Short-term insurance up as people avoid PPACA

Here’s a head-scratcher: Why would people buy a health insurance policy that doesn’t cover a number of basic medical services and gets them fined by the federal government?

It’s cheaper that way, insist many of the people who are opting to purchase short-term health plans that do not meet the standards for insurance specified by the Patient Protection and Affordable Care Act (PPACA).

That’s why, according to eHealth, an online insurance marketplace, 147,000 purchased short-term policies through the site last year. The full scope of the short-term market remains ambiguous, however.

Such policies are definitely best for those who are healthy and are looking for the lowest-possible premiums. First, just like all insurance plans pre-PPACA, they will turn customers away or demand higher prices because of preexisting conditions. Secondly, they often do not cover a number of things most would expect from a conventional plan, including prescription drugs, and they often cap their benefits at a certain dollar figure, such as $1 million.

One of the benefits of short-term plans is that they can be bought at any time, whereas PPACA plans must be acquired during designated enrollment periods.

The problem posed by the short-term policies is that they offer healthy consumers a way out of the Obamacare market, where they are needed to offset the costs of the sicker and older customers who have signed up for PPACA plans. They can stay on short-term plans until they are less healthy, at which point they could spend the extra money on a PPACA plan.

“This is exactly the kind of coverage the ACA was designed to get rid of,” Larry Levitt, a senior vice president at the Kaiser Family Foundation, told the Wall Street Journal.

Insurers, however, love the policies because they can make bigger profits on them. Among other things, they are not required to spend a certain portion of their revenue from the plans on health costs, as they are with PPACA plans. As a result, insurers have continued to happily pay brokers commissions for short-term policies, while they have in many cases stopped doing so for PPACA plans, particularly those acquired during “special enrollment periods.”