7 Myths about Short Term Health Insurance
Earlier this year, the Trump administration proposed extending the duration of short term policies to 364 days, the limit that existed before 2017 when an Obama administration rule capped these plans to just three months. On August 1st, HHS announced that it was going to reverse the Obamacare rule limiting the duration of short term plans so that people could enroll in these plans for 364 days a year with two consecutive renewal periods. These plans are available on October 1, 2018.
Before the rule expanding the duration of short term plans was finalized and made effective, critics of short term plans argued that people were using these policies as substitutes for major medical plans. The previous administration was particularly worried that temporary health plans were drawing too many young and healthy people out of the Affordable Care Act (ACA) marketplaces and into what they considered “junk” policies instead.
In the ever-changing landscape that is the American healthcare system, the Trump administration wanted to give consumers the option to hold short term health insurance plans for nearly a year so that they could be considered viable alternatives to ACA plans, which are oftentimes too expensive for many families. States would have the freedom to set their own restrictions. Several states already have laws on the books from before 2017 that limit these plans to six months. Critics argue that restoring the limit on short term plans to 364 days would lead to a collapse of the individual health insurance market. Proponents argue that Americans deserve more choices even if that means fewer people end up buying major medical policies.
But wherever you fall on the debate over short term plan limits, one thing is clear: there are lots of opinions and myths surrounding these policies. Ever since the current administration suggested expanding the limits on temporary health plans, dozens of articles have been written decrying this kind of coverage as inherently worthless. Let’s set the record straight on these policies. Here are seven myths about short-term health insurance and the truth behind them.
1 It’s a junk policy that doesn’t cover anything
If you’ve done any research about short term policies, you might have found article after article describing these health plans as “junk” insurance. Critics hate these plans and aren’t afraid to use pretty dramatic language when it comes to discussing the drawbacks of temporary coverage. In fairness to the critics, short term coverage is not as comprehensive as major medical policies. The Affordable Care Act, aka Obamacare, imposed a set of standards for major medical plans sold after March 23, 2010 (when the ACA became law), and these standards make today’s traditional health insurance policies robust and comprehensive.
That’s not the case with short term health insurance, which doesn’t have to abide by ACA standards because it’s not considered major medical coverage. With this kind of insurance, you’re unlikely to find coverage for:
- Preventive tests and screenings
- Routine wellness checkups for you or your kids
- Maternity care before, during and after labor
- Prescription drugs
This is just a short list of benefits that are typically excluded from short term policies. You can see why opponents of these plans critique them, especially when they’re comparing them to ACA-compliant policies, which must cover all of those aforementioned benefits plus a slew of others. But short term health plans aren’t junk. They provide different, albeit fewer, benefits, and they serve a purpose in the lives of millions of people who just need a policy in place for a brief period.
In April 2018, the Kaiser Family Foundation looked at the short term plan options available in major cities in each state. None of the plans they reviewed covered maternity care, but many covered mental health services, substance abuse treatments and even prescription drugs. Nationwide, about 57 percent of the plans that Kaiser reviewed covered mental health services, 38 percent covered substance abuse treatments and 29 percent covered prescriptions.
Some states have access to more robust policies than others. In Connecticut, New Hampshire and Washington, all of the short term policies that Kaiser looked at covered mental health care and substance abuse treatments – although it should be noted that Washington and New Hampshire only had two short term plan offerings each. Connecticut also had the highest rate of coverage for prescription drugs, with 60 percent of its 10 plans covering this benefit. Fifteen states didn’t have plans with any prescription drug coverage, and five states – Massachusetts, New Jersey, New York, Rhode Island and Vermont – don’t offer short term coverage at all.
The bottom line is that short-term health insurance isn’t worthless. It’s not going to cover all of your medical needs, and it’s certainly not a substitute for a full benefits package, but it can be a useful product when you’re in transition or you can’t afford or can’t get access to a major medical plan under Obamacare or from your employer. You should use it with caution and care, but it’s certainly better to have a short term health plan than to be uninsured entirely.
A recent study found that that the average person kept a short term policy in place for a little less than seven months before the Obama administration limited the duration to three months. Just 9 percent of people with short term policies kept them for longer than the max of one year, which they did by reapplying for a new policy once their old one expired. People generally use these policies for their intended purpose, to bridge a gap between major medical coverage. As with anything you buy, understand what you’re signing up for and whether it offers enough benefits to get you through this period in your life.
2 Worse value than major medical
On the surface, short term health insurance looks like a great deal. You can find policies for less than $100 a month, sometimes much less. In 2017, a 30-year-old would pay approximately $79 a month for short term coverage. Those same thirty-somethings would have paid about $362 a month in 2017 for a full major medical plan (silver level) from an Obamacare marketplace. That’s a savings of just about $300 a month. And when you consider the fact that premiums for ACA-compliant policies jumped dramatically between 2017 and 2018 – silver plans averaged $477 a month for 30-year-olds this year – short term policies sound like an attractive and affordable alternative.
Unfortunately, there’s some truth to the myth that these plans aren’t always a good value, especially if you need a lot of medical care. Short term policies cost less because they cover less. Major medical policies must cover 10 essential health benefits by law. These benefits range from preventive care (at no added out-of-pocket cost) to maternity care, mental health counseling, prescription drugs, and rehabilitative services and equipment. Silver-level plans cover you at about 70 percent, meaning you’ll only be responsible for about 30 percent of your medical costs. This plan type is the most popular on Obamacare marketplaces because it strikes somewhat of a balance between coverage and out-of-pocket costs.
Short term policies, on the other hand, don’t have to cover any of the essential benefits outlined by the ACA. As we discussed above, they often exclude more expensive benefits, such as maternity care and pediatric services, because they’re trying to keep costs in check. Temporary health plans are designed to act as catastrophic coverage during brief phases in your life. The premiums are low because the coverage isn’t comprehensive.
Whether something is a good value for you, though, depends on what you need. If you need to bridge a gap between major medical plans, then short term health insurance offers a good option. These plans will likely cover things like broken legs or a sudden illness that lands you in the hospital.
Some have reasonable deductibles, too. You might have to meet a $2,500 deductible first before your insurer pays its share, with a coinsurance rate of 30 percent. A $10,000 hospital bill would cost you $4,750 (your deductible + the coinsurance), saving you over $5,000 versus not having any health insurance at all. By contrast, the average deductible for a silver-level health plan in 2018 was $4,033. With a silver plan, you’d pay about $5,823 for that same hospital stay (nearly $1,100 more than with the short term policy).
Comparing prices isn’t easy. In our example scenario, it seems like short term coverage makes more economic sense. But you do need to consider that deductibles for short term plans only cover the contract period, which is a maximum of three months under current federal regulations. Major medical policies last a year, so depending on the deductible, a short term plan (or series of plans) will require more cost sharing. If you break your leg three times in one year, your major medical policy would only require one deductible for the year. A short term policy might only charge one deductible, but it also only lasts for three months at most. Each new contract would reset your deductible in many scenarios and with many carriers.
All this is to say that short term health insurance isn’t as good of a value as major medical policies, but it’s not an apples-to-apples comparison. ACA-compliant health plans cover a vast array of medical services and don’t discriminate against people with medical problems. As a result, the monthly cost is higher because companies are spreading risk to a wider pool of customers. Short term policies can choose which benefits they offer and the kinds of customers they want, so they cost less up front but may require more cost sharing from enrollees.
3 You have to be in perfect health
You might have read that short term policies cater only to the healthiest customers. This is true only in that short term insurers use medical underwriting to accept or deny applications, but it’s not true in a practical sense. One study found that 13 percent of applicants for short term policies get denied for coverage, which means 87 percent get approved. Insurance companies can deny applicants for short term health plans based on health history, but this doesn’t necessarily mean that you need to be the picture of health to buy a policy.
Insurers primarily screen for expensive and/or chronic medical problems, such as cancer, diabetes, morbid obesity and high blood pressure. These and conditions like them can be difficult and costly to treat, and since you’re only paying premiums for a short time with temporary coverage, there’s not enough time to offset the cost of your care with what the company takes in. Short term insurance customers tend to be young and healthy because these plans attract people who just need a safety net during times of transition. But you don’t need to be in perfect health to sign up, and you may get approved even if you have a peppered medical past – just know that your insurer is unlikely to cover any treatments or services related to your health history.
4 Insurers can drop you at any time
The Affordable Care Act made it illegal for insurers to drop plans arbitrarily. If you don’t lie on your application and you pay your premiums on time every month, then your insurer can’t just drop your plan out of the blue. In fact, even if you miss some premium payments, there’s a whole process in place to make sure the company exhausts all options before canceling your plan.
These rules, though, only apply to major medical insurers. Your short term health plan doesn’t have to adhere to the same federal rules when it comes to cancellations. Insurers can cancel your plans for non-payment, falsified applications or any number of other reasons. But if you’ve bought your plan from a legitimate health insurance company, then your policy should clearly state what the company can and can’t cancel your plan for. Some states even set guidelines for insurers that sell short term plans to make sure that consumers understand their rights and responsibilities when it comes to buying temporary coverage.
Even short term insurers can’t drop you “at any time,” as in completely out of nowhere. You’ll be given notice if your plan is going to be canceled, and you should be told why. The company could decide to stop selling your particular plan, or it might have found some reason to justify the cancellation, such as a health condition that you failed to disclose during the application process.
In any case, you may find yourself without short term health insurance suddenly (even with notice). This does not trigger a special enrollment period like it would if you suddenly lost a major medical policy, but you may be able to apply for another policy – from the same company or a different one – after yours gets canceled. Your state may have limits in place on buying short term coverage, though, so check with your state’s insurance department for more information.
5 No coverage for pre-existing conditions
Insurers that sell short term health plans keep costs low by using medical underwriting to weed out customers with expensive health problems. It’s a practice that was eliminated for major medical plans under the Affordable Care Act. But since short term insurance isn’t bound by the same rules as ACA-compliant policies, these plans can use your medical history against you when you try to enroll. In short, this myth is true for most insurance companies.
However, at least one insurer is rethinking how to cover people with medical problems on short term plans. IHC Group recently created a product that’s designed for people with pre-existing conditions who need temporary coverage. It doesn’t cover much – up to $25,000 for services related to the condition – but it covers more than any other plan at the moment. If these plans prove successful or popular among consumers, other insurers might follow in creating temporary products for people with health problems.
That’s speculation, of course. At the time of this writing, IHC Group is the only company offering a short term health plan that covers anything related to pre-existing conditions. Depending on your medical history, you may not qualify for short term coverage at all. If you do find a plan, it’s not going to cover anything that the insurer deems related to your medical history. There’s also no universal definition of “pre-existing condition,” meaning that insurers make the call when it comes to denying coverage or excluding benefits. Pregnancy, high blood pressure, cancer and diabetes, among hundreds of other conditions, might prevent you from getting a temporary health plan.
There’s also another product from National General Accident & Health called a Guaranteed Issue plan. This type of short term health insurance plan will cover any medical bills resulting from new medical issues, but will not cover any bills related to pre-existing conditions. There is essentially no underwriting approval process for these types of plans, which means you cannot be denied coverage.
6 Only for the young and healthy
Short term policies work best for people who are young and healthy and in transition. If you’ve just graduated college and need to sort out your health insurance options, then you would benefit from a temporary health plan. Other scenarios might include waiting for a major medical policy from your new job to take effect or waiting for Medicare to start once you’ve retired and can’t afford your company’s retiree benefits. But as in the case of a 64-year-old who can’t enroll in Medicare yet, short term health insurance isn’t limited to just the young and healthy.
It’s true that these plans don’t cover a lot of expensive health problems and routine screenings, which make them a poor value for people with chronic medical conditions. But few people have zero health problems. You might struggle with seasonal allergies, for instance, or suffer from migraines. These conditions may or may not exclude you from short term coverage. Individual insurers can decide which health problems they consider to be uninsurable and for which issues they’ll deny claims.
That doesn’t mean that short term health insurance is limited to a specific population. We do want to be clear here: temporary health plans should not replace major medical policies if you need the benefits that an ACA-compliant plan offers. People with diabetes, high blood pressure, cancer and any other chronic medical issue won’t get much use out of a short term policy as it relates to treatments and care for those issues. However, if those people are looking for coverage to bridge a gap and protect themselves from new, costly medical emergencies, then a short term plan may serve a purpose to them as well.
But if you need temporary coverage for a transitional period, can’t afford the premiums for major medical plans or just don’t want the comprehensive benefits that an Obamacare plan affords, then short term coverage may work for you, regardless of your age and (sometimes) your health status. Just make sure to read the terms of any health plan (major or short term) carefully to see what’s covered and what’s excluded.
7 It’s all just a scam
You might assume that the only companies selling short-term health insurance are small or sketchy, a myth that’s likely generated by the reputation of the product itself. Actually, several big insurers sell short term plans. These include well-known entities and major players, such as Blue Cross Blue Shield, National General Accident & Health and UnitedHealthcare. If you buy from a licensed seller, you shouldn’t have a problem finding a legitimate policy.
With that said, it’s important to keep your eyes wide open when buying short term health insurance. Not every private marketplace is legitimate, and not every business online is selling a real product. You should also know the difference between short term medical insurance and a discount health plan. The former is a real form of health insurance that, while different and less comprehensive than major medical, does cover benefits like traditional insurance – a set monthly premium and set rates for copays, coinsurance and deductibles.
The latter, a medical discount plan, may not cover anything. There are real forms of these plans, and you can buy them from bona fide insurers, but these plans are often little more than fronts for scam artists hoping to steal your personal information or profit off of consumer gullibility. Here are a few red flags to watch out for:
- Deals that sound too good to be true
- Lack of specifics, including plan details and costs
- Hard or pushy sales tactics, or a sense of urgency that you must “buy now”
- Consistently bad reviews from independent consumer websites
A genuine insurance company, broker site or private health insurance marketplace should be able to answer your questions, provide you with details on the plans you want to buy, and give you time to make a decision about your coverage. You can also find information about licensed insurance companies in your state by visiting the website for your state’s insurance department.
Short term health insurance isn’t inherently fake or fraudulent. Plenty of major and smaller insurers sell real products designed to meet temporary needs. Do your research, ask questions and keep your personal information safe while you shop for a health plan.