A commonsense solution for health care coverage in the wake of the pandemic

The COVID-19 pandemic – and the policy response to it – has disrupted the lives and insurance status of millions of Americans. Unfortunately, for individuals who have either lost their employer-based coverage unexpectedly or never had coverage in the first place, the conventional options for obtaining coverage now are limited. 

It’s time more Americans took a look at an entirely different type of coverage: Short-term renewable health insurance.

Buying insurance on the individual market is one option, but it is expensive, as insurers reserve their best discounts for purchasers of group policies. A second option, buying subsidized insurance on the state health exchanges, is attractive to some people, but the choice of plans is limited, and the subsidies are available only to low and middle earners. A third option, COBRA, allows people to remain on their employer’s insurance plan after they leave their job or their employment is terminated. Similar to policies sold on the individual market, COBRA tends to be very expensive, and it is by definition only available to people who were previously covered by an employer.

For many people who are currently without health coverage, short-term renewable health insurance is the best option available. These policies are exactly what they sound like: They cover individuals and their families for short periods of time and can be renewed one or more times depending on the guidelines in the state the policyholder lives in — but not indefinitely.

Short-term renewable health insurance policies generally cover emergency care, hospitalization, surgery and doctor’s visits. They are not subject to the Affordable Care Act’s strict requirements when it comes to mandated benefits, and thus often do not cover prescription drugs, substance abuse treatment or mental health treatment — and they almost never cover pre-existing conditions.

A recent report by House Democrats on the Energy and Commerce Committee criticized short-term health plans for having such limitations, calling them “junk plans.” The same report notes that those plans have grown in popularity over the past few years. Indeed, for many people, this combination of characteristics is a feature, not a bug. It enables short-term plans to be more affordable, making them particularly attractive to people who are healthy and who expect their situation of underemployment or unemployment to be temporary — a place millions of Americans find themselves today. 

Federal law currently allows short-term plans to cover individuals for up to 12 months and be renewable for a total of up to 36 months. However, only 21 states allow insurers to sell plans that reach this federally-defined maximum. The rest have instituted tighter restrictions on duration or renewability. 

Proponents of restrictions on short-term plans usually cite one of two concerns. One is the “consumer protection” concern that people who buy short-term plans might not know that they are buying a policy that covers fewer services. The other is the concern that if short-term plans are too attractive, then the healthiest people will leave the more comprehensive forms of insurance and cause the average cost of coverage in those pools to rise (i.e., “adverse selection”). In 11 states, such as New York and California, insurers are prohibited from offering short-term plans altogether.

The federally-defined maximum duration for short-term plans was not always a full year. Regulations issued by the Obama administration set the maximum duration at a mere 90 days. The evolution to the current status was achieved by way of a 2017 executive order from President Trump, which led to a 2018 Department of Health and Human Services administrative rule change.

Although this most recent change at the federal level moves policy in a positive direction, executive decisions like these lack permanence. Congress has the opportunity to lock them in. 

Sen. Kelly Loeffler (R-Ga.) recently introduced the Affordable Health Care Options Act of 2020, which would make the policy of 12 months with renewability up to 36 months permanent. Codifying the rule would decrease uncertainty in states that adhere to the current federal maximum duration. That, in turn, would help a wide range of people, including those who are between jobs, temporarily self-employed or temporarily unemployed; people who cannot find a policy they like on the exchanges; and seniors who do not qualify for Medicare (i.e., because they have not lived in the United States long enough, or do not have a long enough work history). 

Ideally, the federal government would not limit the duration of those plans and instead defer to states which might allow for an even-longer timeline.

With employment levels unlikely to return to their pre-COVID highs anytime soon, uninsured Americans need adequate and affordable coverage while they look for new jobs. Protecting the extended duration of short-term plans would offer hope, peace of mind and stability to those whose lives have already been disrupted by recent events. 

Jared Rhoads is an instructor with The Dartmouth Institute for Health Policy and Clinical Practice and a visiting research fellow with the Mercatus Center at George Mason University. Elise Amez-Droz is the Open Health program manager with the Mercatus Center.