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Short Term Health Insurance

Shopping for health insurance can be difficult enough when you need major medical coverage, but if you’re looking for temporary protection while you’re in transition, it can be even more daunting. For these and other special situations, there’s short term health insurance. As its name suggests, short term insurance is temporary medical coverage. These plans cover a specific range of medical treatments and services, last for short increments of time and don’t have to meet the requirements of the Affordable Care Act (ACA). In 2014, there was an upswing in the purchase of short term policies, primarily from young adults aged 18 to 24. That upswing has lasted well into 2016 with insurers continuing to see a substantial increase in sales of temporary policies.

Please Note That Further Down The Page You Can See Some Examples Of Real Life Examples Of How Obamacare Plans Compare To Short Term Health Insurance Plans.

From WSJ:

  • 147,000 people applied for STHPs in 2015 on eHealth.com
  • 51% of people cited price as the reason | 39% for temporary coverage (eHealth)
  • HealthMarkets Inc. saw 150% increase in sales from 2013-2015
  • More insurers are advertising and offering short term plans

When you buy a short term health plan, you can choose the length of coverage that you need, typically from 30 days to 12 months. With short term policies, as with major medical plans, beneficiaries typically have copayments, coinsurance and deductibles. Copayments are a set of fees for specific services, such as $20 every time you see the doctor for an office visit. Coinsurance is a percentage of the total bill that you pay, and a deductible is the amount that you have to pay before your insurer starts paying its share.

You’ll also have an out-of-pocket maximum, which is the highest amount that you’d be expected to pay for a medical claim. Short term plans typically have low monthly premiums, high deductibles and variable out-of-pocket maximums. By contrast, major medical plans under Obamacare have an annual cap on out-of-pocket maximums. In 2016, it’s $6,850 for individuals and $13,700 for families. Short term policies also put a cap on how much an insurer will pay in claims. Under the ACA, major medical plans can’t put a cap on benefit payouts.

Short term plans are designed to bridge the gap between major medical coverage, which is how they’ve traditionally been used. With the ACA in full swing, more and more consumers are turning to short term policies as an alternative to buying major medical insurance. Short term plans may have some significant drawbacks, but they actually offer good protection in certain situations. If you need a temporary solution to medical insurance, then short term policies may be right for you. But before you sign up, understand what it is you’re buying.

How Short Term Plans Work Compared To Obamacare Plans

The Affordable Care Act changed the landscape of modern American healthcare in many ways, but one of its primary goals was to ensure that Americans could buy affordable coverage regardless of pre-existing medical conditions or their ability to pay. Obamacare guarantees that all new major medical plans sold today – whether through the federal or state exchanges or the private market – must offer ten essential benefits. These include:

  • Outpatient care
  • Preventive care
  • Lab testing
  • Emergency room visits
  • Hospitalization
  • Prenatal and maternity care
  • Prescription drugs
  • Mental health services
  • Rehabilitative care, including equipment
  • Pediatric services, including dental and vision for kids

If you enroll in a health insurance plan on the marketplace or through a private broker, your plan will cover these and other benefits. You also can’t be denied a plan based on a pre-existing condition – a process known as “guaranteed issue.” Essentially, today’s insurers cannot discriminate when offering health plans if those plans are ACA-compliant.

Short term health insurance policies do not qualify as ACA-compliant plans. They don’t offer the same rights and protections, and they don’t have to cover the same medical services and treatments. There are still grandfathered major medical plans available today that also lack the same coverage options as new policies. Short term coverage has always been designed to act as a temporary solution, not long-term protection.

Not only do short term policies not count as ACA-compliant plans, but you’ll also still be responsible for the penalty fee under Obamacare if you choose to enroll in a short term plan over major medical. Under the ACA, people without qualifying healthcare coverage have to pay a fee – called the shared responsibility payment – for every month that they don’t have coverage in a given year, minus a three-month allowance. Short term coverage does not meet the requirements under the law.

Catastrophic coverage exists on the Obamacare marketplace, but it’s not the same as short term health insurance, although they do share similar features and goals. Catastrophic coverage is a limited type of policy for adults under the age of 30. It covers catastrophic events, and it counts as ACA-compliant insurance. Short term coverage, on the other hand, covers limited medical treatments and services, and it’s not sold on the Obamacare exchanges. It does not count as minimum essential coverage under the ACA.

Comparing Catastrophic Health Plans Against Short Term Health Insurance

Catastrophic Short Term Plans
Meets ACA minimum coverage requirements Does not meet ACA requirements
Only for adults 30 or younger All adults until Medicare age
High deductibles, low premiums High deductibles, low premiums
Primarily for ER care Primarily for ER/unexpected care
Can get cost assistance Cannot get cost assistance

The new law also set deadlines each year for signing up for health insurance. While some private companies may still follow their own schedule, for the most part, private industry has followed the government’s lead in setting enrollment deadlines. For coverage that starts in 2017, for example, enrollment lasts from Nov. 1, 2016, through Jan. 31, 2017. This is the only time of the year when you can buy coverage or make modifications to existing plans unless you qualify for a special enrollment period.

Typically, special enrollment periods are intended for people who:

  • Lose job-based coverage
  • Get married, have a baby or get divorced
  • Move or gain citizenship
  • Experience some other significant life change

Special enrollment periods start from the day that the issue starts – your termination date, for instance – and last for 60 days. During that time, you won’t have any health insurance coverage, so getting short term insurance makes sense in this situation. You can sign up for a two-month policy that ends when your major medical starts, and that way you’re covered should something happen during the interim.

Outside of the open or special enrollment periods, you don’t have much choice but to wait until you can get covered, so if you miss the special enrollment deadline or simply choose to skip enrollment for the year, you’ll have to pay the penalty fee if you go for more than three consecutive months without health insurance. Short term coverage doesn’t prevent you from being charged the fee, but it will protect you from paying out of pocket if you need medical care, such as an ER visit.

When Short Term Health Insurance Plans Make Sense – and When They Don’t

For many people, short term insurance is the answer to the question of what to do about health insurance when there’s a gap in coverage. But as with any product, there are certain types of people who would never benefit from signing up for short term insurance. Here are a few common reasons not to get short term coverage:

  • Pregnancy: If you’re pregnant, you should opt for major medical coverage if it’s available. Short term coverage does not typically cover maternity care. Plus, some companies consider pregnancy a preexisting condition, so you may be denied a plan anyway. The ACA dictates that major medical plans that are sold today must cover maternity care – before, during and after delivery. So check out the marketplace or contact a broker for more information on qualifying plans.
  • Preexisting conditions: People with preexisting conditions – which could be anything that you’ve received treatment for or anything that existed prior to the date of coverage, regardless of treatment or not – should not buy short term coverage. Preexisting conditions could include chronic back issues, heart disease, high blood pressure, Crohn’s disease, IBS or diabetes, among other issues. Short term insurance does not usually cover preexisting conditions. You may find a rare plan that does, but its cost would most likely be comparable to what you could find on the marketplace with subsidies, so you’d be better off going with major medical.
  • Costly or multiple prescriptions: If you need a lot of prescriptions or take a particularly costly brand name medication, then short term plans may not be right for you. Many short term policies don’t cover outpatient prescriptions. And while lots of retail pharmacies offer low-cost generics, these discounts won’t help if you take several prescriptions a month or need brand name drugs that don’t have a generic equivalent.
  • Families with kids: Short term plans are available for families with children, but temporary coverage isn’t designed to replace major medical insurance. Kids need a lot of routine checkups when they’re young, especially as babies. Since short term plans have high deductibles, you could end up paying a lot out of pocket vs. a major medical plan. Short term insurance works best for individuals or couples who don’t need a lot of coverage in the first place.

Short term insurance doesn’t work for everyone, especially those with significant health problems. These aren’t the only examples of when a short term policy wouldn’t be appropriate. So before you sign up, discuss your options with your spouse, family or insurance broker to see what works for you. Costs vary widely in both short term and major medical plans because insurance coverage depends on your situation – your income, your age, whether you have kids and your medical history, among other factors.

Major medical plans can’t discriminate based on medical history since they’re guaranteed issue, but short term plans can. Below, we’ve outlined some scenarios to give you a better sense of the costs, benefits and disadvantages to certain types of plans. The estimates are based on short-term policies found via HealthNetwork.com and the marketplace estimator on HealthCare.gov, and all of the sample households live in Allen County, Indiana.

Real Life Examples Comparing Short Term Health Insurance Against On Regular Major Medical Plans

Household #1: A single woman without kids.

Stephanie Clark is a single woman of 24 without any kids. She doesn’t smoke, and she doesn’t have a history of medical problems. Stephanie just landed her first post-college job and has moved out of her parents’ home. She will earn around $32,000 a year.

Stephanie has several options for coverage. She could sign up for major medical with her employer, or she could enroll in a cheaper short term health plan because she’s young, healthy and single. Since her employer-sponsored plan won’t be available for a few months, and the open enrollment deadline has passed for 2016, she may need temporary coverage. Here’s an example of what Stephanie might pay for insurance:

Plan type Premium Deductible Copay / Coinsurance Out-of-pocket max Duration
Short term $110.44 $2,500 $50/50% $5,000 12 months
Silver major $247 $2,500 $50 primary $6,350 1 year
  • The fee for 2016 is $695 or 2.5 percent of a person’s annual income. After the tax filing threshold, Stephanie would owe $546.25 ($21,850 x .025 = $546.25, which is lower than the flat fee of $695). But the flat fee is greater, so she would be charged that rate.
  • The difference in the fee is $57.92/month ($695/12)
  • Even with the added cost of $57.92, a short term plan still saves about $79. ($110.44 + $57.92 = $168.36 | $247 – $168.36 = $78.64)

Based on numbers alone, Stephanie saves about $79 a month by choosing a short term health policy over major medical coverage, if we assume that she signs up on the marketplace instead of enrolling in an employer-sponsored plan. Stephanie’s short term plan doesn’t cover many of the same things that a major medical plan would, such as routine visits, but she may sign up for insurance once she’s eligible at her new job. In the interim, short term coverage makes sense for Stephanie.

Household #2: A single man with one kid.

Teddy Green just turned 24, but he has a child of his own and hasn’t been living with his parents since he moved out at 18. He works full time at a local bakery during the week while holding down a part-time entertainment gig with his friends on weekends. He earns around $37,000 a year. Between two jobs and the responsibility of raising is six-year-old, Teddy has developed high blood pressure. He doesn’t smoke, but he’s not particularly concerned with nutrition in general.

Teddy’s son is covered under CHIP, so Teddy doesn’t think that insurance is worth the cost for himself. Neither employer offers health insurance. Teddy’s parents point out that he needs medical coverage of some kind so he can take care of his son, so he decides to shop around for a cheap, basic policy. Here’s one insurance scenario for Teddy:

Plan type Premium Deductible Copay / Coinsurance Out-of-pocket max Duration
Short term $128.95 $15,000 $50/50% $10,000 (5k/person) 12 months
Silver major $215 $4,000 $10 primary $4,000 1 year
  • After the tax filing threshold, Teddy would owe $671.25. ($26,850 x .025 = $546.25, which is lower than the flat fee of $695). The flat fee is greater in his case.
  • The difference in the fee is $57.92/month ($695/12)
  • Even with the added cost of $57.92, a short term plan still saves about $79. ($128.95 + $57.92 = $186.87 | $215 – $186.87 = $28.13)

Assuming that Teddy could get a short term plan that covers the preexisting high blood pressure, he would pay less for short term coverage by about $28 a month. Teddy doesn’t have to worry about his son because of CHIP, a program that covers kids of families whose incomes are too high to qualify for Medicaid or cost assistance on the marketplace. And since Teddy doesn’t go to the doctor often and leads a low-risk lifestyle, he may be able to get away with a short term plan until his employer offers coverage. He’ll have to decide whether the $28 difference is worth full medical benefits.

Household #3: A couple without kids.

Henry and Lydia Thomason are in their mid-40s and have no kids. Henry teaches middle school French, and Lydia works as a hairstylist in a trendy boutique. Together, they earn about $73,000 a year. They don’t smoke and generally take good care of their health, but Henry has type I diabetes. He needs insulin injections, cholesterol medication and a daily aspirin as part of his routine health regimen.

The Thomasons need coverage that includes Henry’s prescriptions. Some short term policies may cover some prescriptions, but his selection may be limited depending on the plan he buys. Lydia’s work doesn’t offer benefits because it’s a small employer that isn’t subject to the new rules for employer-provided coverage. Henry can get insurance through work, but it would be expensive for him to add Lydia to his plan. Here’s what the Thomasons could pay for insurance:

Plan type Premium Deductible Copay / Coinsurance Out-of-pocket max Duration
Short term $226 $20,000 $50/50% $10,000 (5k/person) 12 months
Silver $297 $5,000 $30 primary $20,000 (5k/person) 1 year
  • After the tax filing threshold, the Thomasons would owe $1,317.50 ($52,700 x .025 = $1,317.50). The per-person flat rate is higher at $1,390.
  • The difference in the fee is $115.83/month ($1,390/12).
  • With the added cost of $115.83, a short term plan doesn’t justify the significant loss of benefits. ($226 + $115.83 = $341.83 | $297 for medical is cheaper)

For the Thomasons, a short term plan doesn’t make economic sense when a major medical plan only costs $71 more on the marketplace. The deductible is much lower for them with an exchange plan, and Henry would have his prescriptions covered. Plus, a major medical plan on the marketplace includes vision coverage, an added bonus for a couple in their 40s.

Household #4: A family with two kids.

For Dave and Fiona Garrison, life isn’t always easy. In their early 30s, the couple has twin toddlers, and both Dave and Fiona work third shift at a local hospital. Dave is a custodian, and Fiona works as a unit clerk for the emergency room. Between them, they earn around $52,000 per year. Neither smokes nor has any major health problems, but their children are prone to accidents.

The Garrisons’ salary might seem low, but their income is actually closer to the national average for a modern American family. The hospital where they work offers insurance, but it’s a grandfathered policy that doesn’t cover as many benefits as the new major medical plans. Dave and Fiona would qualify for cost assistance on the marketplace. Here’s what their health insurance situation might look like:

Plan type Premium Deductible Copay / Coinsurance Out-of-pocket max Duration
Short term $296.64 $7,500 $50/50% $20,000 (5k/person) 12 months
Silver $325 $3,000 $20 primary $10,400 1 year
  • After the tax filing threshold, the Garrisons would owe $792.50. ($31,700 x .025 = $792.50). The flat fee is greater in his case: ($695 x 2) + ($347.50 x2) = $2,085.
  • The difference in the fee is $174/month ($2,085/12).
  • The difference between a short term plan and major medical is only $28.36.

Without the premium tax credit that the Garrisons would get on the marketplace, a short term policy would save them about $62 a month. But because the tax credit reduces their premium to $325, major medical coverage is a good choice. Add to this the fact that they have kids who will most likely need a lot of care over the years, and it’s more practical for Dave and Fiona to buy insurance through the exchange, especially given the substantially higher deductible on the short term plan.

Benefits and Drawbacks of Short Term Health Plans

As with any health insurance plan, there are pros and cons to signing up for short term coverage. These plans can and do work for many people who need temporary protection, but you should know that there are limitations. We’ll start with the drawbacks:

  • Short term plans do not meet the minimum essential coverage requirement under the Affordable Care Act. As a result, they don’t have to offer the same rights and protections, and they won’t prevent you from paying the non-compliance fee if you don’t have major medical insurance. Or put another way, you are still going to get hit with the tax penalty for not having health insurance that meets the essential minimum standards for coverage.
  • It’s unlikely that you’ll be approved for short term coverage if you have a preexisting condition, and what counts as a preexisting condition is left up to the insurer’s discretion – it could include conditions that are unfortunately very common, like diabetes, heart problems and even pregnancy. You can also be denied coverage for any health issue that the insurer finds problematic, and you might be dropped from your plan if you withhold that information on the application.
  • Short term insurers are trying to keep costs low, so they may deny you on any other reason that they deem appropriate; these plans aren’t regulated like major medical plans under the ACA.
  • Short term health insurance is nonrenewable. Even if you like the plan that you buy, there’s no guarantee that the same plan will be available once your coverage period ends. The insurer has no incentive to offer the same plan either, so you’ll have to shop for a new one each time.
  • For people who might be eligible for HIPPA or COBRA coverage, short term plans may disqualify you from taking advantage of these options.
  • There’s no cost assistance for short term health insurance plans like there is for major medical plans on the ACA marketplaces.
  • While many healthcare providers do accept short term policies, you may be limited to a very specific network of providers. Once outside the network, you may not be eligible for provider discounts or any other benefits like you would be with certain types of major medical coverage.

In reviewing the list of drawbacks, it may seem that there’s no real reason to sign up for short term coverage. However, there are several good reasons to opt for short term protection, namely for people who need a temporary solution to the issue of insurance. Here are some positive points in favor of short term insurance:

  • It’s extremely affordable compared with major medical plans. Because short term insurers don’t have to calculate the risk associated with a pool of potentially costly beneficiaries, they can offer deeply discounted rates on premiums.
  • Short term protection bridges the gap between insurance plans. If you lose your job, age out of your parents’ insurance plan, travel through an out-of-network area or miss out on the open enrollment deadline for Obamacare, short term insurance will cover you in case of an emergency or unexpected medical problem.
  • You can choose the length of your plan, from 30 days to a full year, depending on the carrier. Some states restrict short term plans to six months or less, but most states allow insurers to offer short term policies of up to 12 months.
  • While most short term plans do not cover preventive care, nearly all temporary plans cover basics like trips to your doctor if you’ve got a cold, emergency room visits and hospitalization. Having a temporary plan in place can give you peace of mind.
  • Unlike with major medical insurance, you can enroll in a short term policy anytime throughout the year. Plus, the process is quick, simple and convenient since many companies offer online enrollment. Coverage can start as soon as the day after your application is accepted.

Pros and Cons Of Short Term Health Insurance

Pro Con
Good for transitions (bridges a gap) Does not meet ACA requirements
Can pick length (30 days to 12 months) Can be denied or dropped based on preexisting conditions
Affordable No cost assistance
Covers emergencies and hospitalization Disqualifies from HIPPA/COBRA
Covers sick visits to primary care doctor Nonrenewable
Can enroll anytime Potentially limited network
Cheaper than paying ACA fine (sometimes) Little to no coverage for preventive care

Now, let’s say that you have access to both major medical insurance and short term insurance. Thanks to the ACA, this is a likely situation. Should you go with major medical over short term coverage? Or would it be better to choose a short term plan if you have no major health issues? Here’s some information that may make things clearer:

  • First and foremost, there’s no substitute for good preventive care. Preventive medicine keeps people healthier in the long run. Short term plans usually don’t cover preventive visits, like routine health screenings, because they’re designed to act as stand-ins for major medical coverage.
  • Despite the fact that short term coverage isn’t a good substitute for preventive services, it does serve an important purpose. During times of transition – starting a new job or graduating from college, for example – short term plans will bridge the gap until major medical kicks in. If you break your leg while you’re waiting for a new employer-sponsored plan to take effect, you may be responsible for the full cost of your treatment during the interim unless you have a short term policy that covers unexpected emergencies.
  • In some cases, it’s cheaper to buy short term health insurance and pay the ACA penalty fee than it is to pay for a monthly premium on major medical plans. For young, single adults without major health issues, a short term plan could be enough coverage, and it might be cheaper than a catastrophic plan on the marketplace.

Only you can decide what kind of healthcare coverage will fit your and your family’s needs, but it’s important to review all of the facts when it comes to short term insurance before dismissing it as “junk insurance.” Major medical covers more services and treatments, and you’re guaranteed protection even with preexisting conditions, but there are circumstances in which short term coverage makes economical and practical sense.

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