What are the Limitations of Short Term Plans?
If you’re facing a gap in health insurance coverage, a short term plan can help you get by. These plans are useful in certain situations, but they come with limitations that major medical plans aren’t allowed to impose. It’s better to learn up front what caps and exclusions you should expect with temporary health insurance than to end up surprised when a bill for non-covered services shows up in the mail.
The Affordable Care Act outlines 10 types of essential health benefits that all major medical plans must cover. These include emergency services, prescription drugs, lab work, preventive care, maternity care and mental health services, among other benefits.
Because temporary plans don’t currently fall under the scope of the ACA, they don’t have to meet these minimum standards and can exclude as many of these benefits as they choose. Exclusions help keep premiums low, so many plans leave out a number of services. Some of the most common exclusions are preventive care, maternity services and coverage for mental health needs, including counseling sessions and substance abuse treatment. Many temporary plans also restrict coverage for prescription drugs. Even if a plan does include some pharmacy services, these may be subject to a separate deductible or maximum payout than the other benefits covered by the plan.
Furthermore, most short-term insurers won’t provide coverage for any health concerns that arose before you bought the plan. If you’ve received treatment for a condition within the last few years or experienced symptoms during that time, the insurance company is unlikely to pay for any related care. Some companies go back as far as five years into your health history to determine which conditions they consider pre-existing. And if you have pre-existing conditions, you may not find an affordable short term plan at all.
If you do have a pre-existing condition, there are a couple options if still want a short term plan, but beware that there are strings. First, there is a short term plan from National General Accident & Health called a Guaranteed Issue 3500 plan and it will give you coverage even if you have pre-existing conditions, but it will not likely cover any medical bills related to those conditions. The second option for people with pre-existing conditions who want a short term medical plan is the IHC Connect Plus plan. This plan does cover a set dollar amount of medical bills related to pre-existing conditions.
Many short term health plans have a network of healthcare providers. Care that you receive from in-network providers is usually covered at a higher rate than out-of-network care. This is not unique to temporary health plans, of course. Most standard insurance plans operate in a similar fashion. However, you may find that your short term plan’s network is more restrictive than those of the major medical plans that you may have had in the past. Some companies boast broad networks as a selling point for temporary coverage, but you’ll need to read the fine print carefully to make sure your providers take the insurance.
Some of the most bare-bones temporary plans may offer no coverage at all for out-of-network care. Receive treatment from a provider who’s not in your plan’s small network, and you could end up footing the entire bill yourself. This is true of major medical policies under the HMO category as well.
The ACA put a stop to insurance companies’ ability to cut you off after you’ve received a certain dollar amount in benefits from them, whether over the course of a year or a lifetime. With ACA-compliant plans, you don’t have to worry that you’ll max out the amount that your insurance company is willing to pay for essential services if you get in an accident or become seriously ill.
Temporary plans aren’t subject to this regulation. Almost all include a provision that benefits will end at a certain level. This limitation usually applies to the specific term of the policy, but insurance companies may also set a lifetime maximum for people who buy new plans each term.
You have a short term insurance policy with a $10,000 deductible, an 80/20 coinsurance ratio and a benefit cap of $250,000. You get diagnosed with a serious illness that requires several weeks’ worth of care at your hospital. Costs add up to $150,000, and treatments are covered by the plan since the illness wasn’t tied to a pre-existing condition. Based on your plan, you’ll pay $10,000 for the deductible, then another $28,000 (20% of the remaining total). Your insurer picks up the rest of the bill ($112,000). That leaves just $138,000 for your benefits cap. That might sound like a lot, but since one illness incident used up about half of your cap, you can see how a lower benefits cap could create some financial problems, especially if you end up breaking your leg or needing unexpected surgery within the same benefit term. Anything beyond the benefits cap would be your responsibility at 100 percent.
Fortunately, not all short term insurance plans have such a low maximum benefit. You may be able to find a plan that sets the threshold as high as $2 million. Higher caps on benefits and lower deductibles usually mean higher premiums, so do the math carefully when signing up for a policy.
One other note: In the example scenario, you were responsible for $38,000 in medical bills based on your deductible and coinsurance rate. To make the math easier, we assumed that this plan had no out-of-pocket cap in place. Some short term policies from some insurers include limits on how much you’ll have to pay out of pocket for medical care. These limits may be much higher than the limits in place for major medical policies, or they could be comparable. Check temporary policies for out-of-pocket caps as well. These will help reduce your financial burden.
In addition to limiting how much care the plan will pay for overall, many insurance companies also set limits on how much they will pay for certain incidents or types of care. If the provider insists that more is owed for the treatment than the insurance company is willing to pay, you’ll be responsible for the remainder.
These caps can vary among plans, but yours might include limitations such as:
- $250 per emergency room visit
- $1,000 per night in the hospital
- $5,000 per surgery
- $2,000 for all urgent care visits over the policy term
As their name implies, temporary plans aren’t intended to be your health insurance solution for years to come. Designed as stopgap coverage, their terms are limited. Currently, the federal government says that a temporary plan can last for no more than 90 days. Proposed changes may extend this coverage period to a maximum of 364 days.
At the end of the coverage period, you may have the option to apply for another term with your current insurer. Typically, this requires a new round of approval, including a review of your medical history. If your health circumstances have changed since your last coverage period began, you could be denied coverage or charged higher rates. Coverage for any conditions that you developed since your first term would also be excluded. Even if you are accepted, you should expect payments toward your deductible and out-of-pocket maximum to reset to $0. With short term plans, each time you sign up for a new term, it’s like you’re a new customer.
Some insurance companies offer a workaround to the current 90-day limit. They allow you to set up four consecutive plans so that the next one begins as soon as the previous one ends. All four plans require only one medical review at the beginning of the initial coverage period. However, the deductible may reset each time you enter a new three-month period.
Temporary health insurance differs in significant ways from ACA-compliant major medical plans. Still, if you’re facing a period of time in which you won’t have traditional coverage, a temporary plan can help get you through. Educating yourself on these plans’ limitations can help you choose a policy that fits into your budget and meets your short term needs.