Short term health insurance is designed to provide an affordable option while you are moving from one life event to another. This may be a job loss, recent college graduation, divorce or as you age off of your parents’ health insurance. You do not have to be in an open enrollment period to purchase a short term health insurance plan, but the plans are limited to less than three months. In other words, they provide limited, temporary benefits when you can’t afford or don’t want major medical coverage.
Essential Health Benefits
Under the Affordable Care Act, in order for you to claim you have health insurance when you file your taxes, the policy must include 10 essential benefits, which include:
- Outpatient care
- Emergency services
- Maternity care, including during and after labor
- Mental health services
- Prescription drugs
- Laboratory tests
- Preventive care
- Pediatric care, including dental and vision
- Rehabilitative care and equipment
In addition, the policy must cover 60 percent of the average medical costs based on the lowest level bronze plan and provide substantial coverage for inpatient and physician care. Short-term policies don’t include many of these benefits, and they’re not subject to ACA guidelines. That means that if you pick one over major medical coverage, you’ll still have to pay a penalty fee for not complying with the law.
In October 2017, President Donald Trump signed an executive order that encouraged federal agencies to develop new rules for short-term healthcare plans. The administration has asked that the plans be available for up to a year as they were prior to January 2017 and that the plans be renewable. In addition, President Trump wants to allow short term plans to be used to meet the individual mandate set forth by the ACA.
One of the main reasons people choose short-term healthcare plans is the lower premiums compared to the average marketplace plan. A 51-year old could pay as much as $450 per month for a midlevel silver plan through the marketplace. Insurance companies on the exchanges are required to accept any application regardless of previous health history, and the policy must cover the 10 essential health benefits while adhering to other provisions of Obamacare.
A short-term policy for that same 51-year-old could be as low as $100 a month with deductibles between $2,500 and $5,000, similar to ACA plan deductibles. This demonstrates a tremendous monthly savings and indicates why people struggling to afford healthcare may benefit from short-term policies, even if they have to pay a fine when they file their taxes.
One of the biggest problems with short-term policies is that they are not required to provide coverage to anyone who has a pre-existing condition, and insurers can determine the extent to which a medical problem counts as a pre-existing condition. In some cases, you can’t have been treated for certain conditions in the five years prior to taking out the policy. Other policies require waiting periods after a cancer diagnosis, some do not cover prescription drugs and most do not cover substance abuse assistance, support for obesity treatments, LASIK surgery, or childbirth. But if you don’t have a need for any of these services and don’t have a pre-existing condition, then you might prioritize low monthly premiums over a robust benefits package.
Peace of Mind
One of the best reasons to choose a short-term health policy is for the peace of mind it will give you. The policy may be limited, but it will cover some of your medical expenses. This type of plan may protect your financial well-being should an emergency occur, such as a sudden illness or an injury. Although they are not meant to replace traditional insurance, short term plans do provide coverage if you have lost yours due to a change in jobs or a divorce. These circumstances usually allow you to sign up for a new major medical policy outside of the open enrollment period, but you may be unable to afford full coverage immediately. A short-term policy provides you with coverage at a lower premium to protect you should there be an emergency.
Who Benefits from a Short Term Plan?
Short term plans are a good fit for many different people. You might consider one if one of the following situations applies to you:
- You missed open enrollment
- Your traditional health plan won’t start for a while (a waiting period)
- You can’t sign up for a job-based plan yet
- You’ve lost your job recently
- You work seasonally or have odd jobs without access to a group plan
- You’re a college student who can’t enroll on your parents’ policy
- You’re an international student living in the United States
- You don’t qualify for Medicaid or marketplace cost assistance, and even though you won’t have to pay the penalty fee (because your income is too low), you still want some protection in place
- There’s a delay in benefits for Medicaid, Medicare or another government-based insurance plan
- You’re recently divorced and can’t afford major medical right now
- You’re about to age out of your parents’ plan but haven’t started a new full-time job with benefits yet
These are just some scenarios when a short-term policy makes sense. The bottom line is that if you don’t have a lot of health needs or you can save money for them in a savings account and just want minimum protection, temporary coverage could be a good option for you.
According to a report by Kaiser Health News, young people between the ages of 18 and 34 account for more than half of the short-term health policies sold. The majority of people in this age bracket are healthy and don’t feel they need comprehensive insurance. Unfortunately, it is this age bracket that the ACA depends on to keep premiums low in the marketplace. Although some young people are forgoing insurance completely, claiming that the fine is lower than the premiums they would have to pay, some are using short-term policies to protect them should an emergency occur. Many say that the premiums for short-term plans and the IRS penalty are still less than they would pay for a comprehensive insurance plan. For 2017, the penalty is $695 per adult or 2.5 percent of your taxable household income, whichever is higher. This could mean that a 25-year old earning $40,000 could pay a $1,000 penalty, much less than the $5,000 a year in premiums a comprehensive health plan might cost.
Congress and Short Term Plans
The current administration points to the fact that the number of short-term policies sold between 2013 and 2015 increased by 36 percent as proof that consumers want more flexibility in their health insurance. Americans are telling members of Congress that they don’t want to pay for coverage they don’t need, such as maternity care or substance abuse treatment. This has led to a push from Republicans to repeal the rule and the request from President Trump to push for short-term policies that can be in effect for up to a year. There is also a push for policies that offer “a la carte” coverage in which consumers can choose the benefits they want rather than being told what coverage they must have.
There are pros and cons to taking out a short-term policy. A short-term policy does not meet the requirements of the individual mandate, which means you may be required to pay a penalty when you file your taxes. Insurance companies can deny your application based on pre-existing conditions and can add delays for treatment, even if the diagnosis is a serious illness like cancer. However, the policies often have much lower premiums and can bridge a gap between major medical plans. They do offer some protection should an emergency occur and may be beneficial if you are young, just out of college or are between jobs.
It’s important to review all aspects of short-term policies, including premiums, out-of-pocket costs and how much you may have to pay in penalties. Taking these factors and your healthcare needs into consideration will help you find a plan that’s right for you.