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Bloomberg Businessweek September 23, 2019E
arly one Friday morning two years ago, David Diaz
woke up his wife, Marisia, and told her he didn’t feel
right. He asked her to pray with him. Their son called 911,
and within minutes, Marisia was tailing an ambulance down
the dirt road away from the couple’s house on the outskirts
of Phoenix to a hospital in the city. David had had a massive
heart attack.
Before being wheeled into surgery, he whispered
the PIN for his bank card to Marisia, just in case. But the
double-bypass operation was successful, and two weeks later
he was discharged.
On her way out, Marisia gave the billing clerk David’s
health insurance card. It looked like any other, listing a
copay of $30 for doctor visits and $50 for “wellness.” She’d
bought the plan a year earlier from a company called Health
Insurance Innovations Inc., with the understanding that it
would be comprehensive. She hadn’t noticed a phrase near
the top of the card, though: “Short-Term Medical Insurance.”
The Diazes’ plan was nothing like the ones consumers
have come to expect under the 2010 Affordable Care Act,
which bars insurers from capping coverage, canceling it
retroactively, or turning away people with preexisting con-
ditions. But the law includes an exemption for short-term
plans that serve as a stopgap for people between jobs. The
Trump administration, thwarted in its attempts to overturn
the ACA, has widened that loophole by stretching the defi-
nition of “short-term” from three months to a year, with the
option of renewing for as long as three years.
Fewer than 100,000 people had such plans at the end
of last year, according to state insurance regulators, but
the Trump administration says that number will jump by
600,000 in 2019 as a result of the changes. Some brokers
are taking advantage, selling plans so skimpy that they offer
no meaningful coverage. And Health Insurance Innovations
is at the center of the market. In interviews, lawsuits, and
complaints to regulators, dozens of its customers say they
were tricked into buying plans they didn’t realize were sub-
standard until they were stuck with surprise bills. The com-
pany denies responsibility for any such incidents, saying it’s
a technology platform that helps people find affordable pol-
icies through reputable agents.
Six months after David’s surgery, the Diaz family got a par-
ticularly big surprise bill—an error, Marisia thought when she
saw the invoice. But when she called her insurer, she was told
she’d have to pay the full amount: $244,447.91.T
he ACA was designed around a fundamental eco-
nomic bargain: Insurance companies would no longer
be allowed to deny coverage to people who were already
sick, and policies would have to cover a broad set of ben-
efits, including prescription drugs, maternity care, and
hospitalization. In return insurers were guaranteed that
consumers would buy coverage or face tax penalties, and
that subsidies would be available for people who needed
them. The approach spread the financial risk of getting sickand aimed to guarantee that no one with insurance would
have to worry about being bankrupted by necessary care.
Preserving the bargain was essential, though; too many
exceptions, and the edifice would crumble.
When the Republican-controlled Senate failed in 2017 to
pass Trump-backed legislation that would have gutted the
ACA, the administration instead seized on the loophole allow-
ing consumers to buy certain noncompliant plans. Trump
used an executive order to extend the time limit for tempo-
rary plans, which he and other Republicans talked up as a
potential solution for cash-strapped consumers. Healthy peo-
ple, they argued, could save money by buying policies that
didn’t cover perceived nonessentials. “These plans aren’t
for everyone, but they can provide a much more affordable
option for millions of the forgotten men and women left out
by the current system,” Health and Human Services Secretary
Alex Azar said in August 2018.
By then, the ACA system was already wobbling. Aetna Inc.
and some other big insurers had been dropping off the state
exchanges created for consumers to buy compliant plans,
leaving a void that “junk insurers,” as critics tagged them,
rushed to fill. A recent study by Sabrina Corlette, a research
professor at Georgetown University’s Health Policy Institute,
showed that ads for such plans often appeared at the top
of internet searches for the government-run marketplaces.
Health insurance also became the most common product
pitched in robocalls—responsible, according to call-blocking
service YouMail, for 387 million calls this April alone.
One company that moved nimbly to capitalize on the
uncertainty was Health Insurance Innovations, known
by its stock ticker, HIIQ. Founded in Tampa in 2008 by
Michael Kosloske, whose father and grandfather both ran
health insurance brokerages, the company sought to pro-
vide a clearinghouse for brokers who sold cheap insurance
to individuals. It worked with insurers to devise a menu of
plans, designed software for the brokers, and ran a call cen-
ter to handle customer service.
After the ACA passed in March 2010, HIIQ continued pro-
moting short-term plans and other limited forms of insurance
that didn’t have to comply with the new rules for comprehen-
sive plans. In an interview with Fox News a few years later,
Kosloske argued that these policies offered the same benefits
at half the cost. “There’s challenges with the Affordable Care
Act, and we think our products provide a solution,” he said.
The pitch worked, and Kosloske’s company became one
of the biggest players in its niche. When Trump took office,
investors saw potential for expansion. HIIQ’s shares tripled
within two years of his inauguration, making Kosloske’s stake
worth more than $150 million at its September 2018 peak; he
lives in one of Tampa’s swankiest mansions and flies around
in a Dassault Falcon 2000 jet. The company has also paid its
chief executive officer since 2016, Gavin Southwell, at least
$14 million in the role. HIIQ now brings in more than $350 mil-
lion in revenue annually, and it projects that this year will be
its most profitable yet.