What to Know Before You Buy Short-Term Health Insurance

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Plans that follow the Obamacare rules are required to spend at least 80 percent of all premium dollars on medical care, keeping only 20 percent for overhead and profits. There are no such rules for short-term plans.

According to research from the National Association of Insurance Commissioners, the average short-term plan in 2017 spent less than 65 percent of premium dollars on medical care. Some of the short-term plans in the association’s analysis keep more than half of all premiums as overhead and profit.

Brokers also tend to make higher commissions on the short-term plans, since the companies share a cut of their larger profits to get referrals. According to eHealth, a national online brokerage, a typical Obamacare-compliant plan pays a commission of around 5 percent, while short-term plans pay out commissions closer to 20 percent. Because short-term plans are currently limited to 90 days, brokers now make more money selling comprehensive plans that cover more benefits.

However, that math may shift as short-term plans expand their duration under the new rule, giving brokers a stronger financial incentive to sell short-term plans instead.

But they will be far cheaper than more comprehensive plans

In some markets, insurance that complies with all the Obamacare rules has gotten very expensive. For some individuals and families earning too much to qualify for subsidies to help them buy a plan, affording a comprehensive policy can be a struggle. That’s why Trump administration officials say they moved to expand options, like short-term plans, that are more lightly regulated.

Alex Azar, the secretary of health and human services, described the short-term plans as a solution to rising premiums in the Obamacare markets. “These plans aren’t for everyone,” he said in a statement released Wednesday. “But they can provide a much more affordable option for millions of the forgotten men and women left out by the current system.”

The Kaiser study looked at the prices of plans in a handful of American cities and found plans that cost only a fraction of the cost of Obamacare insurance. In Atlanta, for example, the least expensive Obamacare plan for a 40-year-old single man was $371 a month. The cheapest short-term plan cost only $47.

In a recent customer survey, eHealth found that more than half its current short-term plan customers said they would have been uninsured had the option not existed. Scott Flanders, the company’s C.E.O., says the plans will provide a good option for healthier customers who simply can’t afford a more comprehensive plan. “You can sit there and say major medical is better than short-term,” he said. “But people don’t have the budget for it.”

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