Short-Term Health Insurance Coverage
This year, a startling 35 million Americans will lose their employer-based health insurance because they lost their jobs due to the coronavirus pandemic. Health Management Associates, an independent research and consulting firm for the medical industry, projects the number of uninsured people could increase to 40 million people, a level unseen since the passage of the Affordable Health Care Act in 2010.
It’s traumatic to lose your job, which not only impacts your ability to earn a living. It can also affect your self-esteem and physical health. Unfortunately, the loss of health insurance can be another unwanted issue in an already stressful situation.
One possible solution, if you are in-between jobs, is short-term health insurance. These policies provide limited, affordable healthcare coverage for you and your family.
What is Short-Term Health Insurance Coverage?
Short-term limited-duration policies are low-cost coverage plans for individuals and families who need temporary health insurance, and who are uninsured. The insurance industry also calls these policies short-term insurance coverage.
Insurers design these temporary plans to bridge gaps in coverage during periods of transition, usually when a person is between health plans and outside of normal enrollment periods. They provide healthcare coverage for people in case they face an emergency.
In states that allow it, most policyholders will have the option to extend their plans twice, which means they can keep these policies for up to three years. Not every state allows the sale of short-term insurance plans. Five areas prohibit these policies, including: California
- New Jersey
- New York
Eight locations restrict the duration of short-term plans beyond federal regulations. They include:
- Colorado and Illinois – These two states limit the duration of short-term insurance plans to six months
- Delaware, the District of Columbia, Maryland, New Mexico, Vermont, and Washington – These areas only allow short-term policies for three months without renewals.
Short-Term Health Insurance Coverage Varies
A common question many people ask about short-term insurance is, “What do these policies cover?” Short-term health coverage differs from regular health insurance plans that don’t impose time limits on policyholders. The federal government allows companies to create their own insurance plans, so these plans offer different levels of coverage depending on the provider, costs and options. One insurer may provide coverage for eye exams, dental appointments and substance abuse treatment, while another company may not offer any coverage for these medical issues at all.
Short-term policies don’t have to comply with the Affordable Care Act (ACA), so insurers can’t list them on the Healthcare Exchange. All marketplace plans must abide by the ACA’s mandated coverage guidelines called minimum essential coverage. These short-term plans don’t need to meet the basic insurance standards.
Are Short-Term Health Insurance Plans a Good Idea for Me?
Short-term plans are not ideal for long-term health insurance coverage, but you can use this coverage when you need temporary coverage.
People usually sign up for these plans in the following situations: You didn’t sign up for the Affordable Care Act (ACA) coverage because you missed the open enrollment, and you don’t qualify for a special enrollment period.
- You lost your job or are in-between jobs.
- You’re waiting for your new healthcare coverage plan to start.
- You just turned 26 years old and are no longer on your parents’ healthcare plan.
- You’re a recent college graduate.
- You aren’t eligible for a tax credit on the Health Insurance Marketplace.
- You’re healthy and under 65 years old.
Insurers will Determine your Eligibility Based on your Health
The American Health Care Act, passed by Congress in 2017, doesn’t apply to short-term health plans. These policies are medically underwritten, except in states that prevent their sale. This means that insurers can reject less-healthy consumers who have pre-existing health conditions.
Short-term policy applications often ask individuals questions about the overall state of their health. For example, the insurer may ask potential policyholders if they are pregnant or planning to be. Do applicants have a chronic disorder like diabetes, cancer, HIV/AIDs or other conditions? Has a doctor diagnosed them with a mental health or substance abuse disorder?
If a person has a pre-existing condition, most companies will refuse to sell short-term policies to individuals. This practice helps short-term plans remain a lower-cost option than regular insurance. Although these plans may be a good fit for healthy people, these plans exclude those individuals who suffer from chronic health issues.
Five Advantages of Short-Term Coverage Options
Why should you consider short-term health insurance? This coverage offers five benefits over traditional plans offered in the federal Healthcare Marketplace. They include the following options:
Offers immediate coverage outside of enrollment periods. These plans allow applicants to obtain immediate healthcare coverage for themselves or their family members. You can apply and pay for a policy, then receive it as soon as the following day of purchase.
Affordable coverage fees - These plans are usually cheaper than ACA-compliant plans. They offer an array of premiums, deductibles, and benefit maximums. Some have low deductibles and high benefit maximums. Although they’re a less expensive option than traditional plans, you shouldn’t only consider the expenses. Think about how much coverage these plans provide for your purchase price.
Enrollment and eligibility – Applicants can complete the enrollment process for short-term plans by answering a few questions about their health. Even if a person doesn’t have a condition mentioned in the questionnaire, most insurers exclude people with pre-existing medical issues.
Increased Durations – In some areas, policyholders can keep a short-term policy up until three years. The insurer may offer an option to lock in a guaranteed renewal for this coverage without additional medical underwriting when the person buys a policy. Most states don’t require companies to offer renewable plans. Understand your insurance policy terms before purchasing coverage.
Flexibility – Short-term insurance plans cover a wide variety of physicians, surgery, outpatient care and inpatient services. Some policies give members the option to select doctors or medical facilities without being subjected to out-of-network costs. Some insurers, however, may offer financial incentives to use in-network providers.
If you need to compare the coverage and pricing options for short-term insurance plans, you can use SmartFinancial’s app to find one that suits you.
Four Disadvantages of Short-Term Plans
There are several drawbacks to using short-term insurance for your healthcare needs. Although they are affordable, these plans don’t provide comprehensive coverage, nor do they cover people who have pre-existing conditions. Policyholders could find themselves subject to post-claims underwriting where an insurance professional analyzes a person’s prior medical history to see if they have pre-existing conditions.
Some consumers may want to avoid short-term coverage for the following reasons:
These plans won’t cover pre-existing conditions. Even if you receive broad-based coverage after you complete the application, policyholders generally don’t receive coverage for pre-existing conditions while enrolled in these plans. They only cover medical conditions that haven’t developed yet. They don’t cover health issues that you already have. These insurers also use post-claims underwriting. It means that the insurer will take you at your word when you enroll in the program, but they will study your past medical history when you file a claim to make sure you were honest and to verify any pre-existing conditions.
They don’t offer comprehensive coverage. These plans don’t cover the ACA’s essential benefits. For example, they don’t pay for preventative care, routine office visits, maternity care, or mental health counseling or prescription drugs (unless you’re in a hospital). Before purchasing a plan, search the policy for any exclusions.
You may be subject to balance billing. Some plans say you can go to any doctor or hospital; however, these are potential red flags that an insurance company uses balance billing. It usually happens when insurers don’t have a provider network, where professionals and hospitals agree that insurers' reimbursement rates are payment in full. This practice causes higher, out-of-pocket costs for patients. If physicians don’t have a contract with insurers, they can bill patients for the unpaid portion.
You could face coverage gaps. Once your short-term plan expires, you won’t be able to purchase insurance on the Healthcare Marketplace if it ended outside of the open enrollment period. When a person loses minimum essential coverage, he or she usually qualifies for a special enrollment period. This situation, however, doesn't apply to short-term insurance, since these plans do not meet the federal government's minimum essential coverage requirements.
How Do Short Term Health Plans Compare to ACA Health Plans
Insurance companies created short-term healthcare plans to fill temporary gaps in coverage. Although they are much less expensive than traditional medical health insurance, they are not great substitutes for this comprehensive coverage.
This coverage is available to purchase all year in many states, as opposed to regular medical plans, which can only be purchased during open enrollment or a special enrollment period triggered by a qualifying event. Additionally, short-term health insurance does not adhere to ACA standards. On the Federal Healthcare Insurance Marketplace, ACA plans must offer ten essential healthcare benefits as mandated by the federal government. This coverage includes:
- Ambulatory patient services
- Emergency services
- Maternity and newborn care
- Mental health and substance use disorders
- Prescription drugs
- Rehabilitation services
- Laboratory services
- Preventative and wellness services
- Pediatric services, including oral and vision care
Additionally, the federal government doesn’t allow short-term policies to be sold on HealthCare.gov or state marketplace websites. When eligible consumers receive marketplace subsidies, they can’t use them to purchase short-term coverage.
Make sure to consider your marketplace premium and cost-sharing you’ll need to pay when comparing short-term options with marketplace ones. People who buy marketplace plans usually qualify for marketplace subsidies.
Cost Sharing for Covered Benefits
Most short-term policies enforce out-of-pocket limits on cost-sharing, however, these fees may not include the total cost of your deductibles or copays. ACA-compliant policies, however, cap all out-of-pocket expenses that consumers will pay for different types of cost-sharing. These include deductibles, co-pays, and coinsurance. In 2020, the ACA capped this limit at $8,150 for a single person.
Another consideration to keep in mind when searching for a short-term policy is if they have a network of providers. If your plan has one, you should only obtain care from their in-network physicians and medical professionals (or seek the highest level of coverage if they are a PPO plan).
You’ll need to seek care in-network to receive coverage for your healthcare expenses.
Duration of Coverage
After the passage of the Affordable Care Act, the Obama administration limited short-term plans to 90 days or less. In 2018, the Trump administration overturned this law, allowing insurers to sell ones that last up until 12 months unless a state limits the duration period. The new guidance doesn’t overturn states’ regulatory authority.
A few states limit these policies to six months or less. Once your short-term health plan expires, your coverage ends.
Some companies allow policyholders to renew or extend coverage. The insurers, however, decide whether they want to approve extensions. People who purchase short-term insurance and get sick won’t be able to extend or renew their policy. If your state has time limits on these plans, you may be able to enroll in a different one. Some people can enroll in up to two policies every year.
If you lose healthcare coverage under your short-term policy, it won’t make you eligible for a special enrollment period (SEP) or to switch to an ACA-compliant marketplace policy. You’ll have to wait until the next Open Enrollment period before you can purchase a new plan.
Limits on Covered Benefits
Short-term policies may have some surface similarities to insurance policies, but they often place limits on coverage. These can include the following limitations:
Limitations on physician visits – Many short-term policies will only pay for a limited amount of doctor visits. (For example, three or four times per policy term).
Covered benefits – Some policies place dollar limits on specified covered benefits, for example, $1,000 a day at an outpatient facility. If these dollar limits apply, your actual charges above this limit will not be covered.
Limits on prescription drug coverage – Short-term insurance carriers can limit which prescription drugs they will cover, and only in specific instances. For example, some companies will only pay for medicines used during hospitalizations.
Excluded benefits – Read your policies to see what conditions they exclude. Some companies will not cover maternity care, substance abuse issues or specific medical issues.
These plans are not available on the Healthcare Insurance Marketplace since they don’t abide by ACA guidelines. They are available through private insurance.
Tips to Keep in Mind When Shopping for a Short-Term Health Plan
If you’re thinking about purchasing a short-term health plan, here are some of the things you should keep in mind. Always read your contract terms to find out what your plan covers.
Learn how much you’ll pay out of pocket. Understand how much of the costs and what percentage of medical expenses you’re responsible for after you pay the deductible. Find out the maximum amount you’ll pay out of pocket.
Check your insurance policy's coverage cap, and understand the total amount of your lifetime maximum benefits.
Ask if the insurance company if it has a network of providers. Make sure that they are doctors and hospitals you would normally use.
If you use short-term insurance instead of COBRA coverage, you’ll be ineligible for COBRA after your plan expires.
Would you like to search for a short-term healthcare policy for yourself or your family? SmartFinancial’s revolutionary technology can help you compare coverage insurance plans and connect with agents in your local area.
You’ll only need to complete one simple application online. We also have a team of trained insurance concierges you can speak with over the phone. You’ll receive multiple quotes from insurance companies within minutes.
Would you like to search for a short-term healthcare policy for yourself or your family? SmartFinancial’s revolutionary technology can help you compare coverage on insurance plans and connect with agents in your local area. You’ll only need to complete one simple application online. We also have a team of trained insurance concierges you can speak with over the phone. You’ll receive multiple quotes from insurance companies within minutes.
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If you lost your job, take a deep breath. It’s not the end of the world by any stretch of the imagination. Many other people are in the same situation you’re in right now, and we will all get through this.
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