare, because if stricken policyholders can still buy insurance through the Affordable Care Act, where insurers must charge sick and healthy people the same rate.
… In theory, if enough young and healthy people switch to short-term, non-ObamaCare plans, it could cause a “death spiral” for ObamaCare plans where prices soar and healthy customers look elsewhere.
Supporters of the Obamacare exchange system maintain that, although a short-term plan can cost half as much as an exchange-based policy, they won’t steal the market away from the exchanges because people buying their own short-term insurance don’t qualify for a government subsidy to help them pay their premiums.
That’s a difficult line of thinking to follow, since people who are willing to pay out of pocket for cheaper insurance are effectively voting against a subsidy with their wallets.
But the short-term plans do have a couple of potential drawbacks, according to Fox. For one thing, even though a short-term policyholder is technically in compliance with the law, he still has to pay a penalty for opting out of Obamacare. In addition, the policies function on a traditional model that excludes potential customers who have pre-existing conditions.
“Basically, people making $37,000 or less should go on ObamaCare,” one short-term provider told Fox. “People with serious pre-existing conditions — they should go on ObamaCare.
“But for everyone else, including the penalties and including the subsidies [for ObamaCare plans], we cost 30-50 percent less and have that freedom of choice with providers.”