What are short-term plans?
Traditional major medical policies offer “comprehensive coverage,” which includes preventive care, physicals, immunizations and possibly dental or vision care. But short-term health plans provide “catastrophic” coverage, such as for emergencies. These plans are effective for people who want coverage for catastrophes, but don’t want to give up other benefits for a lower premium. Basically, short-term policies provide real coverage for individuals in need of temporary health insurance coverage, generally between 30 days and 12 months, and are typically more affordable than traditional individual health coverage.
Short-term plans may be the right choice if you:
- Recently graduated from college
- Young adult no longer covered under a parent’s insurance plan
- An early retiree
- Waiting for other coverage to begin, such as that offered through a new job
- Unemployed or between jobs and don’t want to get on Medicaid
- Temporary or seasonal, laid-off, striking or terminating employee
- Don’t want to wait until the next Open Enrollment Period to get coverage (when there are no restrictions)
Regardless of the reason for purchasing one, these plans are not a substitute for permanent coverage. But research suggests that the number of people applying for noncompliant, short-term health insurance policies increased by more than 100 percent in 2014. Individuals who missed the government’s open enrollment period purchased the majority of these plans. These customers now have to wait for the next open enrollment period, as they required an insurance plan to bridge the gap.
Short-term plans are typically cheaper, but…
Many people opt to purchase a short-term plan for financial reasons. Like traditional plans, they generally offer access to medical provider networks, although out-of-network providers may cost you more. But with major medical health plans, your insurance company handles all of your billing. And, the company and your healthcare provider may even be able to lower the prices you pay.
As a traditional, major medical plan has greater monthly premiums; many people prefer purchasing short-term plans. But there’s a reason that major medical plans cost more — they offer more benefits. Under the healthcare law’s established guidelines, the “metal plans” — bronze, silver, gold and platinum — must cover an average of at least 60 percent of covered medical costs. These plans must also cap out-of-pocket expenses, the amount you pay for covered care. In 2014, these were $6,350 for individual plans and $12,700 for family plans. In addition, these plans can’t cap the dollar amount of your annual or lifetime benefits.
The following chart, compiled by eHealth.com, the nation’s first and largest private online health insurance exchange, compares the monthly premium costs of short-term and traditional plans:
When it comes to short-term plans, the costs (deductibles, copayments) can vary widely. According to a study conducted by HealthPocket, a Sunnyvale, Calif., company that ranks and compares health plans, for a 30-year-old Los Angeles man, a six-month, $5,000-deductible short-term plan would cost as little as $99 a month. Meanwhile, the least-expensive “bronze” plan, one with a $5,000 deductible, purchased through California’s state-run exchange would cost the same man $175 per month.
Unlike ACA-compliant plans, short-term plans don’t have dollar limits on their coverage. With a traditional plan, once you’ve reached your deductible, your insurance company will pay toward a treatment. All ACA-compliant plans sold on and off the Marketplace, as well as Medicaid and Medicare, offer at least ten essential benefits, regardless of costs, and no dollar limit applies.
Short-Term plans do not provide subsidies or ACA tax breaks
With a traditional ACA plan, if you earn less than 400 percent of the federal poverty level (about $46,000 for a single person), you may qualify for a monthly government subsidy. Government research shows that 87 percent of those enrolling through the Healthcare.gov website received subsidies to help offset their premium costs. But no subsidies are available for short-term health plans. ACA plans can also be purchased through government exchange, while short-term plans are sold directly by insurance companies or through brokers or websites.
It’s important to note that short-term health plans DO NOT meet all of the ACA’s benefit standards. That means you and your family could face a tax penalty for being uninsured, even if you’re enrolled in a short-term health insurance plan! Those without coverage in 2015 — for more than three months — could be responsible for:
- An annual fee of $325 per adult and $162.50 per child (up to $975 for a family)
- Or, 2 percent of your household income above the tax return filing threshold for your filing status, whichever is greater. The maximum penalty is equal to the national average premium for a bronze-level ACA health insurance plan.
- And, you’ll pay one-twelfth of the total fee for each full month in which a family member went without coverage or an exemption.
When it comes to short-term plans, don’t think coverage is a given. Even if you’ve been approved for short-term coverage in the past, you’ll need to apply every time you renew coverage. Most companies selling short-term plans limit your coverage to six months at a time. They’ll often limit how many times you can repurchase coverage in a row, as well.
Your medical history may cause you to be declined. For example, pre-existing conditions are not covered by short-term plans. And unlike an ACA-compliant plan, your coverage will be dropped or you’ll be denied payment if you try to receive treatment for a medical condition you didn’t disclose when you purchased your insurance. In addition, if you become sick and need to reapply for coverage under a new short-term plan, you could be turned down.
Another issue is switching from a short-term to a major medical insurance plan. If you want to purchase, or you qualify for a traditional plan, you’ll have to wait for the next open enrollment period. This means you may be subject to gaps in coverage.
If you have a short-term plan, you should know that once your plan expires, you’re not eligible for Consolidated Omnibus Budget Reconciliation Act (COBRA) healthcare payments. And, purchasing a short-term plan also means that you won’t qualify for a Health Insurance Portability and Accountability Act (HIPAA) plan, which provides guaranteed issue individual health coverage.
The catastrophic plan option
If you’re 30 or younger, you may want to consider purchasing a “catastrophic” plan. These plans, which are much less expensive than the ACA’s “metal” plans, meet the minimum essential coverage guidelines. You can also purchase a catastrophic plan if your life situation prevents you from getting health insurance; this is known as a “hardship exemption.” Basically, they’re a defense against worst-case scenarios, like illnesses or serious accidents.
Catastrophic plans typically pay all medical costs, up to the deductible. Once you reach the deductible, the catastrophic plan usually pays essential health benefit costs. Under the ACA, catastrophic plans cover three primary care visits per year at no cost, even before you’ve met your deductible. In addition, they cover free preventive services.
While these plans have lower monthly premiums, you may have to use their services more often costs are covered. Plus, they have very high out-of-pocket costs. And, your income is not a factor when purchasing a catastrophic plan; you still pay the standard price. Buying one of these plans through the Marketplace also prevents you from receiving premium tax credits. Once you fill out your Marketplace application, your eligibility notice tells you what programs and savings you’re eligible for. If you qualify for a catastrophic plan, you’ll see these plans listed when you compare your coverage options.