Understanding Short-term Health Insurance
Short-term health insurance plans were intended for people who experienced a temporary gap in health coverage.
These plans may work for some people if they remain healthy and never suffer an accident. However, if they need medical care requiring a trip to the hospital, these plans can be a financial disaster.
What is short-term health insurance?
Short-term coverage is skimpy
The plans cover much less than a traditional plan. It is also not uncommon for these plans to weave in exclusions in a way that most consumers would never notice until they tried to use the insurance.
♦ Short-term health insurance plans offer one thing. They can be much cheaper than normal health insurance one might purchase through the Marketplace. In some cases, up to 80% less.
Some people will think these plans look like a good deal and forget that there is a reason they are less expensive.
♦ People who buy short-term plans in order to reduce their monthly premiums are taking a big risk.
There are many people who have no other choices. Especially, families living in states that did not expand their Medicaid program. Anyone without enough income to qualify for Obamacare is priced out of the market.
♦ Short-term is meant to mean a short period of time. The Affordable Care Act does not control short-term plans. The department of Health and Human Service (HHS) uses rules to restricted short-term plans to 90-days maximum.
The 90-day rule was to discourage people from trying to rely on short-term plans too long. Over a long period of time, the chances are high that a healthy person will develop a health condition that these plans would not protect against.
♦ Rules can be changed. In the summer of 2018, the Trump administration decided do just that. They have changed the rule so that short-term plans no longer need to be short.
The new rules will allow short-term insurance to be up to 364 days initially. The policy can then be renewed multiple times but not to exceed 36 months.
The Association of Community Affiliated Plans, an insurer group, sued to block this change.
July 20, 2019 — U.S District Court Judge Richard J. Leon ruled that the Trump administration had the legal authority to make these rule changes last year.
President Biden called these plans "junk" during the 2020 campaign. But his administration has yet to reverse the Trump-era rule change.
♦ It is easy to overlook an important point, coverage under a short-term policy terminates at the end of the contract term.
To continue coverage beyond that date requires applying for a new policy or under the new rules renewal of the old policy.
The Affordable Care Act guarantees renewability, which means an insurance company cannot refuse to renew a policy even if you have a serious illness. But this only pertains to a traditional plan.
• There is no such guarantee for short-term health plans. However, some plans can now be written to allow renewability without underwriting. These will come with a higher price tag.
Some plans will not be guaranteed renewable, so you must read the find details to know which type you are buying. Without a guarantee, if you become seriously ill you will not be able to renew coverage when the policy ends. But you will be able to apply for health insurance through the Marketplace.
Why some people are not happy?
It is believed that this rule change is really meant as another way to destabilize health insurance markets, while blaming Obamacare.
Repealing the individual mandate penalty and now promoting the sale of short-term plans is expected to result in fewer people signing up for ACA-compliant plans.
♦ Healthier people will be drawn to short-term plans while sicker people must remain with an individual plan.
Insurance companies are unhappy because when risks are spread over fewer consumers their profits could suffer unless they can charge higher premiums.
Higher premiums will hurt everyone that does not qualify for premium tax credits. It will also filter down to small business health insurance.
♦ Patient advocates worry that unsuspecting consumers will be duped into buying worthless policies that end up leading them to financial ruin.
What to know before you buy
When you shop for short-term health insurance you must be very careful.
♦ Short-term health insurance is like stepping back in time to the days before the Affordable Care Act. There are very few rules controlling how insurance companies structure and administer short-term plans.
You are responsible for reading all plan documents. These types of plans are notorious for having a lot of fine print to mask exclusions and weave in pre-existing condition loopholes. This makes it much harder to understanding what is covered and what will not be covered.
Short-term plans cover fewer medical services than typical comprehensive insurance covers. As a result, it is difficult to find coverage that provides benefits that will protects against large health care costs.
♦ The new rules require short-term plans to provide greater disclosure than in the past. But there is no guarantee the information will make it easier to understand what isn't covered.
Short-term plans are not required to provide Essential Health Benefits like plans sold under Obamacare. Very few short-term plans covered prenatal and maternity care, mental health care and drug treatment or prescription drugs.
♦ Short-term plans are not constrained by the Affordable Care Act. Insurance companies can refuse to cover people with pre-existing health problems. They can charge higher prices to people with a health issue or even exclude a particular health condition.
- Insurance companies can refuse you coverage.
- Insurance companies can more easily cancel short-term coverage than is permitted with a traditional plan.
- Older people and less healthy people may have difficulty buying a short-term plan.
- You can be charged more depending on your medical history, age and gender.
- Some policies deny coverage because of a symptom of a condition that you had, even if you did not need to seek treatment for it.
- Your policy can be canceled if the insurer becomes aware of a previously undisclosed condition. Should you experience a serious and expensive health condition you can expect your application and medical records will be heavily reviewed, so be careful.
- Some plans have waiting periods where treatment will not be covered until the waiting period is over.
- Most plans have an annual dollar limit that they will pay. If you become ill and need expensive health care you can easily go over most limits.
- There may be a small dollar per day maximum for a hospital stay.
- Some plans may not cover hospitalization at all.
- Specialist office visit may be limited to a certain number per year, after that you pay all.
- Deductibles and other out-of-pocket costs are usually higher than a traditional insurance plan.
- No plans cover prenatal and maternity care. Planning to have a baby then these plans are not for you.
- Some plans provide limited coverage for mental health care.
- Only a few plans provide drug treatment.
- Coverage for prescription drugs is very rare.
- Many plans do not cover immunization, which should be a concern for a family with small children.
- Short-term plans are famous for exclusions for odd things, like injuries caused by playing a sport like football or baseball.
♦ You have to read the fine print.
Insurance agents want to sell these plans
For the most part, insurance agents and brokers have an incentive to sell short-term plans. It is called commissions.
In 2017, the average short-term plan spent less than 65 cents of every premium dollar on medical care. This is compared to at least 80 cents for an Obamacare plan, which also must refund to enrollees any excess premiums.
In 2019, short-term plans reported spending just 62 cents of every premium dollar on medical care. A few top selling plans actually spent around 35 cents. Those plans paid larger commissions though.
There is no rule controlling profits from short-term plans like there is for Obamacare plans. Because of this a short-term plan can keep nearly half of all premiums to cover overhead and profits.
♦ Agent and brokers can make higher commissions on the short-term plans through shared profits, some paying close to 20%. In comparison, Obamacare plans typically pay a commission of 5%.
However, the math may not always favor short-term plans. If the premium cost is too low the commission from a short-term plan could end up no better than a Marketplace or off-exchange plan. When this happens don’t expect agents to push short-term plans with much enthusiasm.
The HHS rules do not prevent states from putting in place more restrictive rules.
Three states have actually banned theses plans.
• California, Hawaii and New Jersey
Eleven states have either tightened up restrictions or required enhancements making the market unappealing for insurers.
• Colorado, Connecticut, Maine, Massachusetts, New York, New Mexico, Rhode Island and Vermont
All other states allow these plans to some degree. A few allow plans to be written for 6 months with no renewal while others permit renewals of 6 month plans.
♦ Red states of the deep south clapped with glee when short-term plans were given the green light.
Most of these states allow plans to be written for 364 days with as many a three renewal, effectively allowing for 36 months maximum duration.
♦ The system of renewal can be tricked. The insurer can issue a new policy and get around the renewal restrictions the HHS has in place. States that take these plans seriously are expected to put in place their own rules to prevent this.
♦ Former secretary of Health and Human Services (HHS), Alex Azar, talked up short-term plans as a great idea but then added, “These plans aren’t for everyone.”