Indemnity Insurance is on the Block
We would have very few public policy problems if we followed one of my rules for rational public policy: let the markets handle all the problems markets can solve; turn to government only to meet needs that competitive markets cannot or do not meet.
In the first four years before Obamacare went into full effect, the federal government made risk pool coverage available to any uninsured person who had been denied coverage because of a preexisting condition. Called preexisting condition insurance plans, the insurance resembled a garden-variety Blue Cross plan, and the premium was the same amount a healthy person would pay for such insurance. By the time these plans ended, roughly 135,000 people had enrolled.
On the eve of Obamacare’s passage, virtually the entire argument for Obamacare—on TV, on radio, on social media, in the halls of Congress—was that people with preexisting conditions should be able to buy insurance for the same premium healthy people pay.
Not only did the federal risk pool insurance described above solve the problem without disrupting everyone else’s lives, but we also came to learn less than 1 percent of the population was truly unable to buy insurance because of preexisting conditions.
Obamacare Has Hurt the Sick
Obamacare these days is a boon to the healthy. Four out of every five people in the Obamacare exchanges are paying premiums of $10 a month or less.
If you are sick, things are very different. The annual out-of-pocket maximum for a family in the exchanges this year is $18,900, and that is the exposure in a typical exchange plan. That’s the amount you may have to pay in the form of deductibles and coinsurance, over and above any premium payment. Plus, if you have an above-average income and don’t get a subsidy, the average family premium last year was $13,824.
One alternative has been short-term limited-duration insurance (STLDI). The basic product has been around for many years. A typical plan lasts for only 12 months and serves as a bridge for people transitioning from a family policy to school, from school to work, or from job to job.
STLDI is largely unregulated. Obamacare-mandated benefits don’t apply; and most state-mandated benefits don’t apply, either. That means these plans don’t have to cover maternity care or substance abuse. They can and do ask health questions. They exclude people with expensive chronic conditions.
Precisely because these plans avoid cost-increasing regulations and they only need to cover risks healthy people care about, they often sell for as little as one-half of the price of Obamacare insurance. They also typically have lower deductibles and broader provider networks. The Trump administration allowed the plans to last 12 months with an option to renew for up to three years.
‘Change of Health Status Insurance’
The Trump executive order also sanctioned a separate type of insurance, what I call “change-of-health-status insurance,” to bridge the gap between three-year periods.
Health status insurance protects you against any deterioration in your health. It pays any extra cost that arises because of a change in your medical condition, leaving you free to pay the same premium a healthy person would pay.
By stringing together these two types of insurance, we had the possibility of a market that healthy people can buy into and is guaranteed to be renewable regardless of health condition indefinitely into the future. Potentially, this could become the closest thing we have ever had to genuine free-market health insurance.
Unfortunately, the Biden administration has canceled the Trump order and reimposed the Obamacare rules governing this market.
Indemnity Insurance on the Block
Another insurance option the Biden administration wants to restrict is indemnity insurance. These policies pay a fixed amount of money per medical episode. For example, a plan might pay $100 per doctor’s visit for up to five visits a year. For a hospital stay, the plan might pay $6,000 per day. The plan also allows patients to pay in-network rates to the providers.
STLDI with an indemnity plan can save families bundles of money and provide financial protection. Take a family of three, with adults near age 50, living in Springhill, Florida (about an hour north of Tampa). A typical exchange plan with no subsidy would cost this family a $26,400-a-year premium. Plus, their out-of-pocket exposure (in terms of deductibles and coinsurance) is $18,900—every year!
By contrast, this family can buy a high-deductible, short-term plan and fill in the first-dollar expenses with an indemnity plan. The combined annual cost of both plans: $10,800.
There is another benefit. Suppose someone in the family gets sick (cancer, for example), and they are denied the opportunity to renew their short-term policy. They will have to turn to an Obamacare exchange plan. But since the indemnity policy is guaranteed to be renewable, it can travel with them to the exchange. Also, you can buy indemnity plans that cover the entire country—which are ideal for people who travel a lot.
Less-Regulated, More-Useful
The short-term and indemnity insurance markets are booming, growing by leaps and bounds. It’s not hard to understand why.
It is interesting that critics of less-regulated insurance call it “junk insurance” and see Obamacare as the remedy. I suspect that most people would be inclined to reverse that judgment.
Bottom line: let people buy health insurance that meets their financial and medical needs. At the end of the day, if there are any remaining and socially important unmet needs, those should be the limited focus of government.
John C. Goodman, Ph.D. (johngoodman@goodmaninstitute.org) is co-publisher of Health Care News and president and founder of the Goodman Institute for Public Policy Research. An earlier version of this article was published in Forbes. Reprinted with permission.
