Options on health insurance

Alex M. Azar, U.S. secretary of health and human services, published an interesting OpEd in the Washington Post, describing a clever health insurance innovation. HHS will allow "temporary" health insurance, including a guaranteed renewability provision. The HHS announcement is here and the official rule on the Federal Register here.

Americans will once again be able to buy what is known as short-term, limited-duration insurance for up to a year, assuming their state allows it. These plans are free from most Obamacare regulations, allowing them to cost between 50 and 80 percent less.

Insurers will also be able to sell renewable plans, allowing consumers to stay on their affordable coverage for up to 36 months. Consumers can also buy separate renewability protection, which will allow them to lock in low rates in their renewable plans even if they get sick.

The big news to me is guaranteed renewability. You sign up now, and you are guaranteed rates don't go up if you get sick.

The last sentence is the most intriguing. Long ago, before the ACA made all of this sort of innovation illegal, United Health started offering the option to buy health insurance. Pay money now, and any time you get sick you can still get health insurance, at the pre-stated rate. (Under the ACA that option is now called a cell phone, but the insurance is a lot more expensive and many doctors and hospitals don't take it.)

It sounds like HHS is allowing this again. But I couldn't figure out from a quick read whether the guarantee only lasts 36 months, or if they can sell that option for a longer date. It sounds like the plain guaranteed renewability is only 36 months, the length of the contract.

For newcomers to this blog, guaranteed renewability and the option to buy health insurance is the key to escaping the preexisting conditions problem in a free market for health insurance. I'm delighted to see the idea take hold, if at the edges. Great trees grow from saplings.

The trouble is, that most of the things you worry about happen in a time frame more than 36 months. I want guaranteed renewability for life! If I get cancer in 22 months, knowing I can keep health insurance for another 14 is not that helpful. (Much more here, especially "health status insurance.")

You may ask, then, why only 36 months? As I piece it together, the ACA, which is still law, has a little carve out for temporary insurance, defined as a contract that last 12 months. Anything longer must meet the list of mandates. It sounds like HHS was pretty clever within the constraints of the law, allowing them to be renewed, so 12 months can turn in to 36. I presume you can sign up with another company after 36 months? But you lose the guaranteed renewability so the new company may charge you a lot.

Unless, perhaps, they really are letting insurance companies offer the right to buy health insurance as a separate product, and that can have as long a horizon as you want? If they haven't done that, I suggest they do so! I don't think the ACA forbids the selling of options on health insurance of arbitrary duration.


I also notice "if their state allows it." Many blues states likely will not, on the illusion that they can keep healthy wealthy people buying Obamacare policies to cross subsidize the others. (Or just out of pigheaded "resistance.") The oped addresses that nicely. People are increasingly not buying unsubsidized exchange policies. (Or, buying them, getting 3 months of doctor's appointments out of the way, then quitting, see here.) So, most people buying these plans will be currently uninsured, not defectors from exchanges. (And the wisdom of funding charity care by massive cross subsidies (here and here) is questionable anyway.)

The law’s skyrocketing subsidies have kept subsidized insurance enrollment fairly steady — although more than 50 percent below what was once expected. But Americans who make too much to receive subsidies have begun to opt out of the insurance market en masse. An independent analysis found that the entire unsubsidized individual insurance market shrank by more than 40 percent from the first quarter of 2016 to the first quarter of 2018. In other words, Obamacare has forced unsubsidized Americans to choose between unaffordable insurance and no insurance at all. 

...

Some have raised concerns about the possibility that short-term plans will pull healthy consumers out of the Obamacare exchanges, driving up premiums. But estimates from the Centers for Medicare & Medicaid Services actuary suggest any such premium increases would be minimal and would not affect subsidized consumers. This is, in part, because those without subsidies who were previously enrolled in Obamacare plans have already left those plans in droves because of premium hikes under the law. For these consumers, short-term plans can offer an affordable option. Our decision to allow renewability and separate premium protections could also allow consumers to hold on to their short-term coverage if they get sick, rather than going to the exchanges, which improves the exchange risk pools. 

Let us see if, say, California, says "what a nice idea!"

Updates:

A correspondent sends this:

If you go to page 38 of the official rule, you will see that they are saying that current law does not prohibit the selling of options to buy health insurance for longer than 3 years, since these do not fall under the official definition of a “health insurance contract” (see also p.30). So yes, it does seem that companies would be allowed to offer this. The rule emphasizes this reading of current law. You would have to string together different STLD plans however, since each plan can only last up to three years.

But with health status insurance, you can get a different one.

One problem is that if you have a plan and then find a job, you would probably want to change to the employer’s plan. Tailoring an option contract to deal with this contingency might be complicated.

Indeed. Though United health sold the option to people who were employed and might want to quit someday. The tax deduction for employer-provided group plans -- but not employer contributions to individual insurance -- is one of the original sins of health insurance.

Of course, ideally you’d want to keep the same insurance from job to job (and between jobs). ...[If the administration allowed] tax-free contributions to HRAs, which can then be used to pay for insurance premiums....

John Goodman covered this option in an excellent Forbes essay. 

The Trump administration has now reversed those decisions, allowing short-term plans to last up to 12 months and allowing guaranteed renewals up to three years. The ruling also allows the sale of a separate plan, call “health status insurance,” that protects people from premium increases due to a change in health condition should they want to buy short-term insurance for another 3 years.

By stringing together these two types of insurance, people will likely be able to remain insured indefinitely. The new plans will probably include most doctors and hospitals in their networks. And they are likely to look like the kind of insurance that was popular before we had Obamacare.

So, in John's view the health status insurance can last forever. (Life insurance is guaranteed renewable as long as you live, so this is entirely possible.)

On cross subsidies, a favorite theme of mine these days:

the Obama administration and Democrats in Congress wanted to give a gift to a small number of high-cost patients who migrated from group plans to the individual market and faced exclusions, riders or outright denial of coverage. The goal was commendable, but they didn’t want to pay for it with taxpayer dollars. Instead, for the last four years, they have been trying to pay for this benefit by pushing the cost off on other insurance buyers.

Similarly, I think the Obama administration was right to offer free birth control to anyone who wants it. But they shoved it on insurers and got into a needless fight with religious organizations. Really, how much would it have cost on the Federal budget?

A very interesting observation:

So, who could be against this welcome opportunity? Answer: Almost everyone, except the people who plan to buy the insurance, that is.

The opponents include Blue Cross, AHIP (the insurance industry’s trade group) and virtually every other stakeholder. Before finalizing the rule, the government received about 12,000 comments. According to an analysis by the Los Angeles Times, 98% of them were negative. “Not a single group representing patients, physicians, nurses or hospitals voiced support,” the newspaper noted.

Think about that. Roughly 2 million people are about to get the opportunity to buy insurance that meets their needs for a fair price and virtually every special interest in the entire health care system wants to stop them.