Is there actually an underinsurance crisis?

November 12, 2020
Sally Pipes

Many Americans do lack access to affordable coverage, but that's largely a function of government over-regulation.

Over two-fifths of adults went without adequate insurance coverage in the first half of this year, according to new research from the Commonwealth Fund. That includes more than 40 million who are "underinsured."

Those headline numbers are scary. They're also misleading. Far too many Americans lack access to affordable health insurance. But that's largely a function of government over-regulation.

Let's start by unpacking what it means to be "underinsured." One of the ways the Commonwealth Fund considers someone underinsured is if his or her deductible accounts for 5 percent or more of annual household income.

That's not much. It's less than the average American family spends on entertainment and eating out each year, according to the Bureau of Labor Statistics.

Are we really facing an underinsured crisis when that "crisis" hinges on less than what we spend on the likes of dinner and a movie?

The definition of underinsured also ignores the role that individual choice may play in purchasing coverage. This year, the average monthly premium for a mid-level silver individual plan for a 27-year-old was $374, according to research from eHealth. The average monthly premium for a less generous bronze plan was $278.

That lower premium typically carries a much higher deductible. The median bronze plan deductible was more than $6,700 this year, compared to just over $4,600 for the median silver deductible.

Our hypothetical 27-year-old may be better off financially with a higher deductible and lower premiums. But that decision could render him "underinsured" under the Commonwealth Fund's rubric, even if he chooses to be so.

Short-term, limited-duration health insurance might be another option for our hypothetical young adult to explore. These plans are exempt from Obamacare's many cost-inflating rules and mandates, including its requirement that policies cover ten "essential" health benefits.

As a result, these plans are far cheaper than most of those available on the Obamacare exchanges. In some cases, short-term plans provide the same level of coverage for half the premium of an equivalent exchange plan, according to research from the Manhattan Institute.

A 2018 rule issued by the Trump administration allows short-term plans to last for up to one year -- and for insurers to renew them for up to three consecutive years.

The Commonwealth Fund, and the leaders of the Democratic Party, dismiss short-term plans as "junk" insurance. Unfortunately, more than half of states agree with them to some extent. In 11 states, such plans are not available at all. Another 21 states have more restrictions on short-term plans than the Trump administration rule envisions.

This is folly. Not everyone wants, or needs, comprehensive coverage. They're simply looking for affordable financial protection in the event they suffer a healthcare catastrophe.


That kind of affordable protection is increasingly unavailable on Obamacare's exchanges. Average premiums for benchmark plans have increased nearly 70 percent since the exchanges opened. The median deductible for a silver plan surged 33 percent between 2016 and 2020.

Without subsidies, most of these plans are out of reach for the average person. It's therefore unsurprising that unsubsidized enrollment in Obamacare plans declined by 2.8 million people between 2016 and 2019 -- a 45 percent drop.

Americans could certainly use some more affordable health insurance options. But government regulations are keeping many of those affordable options off the market. The supposed "underinsured" crisis is one of the government's own making.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All, (Encounter 2020). Follow her on Twitter @sallypipes.

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