Whose Been Coloring Outside the Lines?

I have been watching the battle over the interplay between the Affordable Care Act ("ACA") along with its implementing regulations and the Public Health Services Act ("PHSA") in the Central United Life litigation.  On July 1, 2016, the D.C. Circuit affirmed the federal district court determination  that HHS lacked proper administrative authority to promulgate a regulation applying the ACA's minimum essential coverage rules to indemnity health insurance.  HHS was found, in attempting to limit indemnity health insurance sales to those who were already covered in compliance with minimum essential coverage requirements, to have "colored outside the lines" of its authority in a display of "administrative overreach."

Indemnity health insurance has a few different variants on a motif, but the principle is health insurance coverage that may be capped at a fixed amount for a particular service or for a particular calendar period.  Indemnity health insurance, for example,  may insure an enrollee for $500 a day and no more for hospital services, whatever the actual expense of the hospital services provided. It is, in short, thin insurance and is often — though not always— sold with a more affordable premium than comprehensive or major medical insurance.

Do we know how many Americans are enrolled in such insurance with any certainty? No. One estimate of four million enrollees is probably most useful as the "low" in a "high-low" estimate. 

Do we know the demographics of American enrollees in indemnity health insurance products with any certainty? No.

There does seem to be some consensus that this kind of product might be attractive to a variety of demographic groups. Indemnity health insurance may be  health insurance of first choice for those who are invincible while also being  health insurance of last resort for those Americans in the coverage gap, excluded from  their state's health insurance exchanges because they do not earn 100 percent of the federal poverty level but ineligible for Medicaid in their state because their income and assets are too high. Remember, the indemnity health insurance purchasers of first resort are gambling that their indemnity insurance premiums plus their ACA non-minimum essential coverage fine or tax will be the rational economic choice for their annual health insurance needs. 

The knock on indemnity health insurance, historically, has been that many individuals do not know what they are buying (and what they are not buying) until it is too late. Certainly, the evidence that we are a health insurance illiterate people is strong. But it is also probably true that many low income individuals understand all too well that these indemnity health insurance products as stand alone health insurance are meant to be health insurance of last resort for them.  This group purchases it, in short, because it has no other feasible health insurance option.

Someone wise observed that these products, for this last resort population, represent the pay day loans of health insurance. Indeed, low wage earners are often both unbanked and uninsured.

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