A Cautionary Tale About Short-Term Health Insurance

Michael Rainey

The Trump administration is encouraging the sale of short-term insurance plans as a less expensive alternative to the comprehensive plans sold on the federal Affordable Care Act marketplaces. Enrollment in those short-term plans is expected to jump significantly this year, by as much as 600,000.

A story in Bloomberg Businessweek warns of how these plans can play out for unsuspecting customers. 

One example: Florida resident Marisia Diaz, who bought a health insurance plan from a broker employed by a subsidiary of Health Insurance Innovations, a publicly traded company based in Tampa and known by its stock ticker, HIIQ. The plan, which was not ACA-compliant, cost about $400 a month, and Diaz believed it provided about the same coverage as the Aetna plan she had purchased previously, though at a lower price. After her husband had a heart attack, however, Diaz learned that the policy was quite different:

  • It had a $7,500 deductible, with a maximum payout of $750,000.
  • The bill for her husband’s care came to more than $244,000, and the insurance company said it would pay $4,000.

As it turned out, the insurance policy Diaz bought had all kinds of limitations that drastically reduced the potential payout. For example, the $750,000 maximum turned out to be something of a mirage, as Bloomberg Businessweek explains: “It didn’t mean the Diazes’ bills would be covered up to that amount after they paid the deductible; it just meant that if Marisia underwent, say, 150 surgeries, she could get $5,000 for each, leaving her to cover millions of dollars in additional bills.”

Diaz is now suing HIIQ, accusing it of consumer fraud and negligent misrepresentation. The firm denies the allegations, saying it disclosed the limitations of the policy as required by law.

Why it matters: Proponents say short-term plans provide an affordable insurance option, especially for those between jobs. “These plans aren’t for everyone,” Secretary of Health and Human Services Alex Azar said last year as he introduced the new rules. “But they can provide a much more affordable option for millions of the forgotten men and women left out by the current system.”

Critics, however, often dismiss the plans as “junk insurance” since they often provide a much narrower range of coverage than the plans sold under the guidelines established by the Affordable Care Act, leaving customers with enormous bills in the wake of medical emergencies, even as the companies selling the plans book healthy profits.

The bottom line: The full story at Bloomberg Businesweek is well worth a read, especially as it digs into the details of how the seamy side of the short-term insurance industry operates — including the story of a 35-year-old former HIIQ broker who has been accused by the Federal Trade Commission of swindling more than $100 million from customers through the sale of “sham” insurance policies.

Like what you're reading? Sign up for our free newsletter.