Short-Term Health Insurance
Which medical services do these temporary health plans cover? What don't they cover? How much do they cost? Who should and shouldn't buy them? Here are answers to those questions and more.
How much do you know about short-term health insurance? How about temporary health insurance? Or term health insurance?
If your answer is something along the lines of "not much," don't feel bad. You're far from alone.
That said, you and other Americans are sure to learn a lot about short-term health insurance--which also is known as temporary or term health insurance--in the coming weeks and months.
Or at least you're going to hear a lot about these plans. That's because some recent political maneuverings have made them more attractive to insurance companies and brokers than they've been in years.
The question is: should you now find them more attractive, too?
You'll be able to answer that query for yourself after reading the rest of this article.
First, though, let's take a closer look at the "political maneuverings" mentioned earlier and how they may well turn short-term health insurance plans into viable alternatives to so-called Obamacare plans in the months and years ahead.
The Politics of Short-Term Health Insurance
Last December, President Trump signed into law a sweeping tax bill that repealed the Affordable Care Act's "individual mandate" penalty.
Two months later, the Trump administration issued a proposed rule that, if finalized, would allow insurers to sell short-term health plans that are good for up to 12 months. (Current law limits their terms to just three months, after which they have to be renewed.)
Here's some more information about both of these recent political developments and how they might impact short-term health insurance.
Repealing the Individual Mandate and Short-Term Health Plans
What does the repeal of the Affordable Care Act's "individual mandate" penalty have to do with short-term health insurance, you ask?
For starters, that mandate, also known as the "individual shared responsibility provision," requires all Americans to have qualifying--or "minimum essential"--health coverage or pay a fine.
Short-term plans don't count as qualifying health coverage, so if that's all you have, and if you don't qualify for an exemption, the federal government will penalize you come tax time. Or at least it will until 2019.
The new tax law didn't actually get rid of the mandate, by the way. It's still in place. Rather, the new law "zeros out" or eliminates the fine that used to be tied to not having qualifying coverage.
So, even though the Affordable Care Act--also known as the ACA or Obamacare--continues to require you to have a certain amount of health insurance, the government won't fine you if your coverage isn't of the "minimum essential" variety.
In other words, you'll soon be free to buy short-term health insurance without worrying about the IRS breathing down your neck the next time you file your taxes.
How soon? Well, the penalty won't go away until 2019, which means you'll pay a fine if you enroll in a short-term health plan this year and don't earn an exemption from the mandate.
And this fine, or "individual shared responsibility payment," is no joke. For 2017, Americans who neither bought qualified health coverage nor qualified for an exemption had to pay the higher of these two amounts: $695 per adult and $347.50 per child--up to a family maximum of $2,085--or 2.5 percent of their household income. Expect both amounts to be higher for 2018, as the penalty increases each year along with inflation.
The Rule That Could Push Short-Term Plans from 3 to 12 Months
As for the proposed rule mentioned above, it basically reverses--and then some--a rule the Obama administration published a couple of years ago. That 2016 rule limited the terms of these temporary insurance policies to less than three months.
The Obama administration settled on three-month terms for a few reasons. One was that it wanted to ensure Americans continued to use these plans as they were originally intended--as temporary health insurance policies that bridge short coverage gaps. Another was that it was concerned short-term policies were competing with the ACA-compliant policies sold via the federal marketplace or state exchanges.
That second concern might not sound like a big deal, but it is--or it could be if certain predictions come true.
The thinking is that short-term health plans could undermine the Affordable Care Act marketplace by attracting younger and healthier Americans away from it.
Should that happen on a large enough scale, it would cause problems for people who continue to rely on ACA plans. The reason: eventually, most of the Americans buying marketplace policies would be those who qualify for premium tax subsidies and those who are sick.
“If consumers think Obamacare premiums are high today, wait until people flood into these short-term and association health plans,” industry consultant Robert Laszewski told Kaiser Health News earlier this year. “The Trump administration will bring rates down substantially for healthy people, but woe unto those who get a condition and have to go back into Obamacare.”
Laszewski isn't alone in feeling this way about the potential for the Trump administration's individual mandate repeal proposal to throw the health insurance marketplace into disarray. None other than the Congressional Budget Office (CBO) agrees with his take on the situation.
Specifically, in its most recent analysis of the proposed rule, the CBO estimated it would increase premiums in the individual market by 10 percent or more in "most years." It also suggested it would increase the number of uninsured Americans by four million over the next 12 months--and by 13 million over the next 10 years.
Whether or not those predictions come to pass probably won't become clear for some time. What should be clear in short order, however, is the insurance industry's support of the temporary health plans at the heart of this debate.
“We expect to see lots of these plans flood the market,” Betsy Imholz, special projects director for Consumers Union, told Consumer Reports late last year, before adding that insurers like UnitedHealthcare have told investors these changes could create a rich market for them to mine.
The Pros and Cons of Short-Term Health Insurance
The Trump administration certainly seems to think highly of short-term health insurance plans.
In particular, its proposed rule on the subject makes the case that these plans will increase the options available to Americans who need health insurance while decreasing the costs.
Is that true? In a way, yes, but it's not the whole story.
Here are the main pros and cons most experts associate with short-term health plans.
The positives of short-term health insurance:
They usually cost less than Obamacare or marketplace plans. Specifically, it isn't unusual for their monthly premiums to come in quite a bit under the cheapest ACA-compliant "bronze" plan in an area. (To learn more about the different "metal" categories of marketplace policies, read this article: "Which Type of Obamacare Plan is Right for You?")
For example, the Consumer Reports article mentioned above points out that "the cheapest unsubsidized ACA plan available to a 55-year-old man living in Indianapolis costs $563 a month. He can buy a short-term plan through that company for $103 a month."
A few other positives typically tied to these plans, according to uhc.com, is they allow people to:
- get covered quickly, as soon as the day after application
- pick your deductible amount from several options
- drop coverage with no penalty (and even receive a refund on your unused premium
The negatives of short-term health insurance:
They're medically underwritten. That's a short, but awkward, way of saying insurance companies can turn down applicants because of their health status (including those dreaded "pre-existing conditions"), gender, age, and more. Or they can hike up those same applicants' premiums or deductibles--and without limit. Insurers learn about your health status, by the way, while reviewing the health questionnaire you fill out when you apply for coverage.
Speaking of which, no regulations limit how much insurers charge for short-term health plans or how much they spend on care. A good example of how this can impact Americans who buy short-term plans, according to the Kaiser Family Foundation: some short-term plans require cost sharing of more than $20,000 per person per policy period. Obamacare plans can't require cost sharing of more than $7,350 a year at the moment. In other words, even though these plans often come with low monthly premiums, it isn't unusual for them to come with surprisingly high deductibles, copayments, or co-insurance, too.
Short-term health plans don't have to cover the 10 categories of "essential health benefits" Obamacare or marketplace plans have to cover. As a result, most don't help policyholders pay for prescription drugs, preventive care, maternity care, or mental health care. (Do you need insurance that covers these forms of medical care? Read our article about health insurance and preventive care. Or read our article about how to choose the best health insurance plan for your pregnancy. You should find this article--"What Kinds of Mental Health Care Does Health Insurance Cover?"--helpful, too.)
They can cap how much they pay out in a year or in a lifetime. Once again, ACA or Obamacare plans generally can't impose annual or lifetime limits on policyholders. (There are some exceptions for grandfathered plans and medical services that aren't considered essential health benefits.) Short-term health insurance plans can and regularly do impose these limits on the people who buy them, so that's another thing to keep an eye on if you decide to buy one of these plans.
Short-term plans aren't guaranteed renewable. When you buy health coverage from the government-run marketplace or from an insurance company directly, the insurer behind it has to let you renew your policy as long as you continue to pay its premiums. That's not the case with short-term health plans. Their coverage terminates at the end of the contract term. If you want it to continue past that date, you have to apply all over again. Not only can that be a hassle, but it can be stressful, too. After all, if you ever become seriously ill, the insurance company may not sell you the coverage again. (Or if it does, it'll charge you a lot more for it.)
The political maneuverings mentioned at the beginning of this article may improve at least one of the negatives currently tied to short-term health insurance. In particular, the Trump administration's proposed rule that lets insurers sell short-term health plans that are good for up to 12 months would, if finalized, make it so Americans who buy these policies only have to pass the health questionnaires associated with them once a year.
Your insurance company could still turn you down for coverage when you reapply after you current 12-month term ends, but at least you wouldn't have to worry about that three times a year like you do now.
Short-Term Health Insurance Advice
Do you think a short-term health plan may be right for you? Before you go to enroll in one, seriously consider the following advice.
Read the fine print. Or, rather, do your homework and know what you're getting into before you buy a short-term health policy. Don't just look at its low monthly premiums. Look at its deductibles, copayments, and co-insurance costs, too. Look at the kinds of health and medical care it does and doesn't cover. Look at its annual and lifetime caps. All of those components impact not only how much you'll end up paying for a specific policy, but how much (or how little) help it'll be to you during its term.
If you can afford it, you might want to buy an ACA-compliant plan instead. Remember, the whole point of short-term health insurance is that it's supposed to be temporary coverage. It's supposed to help you when you're between jobs--and between employer-sponsored insurance. It's not supposed to replace job-based coverage or Obamacare coverage. As such, and as was pointed out earlier, short-term plans just won't protect you--and your bank account--as much as a plan bought via the federal marketplace or obtained from an employer will.
Don't ignore Obamacare's special enrollment periods. A lot of Americans look at short-term health policies as their only options when they lose employer-sponsored coverage for one reason or another. In many cases, losing or leaving a job--or aging off a parent's plan--makes you eligible to buy marketplace coverage even if that year's Open Enrollment period has come and gone.
Get the best short-term health plan you can afford. As is true of every kind and type of health insurance around, not all short-term policies are created equal. Another way of putting it: some of these plans are much better than others. So, don't assume they all cover the same sorts of health or medical care. And don't assume they all come with the same deductibles, copays, co-insurance charges, or limits. Shop around and fully research your options before settling on a specific one.
Frequently Asked Questions
Q: What is short-term health insurance? Or what do short-term health plans cover--and what don't they cover?
A: Short-term health insurance plans do just what their name implies: they cover people for a short period of time. For now, the law only allows them to cover Americans for three-month terms. If a rule proposed by the Trump administration is finalized, though, they'll be able to provide coverage for up to 12 months.
As for what they do and don't cover, that differs from policy to policy. In general, though, short-term health plans either don't cover, or charge extra for, things like prescription drugs, maternity care, mental health care, or substance abuse care. That's because they don't have to cover the 10 categories of "essential health benefits" ACA marketplace plans have to cover.
This isn't true of all short-term policies, though, so if maternity care, mental health care, or substance abuse care are important to you, do your homework. Shop around. That should help you find a plan that provides the coverage you need.
Also, check out our articles about health insurance and maternity care or mental health care to learn more about those topics. Or read this article of ours: "Will My Health Insurance Cover Substance Abuse Treatment?"
Q: How are short-term health plans different from marketplace plans that meet the Affordable Care Act's "minimum essential coverage" requirement?
A: Here's the short and sweet version of how these temporary health plans differ from marketplace plans:
- Short-term plans usually charge lower monthly premiums than marketplace plans.
- Insurance companies that offer short-term health coverage can refuse to sell it to people with pre-existing conditions. That's not true of insurers that sell plans on the Obamacare marketplace.
- Short-term plans don't always cover prescription drugs or services like preventive care, maternity care, mental health care, or substance abuse care. Or they cover them but charge extra for them.
- The law doesn't limit how much short-term health plans can charge for deductibles, copayments, or co-insurance. As a result, those amounts can be much higher than are typical for job-based or marketplace plans.
- Short-term health plans can impose both yearly and lifetime caps or limits on coverage. Marketplace plans, in particular, can't do this thanks to the Affordable Care Act.
- Short-term plans aren't guaranteed renewable, unlike marketplace plans. This means you have to reapply every three months (or up to every 12 months, if the Trump administration's proposed plan is finalized). It also means the same insurer that sold you your current plan might not sell it to you again if you develop a serious illness during its term.
Q: Who should buy short-term health insurance?
A: You might be a good candidate for short-term health insurance if:
- you're young
- you're fairly healthy
- you can't afford the premiums of other kinds of health insurance plans
- you make too much money to qualify for Obamacare marketplace subsidies
Something to keep in mind here is that you can always fall back on or turn to marketplace coverage if you become seriously ill or need health or medical care that your short-term plan doesn't cover.
You'll have to wait for the next Open Enrollment period to come around before you can switch to a marketplace plan, of course, but that's far preferable to how things played out before the Affordable Care Act became law. Back then, if you bought a short-term plan and then lost it due to an expensive-to-treat disease or illness, you were out of luck. Most other insurers wouldn't touch you.
Insurance companies selling plans on the Obamacare marketplace can't turn down applicants because of such conditions. As long as that continues to be true, those plans will always be an option for people who can't get short-term coverage for one reason or another.
Not entirely sure what kind of policy you should buy? See our article, "Which Type of Health Insurance Plan is Right for You?"
Q: Who shouldn't buy short-term health insurance?
A: You're probably not a good candidate for short-term health insurance if:
- you're older
- you have a lot of health issues
- you rely on insurance coverage for things like prescription drugs, maternity care, mental health care, or substance abuse care
- your income allows you to qualify for Obamacare marketplace subsidies
- you can afford more comprehensive health insurance (such as the types of plans sold through the federal marketplace or sold by insurers directly)
Don't take this as gospel. You may be able to find a short-term health insurance plan that's good for you even if you're no spring chicken or if you have a few health problems.
Be careful, though. Some of these plans look good at first glance, such as when you focus on their monthly premiums. It's only after you start filing claims for various forms of health and medical care that their high deductibles, copays, or co-insurance charges become clear.
You obviously want to avoid that kind of situation if at all possible. To ensure that, thoroughly research the short-term plans that seem most appealing to you. Also, don't be shy about asking the insurance companies selling those policies plenty of questions before you agree to buy one.
Q: How many short-term health plans are available today?
A: It's hard to say how many short-term health plans are being sold right now or will be sold in the future. It's safe to say a lot of them will be made available to Americans soon, if that's not already the case. Thanks to the recently passed tax bill as well as the Trump administration's proposed rule that's discussed throughout this article, these plans are sure to flood the market in the coming months and years.
Although that means anyone who wants one should have plenty of options to consider, it also means they'll have to be careful and not just buy the first they come across. In other words, shopping around will be more important than ever for anyone looking to enroll in a short-term health insurance plan.
- Questions and Answers on the Individual Shared Responsibility Provision
- Healthcare.gov - Qualifying Health Coverage
- Is 'Short-Term' Consumer Reports - Health Insurance a Good Deal?
- United Healthcare - Short Term Health Insurance
- The Obamacare tax penalty isn't dead yet
- Repealing the Individual Health Insurance Mandate: An Updated Estimate
- What Marketplace health insurance plans cover
- What Marketplace health insurance plans cover
- Open Enrollment Period
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