In the debate over Obamacare, both parties have a point: The Affordable Care Act made American health care better insofar as it expanded funding for low-income individuals and guaranteed coverage to those with pre-existing conditions. But the ACA also made things worse by causing premiums for insurance plans on the individual market to soar by 105 percent from 2013 to 2017. It is widely assumed that the premium hike was necessary for the expansion of coverage, but this is not the case.
The ACA rightly authorized federal subsidies that automatically expand to guarantee the coverage of low-income individuals and those with pre-existing conditions. But ACA rules also prevent Obamacare plans from being sold to healthy individuals for less than they are sold to those who are already seriously ill.
As a result of this latter element, the ACA inadvertently encouraged people to wait until they become seriously ill before purchasing coverage — causing millions to abandon coverage, unsubsidized premiums to soar, and deductibles to spike.
As one industry expert recently noted, Obamacare plans can cost a household of four $15,000 per year for a plan with a $7,000 deductible — which is to say, “they have to pay $22,000 before they get anything.”
Rather than blame the Affordable Care Act’s pricing rules for the spike in premiums, the Obama administration attempted to bring down costs by eliminating attractive alternatives in order to force more healthy people to enroll in the exchange. Specifically, in 2016 it restricted an exemption from ACA rules, known as “Short-Term Limited Duration Insurance,” which had increasingly become used to sell traditional yearlong plans at rates in line with the much lower average costs of enrollees who sign up before they get sick.
Not only did this strategy not work, it imposed immediate harm on consumers. Indeed, the National Association of Insurance Commissioners faulted the Obama administration for offering no evidence for their claim that restrictions on STLDI plans would make ACA plans more affordable.
In October 2017, the Trump administration therefore proposed overturning the restrictions on STLDI plans, and Congress in December 2017 eliminated ACA’s individual mandate tax — allowing individuals to switch from ACA to STLDI plans without facing a penalty. These revised regulations, which went into effect in October 2018, protect consumers from STLDI premium increases if they get sick, by extending the permitted term length and allowing them to renew plans for multiple years.
Opponents have characterized STLDI plans as junk insurance that is of value only to young and healthy individuals, but this could not be further from the truth. In a recent study of the STLDI market, I found that not only do STLDI plans offer equivalent insurance protection to Obamacare plans for as little as half the cost, but they tend to provide access to broader provider networks than are typically found on the exchange. In fact, individuals who seek the most comprehensive insurance coverage, which pays for the largest share of medical costs, stand to save the most by switching to STLDI plans.
Coverage of all the ACA’s essential health benefits is widely available through STLDI plans, with the sole exception of maternity services — which is a uniquely uninsurable condition. Even smokers in their 60s can potentially save by signing up for STLDI plans.
The U.S. House of Representatives recently sought to restrict STLDI plans, rehashing the Obama administration’s theory that doing so would reduce premiums for individuals on the ACA’s exchange. But Obamacare premiums largely reflect the extent of subsidies provided, rather than the ability of regulations to corral healthy people to purchase plans that cost many times more than their expected medical costs.
Nine million low- and middle-income Americans are enrolled on the Obamacare exchange who qualify for federal subsidies that limit their premiums and out-of-pocket costs. These people are entirely unaffected by the availability of STLDI plans.
Only about 1 million unsubsidized upper-income individuals with pre-existing conditions, are even theoretically at risk of premium increases. However, insurers attribute Obamacare premium increases averaging less than 1 percent to STLDI deregulation. Relative to the 105 percent premium increase resulting from the ACA’s implementation, this adverse effect is essentially non-existent.
By contrast, between 1 million and 5 million individuals are expected to enroll in better value health insurance as a result of STLDI deregulation — about half of whom have been previously altogether uninsured.
Obamacare was designed around the needs of low-income individuals and those with serious pre-existing conditions who need public subsidies to get medical coverage. But to those who are ineligible for comprehensive subsidies, it generally offers poor value insurance.
STLDI plans cover a significantly larger share of medical costs than ACA plans available for the same premiums, and their expansion will reduce the number of Americans without health insurance. Restricting good, affordable, insurance for people who purchase plans before they get sick has proven to be a painful and ineffective way to strengthen assistance for those who are already seriously ill.
