The Magazine

Escape from Obamacare

How to get health insurance while avoiding the exchanges.

Dec 30, 2013, Vol. 19, No. 16 • By JEFFREY H. ANDERSON and SPENCER COWAN
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At least they have their health. When it comes to purchasing insurance through the Obamacare exchanges, young adults don’t have much else going for them.

Dave Malan

Dave Malan

Under Obamacare, young adults can buy a government-approved plan​—​with its mandated coverage of pediatric dental care, sterilization, and maternity care​—​and pay vastly inflated premiums relative to pre-Obamacare rates. Or they can simply go without insurance and pay the fine for violating Obamacare’s individual mandate​—​its unprecedented requirement that American citizens buy a product of the federal government’s choosing. If they pick the latter (more affordable) course, they’ll know they can always sign up for insurance during Obamacare’s next open enrollment period, no matter how sick or injured they might have gotten in the interim. Each of these choices is less appealing than the pre-Obamacare status quo.

But it turns out there’s a third choice. Policy experts Sean Parnell and Timothy Jost have noted a loophole in the law that could attract millions of young adults—and others as well—who seek inexpensive insurance. Indeed, this third way​—​short-term health insurance​—​could provide an affordable, low-risk escape route from Obamacare. In the vast majority of states, Americans can secure health insurance for a term of up to 11 months (and usually up to 364 days), which is more than enough time to get from one Obamacare open-enrollment period to the next.

Short-term insurance wasn’t generally a very attractive option pre-Obamacare. That’s because it provided coverage only during a finite term. If you contracted a serious illness, any treatment for that condition would be covered only until the policy term ended.

In their zeal to remake American medicine, however, the architects of Obamacare ignored the law of unintended consequences. One such consequence is that Obamacare has now transformed short-term insurance, a niche product that was never of much use to most people, into an attractive product​—​and into a very attractive way to circumvent Obamacare. The central planners have made the product’s key weakness​—​its failure to provide long-term protection​—​essentially irrelevant. Now the sick and injured can always purchase a policy covering preexisting conditions when a new Obamacare open-enrollment period rolls around, every 10 months.

As Jost (an Obama-care supporter) notes, Obamacare remakes the individual insurance market by amending the Public Health Service Act, a federal law from 1944 that defines different forms of health insurance coverage. Individual insurance coverage, that act states, is “health insurance coverage offered to individuals in the individual market, but does not include short-term limited duration insurance” (emphasis added).

In other words, short-term health insurance falls outside of the regulatory purview of Obamacare. While Obamacare prevents insurers from factoring a person’s health status or sex into the price of a policy​—​and severely limits their ability to account for a person’s age​—​short-term insurers remain free to set the prices of their policies according to actuarial tables. This greatly benefits the young, the particular victims of Obamacare’s price-hikes. And unlike Obamacare-compliant plans, short-term plans need not offer free contraceptives, abortifacients, or any of the other “essential health benefits” that Obamacare requires. In choosing a short-term plan, consumers need not purchase “benefits” they will never use.

Short-term plans generally operate on a fee-for-service model and therefore offer wide access to doctors and hospitals, in stark contrast with the narrow networks of Obamacare exchange plans. In addition, short-term plans are easy to apply for and require comparatively little paperwork. Best of all, prospective policyholders can compare and purchase short-term plans on user-friendly websites like eHealthInsurance.com, avoiding HealthCare.gov and its notorious flaws.

Free from the “community rating” and “essential health benefits” requirements that balloon the cost of Obamacare-compliant plans for young adults, short-term plans offer significant savings. Take, for example, a healthy 26-year-old man earning $35,000 in Milwaukee. According to a recent study of Obamacare’s premiums and subsidies completed by the 2017 Project, he could purchase the cheapest bronze-level Obamacare plan​—​which has a $6,300 deductible​—​for $2,343 a year. (He wouldn’t receive a taxpayer-funded subsidy.) Or he could select a 364-day short-term plan​—​with a $5,000 deductible​—​for just $759 annually. Even after paying his $253 fine for violating Obamacare’s individual mandate (short-term insurance isn’t Obama-care-approved), he’d be paying only $1,012, a savings of $1,331 versus Obamacare’s cheapest bronze plan.

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