In a perfect world, all Americans would have affordable access to comprehensive major medical health insurance – and indeed, the Affordable Care Act has finally put coverage in reach for millions.
But there many others who feel left behind by ACA provisions that were intended to make coverage more affordable. These individual-market consumers include about 2.4 million trapped in the Medicaid coverage gap, families affected by the family glitch, and healthy people who earn a little too much to qualify for ACA’s premium subsidies.
As health reform advocates urge members of Congress to find legislative fixes to improve the affordability of ACA, some health insurance carriers are introducing new coverage options as “replacements” for ACA-compliant coverage. Among these options is “bundled plans” – combining short-term health insurance with other non-ACA-compliant coverage in an attempt to decrease overall plan and healthcare costs.
What’s in the bundle
In a typical bundled plan, carriers build on the appeal of short-term plans, which for years have been marketed as bridge coverage and more recently as ACA alternatives. As noted here, short-term plans provide decent coverage for otherwise healthy people who end up needing unexpected medical care, and who have other coverage lined up to start in the fairly near future, since short-term plans are limited in their duration.
But while the primary appeal of short-term plans is their low premiums, the lowest-cost short-term plans tend to have fairly high out-of-pocket costs. Short-term plans don’t have to comply with the ACA’s limits on out-of-pocket exposure, and many short-term plans are available with individual out-of-pocket costs well in excess of $10,000.
In order to make the out-of-pocket costs more manageable, some insurers allow consumers to pair a short-term plan with a fixed indemnity plan, which provides first-dollar coverage (ie, no deductible). The idea is that the fixed-indemnity plan will pay a specific dollar amount if the patient has a covered claim, and that money can be used to cover part of the out-of-pocket costs that apply under the short-term plan.
Consumers also have the option to purchase critical illness coverage and/or accident supplements, both of which will also help to cover the out-of-pocket costs incurred under a short-term plan (or a regular health insurance plan) in the event of a specific critical illness (things like cancer or a heart attack, for example) or an accident.
When short-term plans are combined with these other products that provide first-dollar coverage, the result is that the consumer is protected in some cases from having to bear the full burden of the short-term plan’s out-of-pocket exposure. For some enrollees, these will present a good value. They’ll benefit from the low premiums that are typical of short-term plans, but will be at least partially insulated from the high out-of-pocket costs that also tend to be typical of short-term plans.
It should be noted that some consumers prefer short-term plans bundled with some sort of first-dollar coverage because they simply aren’t interested in what many consider “one-size fits-all” coverage – compliant comprehensive health plans that are required to include the ACA’s essential benefits.
Results may vary
As with any insurance product, it’s essential to understand what you’re buying and what it will cover in various situations. To illustrate that, let’s take a closer look at Fusion from IHC, which is one example of the new bundled plans (Fusion fixed indemnity plans combined with Fusion STM short-term plans).
Let’s say a person enrolls in Fusion 2, together with Fusion STM 1 (details are on page 3 of the brochure). Although the Fusion 2 coverage will pay first-dollar benefits (no deductible) that can be used to cover out-of-pocket costs under Fusion STM 3, it’s important to understand that you might still be left with a substantial medical bill, depending on the circumstances.
We can use my mother’s experience with a broken leg as an example, since unexpected but serious medical conditions are exactly the sort of thing that a short-term plan and fixed indemnity plan are designed to cover. She was hospitalized for six days, during which time she had an inpatient surgery. Her total medical bill came to $63,000.
Under Fusion STM 1, her deductible would have been $15,000. Of the next $20,000, she would have paid half. (Coinsurance is 50 percent on that plan, up to a maximum of $10,000 in additional out-of-pocket.) After that, the Fusion STM 1 plan would have picked up the remaining tab. So her out-of-pocket costs under the short-term plan would have been $25,000.
Now let’s consider Fusion 2, the fixed indemnity plan that’s bundled with the short-term plan to cover some of the out-of-pocket costs. Her six days in the hospital would have qualified for $6,000 in benefits ($1,000 per day). She had multiple physician visits each day while she was hospitalized, and the plan would have paid $60 for one visit per day, so that’s another $360. She also had an inpatient surgery to repair her leg, which would have resulted in another $3,000 paid by the fixed indemnity plan.
So the fixed indemnity portion of the coverage would have paid $9,360. She could have used that to pay part of the out-of-pocket costs under the short-term coverage, but she still would have been on the hook for $15,640 (total out-of-pocket of $25,000, minus $9,360 paid by the fixed indemnity product).
There is no doubt that’s a lot of money, and it’s more than most people have sitting around to cover potential medical emergencies. So if you’re considering an alternative to Obamacare, pay close attention to the coverage details and figure out how much you’d really have to pay if you were faced with a medical catastrophe. Be especially aware of the things that simply aren’t covered by your plan, since you’ll pay for 100 percent of those costs.
But if you’re buying a plan with full understanding of its limitations, and your other option is being uninsured, a bundled product like Fusion will offer a level of peace of mind that you simply won’t have if you’re without coverage altogether. In the scenario described above, while $15,640 is a significant out-of-pocket cost, it’s certainly better than $63,000, which is what the bill would have been without health insurance.
An ACA-compliant plan would reduce the out-of-pocket exposure to a maximum of $7,350 in 2018. Many ACA-compliant plans have out-of-pocket caps well below that level, but the worst case scenario under an ACA-compliant plan would end up being less than half as much in out-of-pocket costs ($7,350 versus the $15,640 in the example above).
However, that has to be considered in conjunction with the premiums. Consider three different scenarios, all for a 60-year-old in Scottsbluff, Nebraska, who is going to end up with the broken leg scenario described above:
- If she qualifies for premium subsidies (ie, her income is between $12,060 and 48,240 in 2018, she’ll pay $0 in premiums for the lowest-cost bronze plan in the exchange. The plan has a maximum out-of-pocket exposure of $6,650, all of which would have to be paid by the patient in the broken leg situation (the $0 premium is due to the way insurers added the cost of cost-sharing reductions to silver plans in most states for 2018).
- If she doesn’t qualify for premium subsidies (ie, her income is under the poverty level – Nebraska has a coverage gap – or over $48,240), that same lowest-cost bronze plan will cost her $1,380 per month in premiums, in addition to the same $6,650 in out-of-pocket costs.
- The combination of Fusion 2 and Fusion STM 1 described above would cost $537 per month in premiums. The out-of-pocket costs described above would also have to be paid by the patient in the event of the broken leg situation.
Obviously, the ACA-compliant plan is going to provide more comprehensive benefits and result in a lower out-of-pocket cost in the event of a serious medical issue. And for the subsidy-eligible person, the ACA-compliant plan is the obvious choice.
But for a person who isn’t eligible for a premium subsidy, the ACA-compliant plan may simply be out of reach. If this person is earning $49,000 per year, $1,380 per month is almost 34 percent of her gross income. For most people, that’s entirely unrealistic as far as health insurance premiums go (note that if you’re in this situation, contributing to an employer’s retirement plans (or a self-employment retirement plans) and/or a traditional IRA – or an HSA if you have HSA-qualified health insurance – is a way of reducing your income enough to qualify for premium subsidies).
For whatever plan you’re considering, make sure that you read the fine print, question things that sound too good to be true, and understand the pros and cons of the plans you’re considering, including the limitations that generally apply to short-term coverage.
Understand duration limits on short-term plans
Under HHS regulations that took effect in 2017, all short-term plans – including Fusion STM plans – are limited to no more than 90 days in duration, although this is expected to change at some point in 2018 as a result of President Trump’s October 2017 executive order.
But for the time being, if you purchase the bundled Fusion package, your Fusion STM plan would end after 90 days, while your Fusion fixed indemnity product would continue to provide coverage (the premium would be adjusted accordingly, but a fixed indemnity product is generally not recommended as stand-alone coverage, as it doesn’t limit the patient’s out-of-pocket exposure at all).
In most states where Fusion products are available, you’d be able to reapply for another Fusion STM plan at that point, but it would be a new policy – that means you’d have to qualify again based on your updated medical history, and any medical conditions that cropped up during the time you were covered under the first plan would be considered pre-existing (and therefore not covered) under the subsequent plan.
Not minimum essential coverage, but ACA penalty exemptions may apply
Short-term plans and bundled products like Fusion don’t count as minimum essential coverage, so people who rely on them are subject to the ACA’s penalty for being uninsured (which is still in effect for 2018; the individual mandate repeal that lawmakers approved in December 2017 doesn’t take effect until 2019).
But there are a variety of exemptions from the ACA penalty, and alternatives to ACA-compliant coverage are really only appropriate for people who would qualify for one of the exemptions. If you’re not eligible for a premium subsidy in the exchange and the lowest-cost metal-level exchange plan in your area would be more than 8.05 percent of your 2018 income, you’re exempt from the ACA penalty. You’re also automatically exempt if you’re in the Medicaid coverage gap.
If you qualify for an exemption, you won’t be assessed the ACA penalty when you file your taxes, even if the plan you have during the year isn’t minimum essential coverage. And maintaining coverage under a short-term plan or a bundled product that combines short-term and fixed indemnity coverage will be a far better option than remaining uninsured.