5 Myths about Short-Term Health Insurance
With health insurance plans being redesigned under the Affordable Care Act, other forms of medical coverage including short-term health insurance are receiving renewed scrutiny by the press as well as consumers. This is particularly true for those consumers who may face a temporary gap in health insurance coverage due to technical problems with enrollment with the health new health insurance marketplaces.
Historically, short-term health insurance plans were popular with individuals who experience a gap in insurance coverage due to job loss, divorce, or other life events. However, the nature and limitations of short-term health insurance is sometimes misunderstood3 by the public, partly due to the small market presence of these plans and partly due to the lack of widely available statistics on these plans.
Short-term health insurance (otherwise known as temporary health insurance or short-term medical insurance) is a health insurance product considerably different than the new health plans created under the Affordable Care Act. In 15 states, the maximum coverage period of this insurance is 6-months with the remaining states having coverage periods lasting slightly less than a full year.4 Applicants are asked health questions within the insurance application form and the answers weigh heavily on the applicant's chances of acceptance since short-term health insurance can deny coverage based on medical history, pre-existing conditions, or health status. With respect to pre-existing conditions, short-term health insurance can exclude medical claims as a pre-existing condition for injuries, illnesses, or conditions. In some cases, a short-term plan might deny a medical claim as a pre-existing condition where a health plan member had symptoms prior to enrolling in the plan even if he or she did not receive treatment for those symptoms.5
This right to deny coverage is in stark contrast to the new Affordable Care Act health plans. Affordable Care Act plans are 'guaranteed issue' (i.e. they cannot base application acceptance on medical underwriting questions like those used for short-term insurance).
The material below corrects five common misunderstandings about the insurance and the medical coverage it provides.
1. Short-term health insurance is the same as regular health insurance but its coverage lasts for a shorter period of time.
Health insurance has changed under the Affordable Care Act and the difference between traditional health insurance plans and short-term health insurance plans has widened. All health plans compliant with the Affordable Care Act must cover at least 10 Essential Health Benefits and must pay at least 60% of covered medical expenses for a typical pool of enrollees.
Short-term health insurance, on the other hand, is not required to comply with the Affordable Care Act's coverage requirements. Consequently, medical services such as preventive care (e.g. routine physical exams), maternity care, and the treatment of mental illness or substance abuse may be excluded from coverage.
With respect to minimum coverage of medical expenses, short-term health plans are not subject to the same requirements as Affordable Care Act health plans. Additionally, short-term health plans typically do not limit the amount you can pay out-of-pocket for medical services in a year but they may limit the maximum amount the insurer will pay for your medical services in a year (e.g. $1,000,000).
2. Short-term health insurance is accepted by very few doctors.
For short-term health insurance plans that have a pre-determined healthcare provider network, medical treatment by an out-of-network healthcare provider could result in significantly higher out-of-pocket costs. The same holds true for traditional health insurance plans. If you receive non-emergency treatment from an out-of-network doctor or hospital, the health plan may deny payment for the service or require you to pay a higher percentage of the costs than you would have for the same service delivered by an in-network provider.
3. I will be able to sign-up for an Affordable Care Act plan immediately after my short-term health plan expires.
Not necessarily. Since a short-term medical plan does not meet the Affordable Care Act's requirements for health plans, the conclusion of its coverage period does not qualify an individual for a special election period. Accordingly, if your short-term health insurance ends coverage after March 31, 2014 you may have to wait until November 15th to enroll in a plan whose coverage begins the following January. If it ends before March 31, 2014, you would still be in the open enrollment period of The Affordable Care Act and be able to enroll in an Affordable Care Act health plan.
Enrollment in short-term health insurance also prevents you from qualifying for COBRA insurance after the short-term coverage discontinues. COBRA is a program that allows people to pay on their own for group health insurance previously received from an employer.5
It is important to note that short-term health insurance is not renewable. Once the coverage period of a short-term health plan expires, you may have the option of enrolling in a new short-term plan but not renewing your existing plan. Your term limitations can vary by state, for example, Minnesota limits short-term health insurance to no more than 365 days in any 555-day period.6
4. An enrollee within a short-term medical plan can avoid the Affordable Care Act's uninsured tax penalty.
Incorrect. Inasmuch as a short-term health insurance plan does not qualify as creditable coverage under the rules of the Affordable Care Act, enrollees will face a tax penalty for not having health insurance coverage. In 2014, the penalty is the greater of $95 or 1% of adjusted annual income. By 2016, the penalty for the uninsured and underinsured will reach the greater of $695 or 2.5% of adjusted annual income.
Certain groups, such as noncitizens and members of federally recognized Indian tribes, are exempt from the tax penalty. People who are without creditable health insurance coverage for less than three months within a year are also exempt from the penalty.
5. Short-term insurance typically costs the same per month as the new Qualified Health Plans under the Affordable Care Act.
Incorrect. Affordable Care Act health plans and short-term health plans are very different types of health insurance and their respective prices reflect that fact. Since short-term health plans can use medical underwriting to eliminate less healthy people from enrollment, their cost structure can be significantly lower than an Affordable Care Act plan that is guaranteed issue (i.e. no medical underwriting) and cannot reject insurance applicants based on health status or pre-existing medical conditions.
The following is a comparison of premiums for short-term health insurance and an Affordable Care Act Bronze Plan. For a 30 year-old male living in Los Angeles California, a 6-month short-term health plan beginning in late November could cost as little as $86.99 a month. This plan has a $7,500 deductible. In comparison, the least expensive Bronze Plan offered on the California exchange would cost the same applicant $175 per month. However, the deductible for this plan is $5,000. The lowest priced short-term health plan with a $5,000 deductible cost $99.35 per month.
Since short-term health insurance is not regulated by the Affordable Care Act, enrollees are ineligible for premium subsidies regardless of their income level. Affordable Care Act health plans offered through an exchange, in contrast, may provide premium subsidies to those whose income qualifies.
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This analysis was completed by Kev Coleman and contributing author Jeffrey C. Smedsrud, president of Healthcare.com. Correspondence regarding this study can be directed to Kev Coleman, Head of Research & Data at HealthPocket.com, at firstname.lastname@example.org.
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1 Beth Pinsker. "An option for those facing insurance gap." Reuters. (October 8, 2013). http://www.reuters.com/article/2013/10/08/usa-health-shortterminsurance-idUSL1N0HX0R520131008. Last accessed October 25, 2013.
2 See the administration's announcement of measures intended to address potential coverage lapses. Ricardo Alonzo-Zaldivar. “Feds try to smooth bumpy health care transition.” Associated Press. (December 12, 2013). http://bigstory.ap.org/article/feds-try-smooth-bumpy-health-care-transition. Last accessed December 13, 2013.
3 See Lindsay Lyon. "Don't Get Short-Changed by Short-Term Medical Insurance." US News & World Report. (March 11, 2010). http://health.usnews.com/health-news/managing-your-healthcare/healthcare/articles/2010/03/11/dont-get-short-changed-by-short-term-medical-insurance. Last accessed October 25, 2013.
4 The 15 states that have a maximum 6-month term for short-term insurance are: Colorado, Idaho, Indiana, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Montana, Nevada, New Mexico, Ohio, Oregon, and Wyoming.
5 For more detailed information on the COBRA program see http://www.dol.gov/dol/topic/health-plans/cobra.htm.
6 http://www.ag.state.mn.us/Consumer/Publications/ShortTermHealthInsurance.asp. Last accessed February 9, 2015.
7 Premium quote is for HCC's Life Short Term Medical (50/7500) insurance plan with a $7,500 deductible.
8 Premium quote is for LA Care - Bronze 60 HMO plan with a $5,000 deductible.
9 Premium quote is for IHC Group Secure Lite STM 5000 plan with a $5,000 deductible.