ShortTermHealthInsurance.com ShortTermHealthInsurance.com June 22, 2018

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3. Who Benefits from Short Term Coverage?

Who Benefits from Short Term Coverage?

It’s easy to give general advice about health insurance, using vague phrases like “people who are in transition” to describe the likely customers for short term health plans. But couching the subject in vague phrasing and general overviews can make shopping for health insurance more frustrating as a consumer. When you need advice about whether to buy a major medical policy or try out temporary coverage, you need specifics. You need numbers, hard facts and information that applies to your situation.

Unfortunately, we can’t discuss every scenario in which a short term health insurance plan makes sense. Though ideally for people facing temporary gaps in coverage, short term policies can be useful to a broader range of people than you might assume. In this article, we’ll highlight four scenarios where short term health insurance works. Our cast of characters: a new college graduate; a 26-year-old millennial living at home; a Gen X-er who just changed jobs; and a retiree who’s waiting to enroll in Medicare.

Scenario 1: Gemma, a new college graduate

Gemma graduated from college in Mississippi this spring. She has a degree in public health, and she’s about to start a paid internship with a local agency that connects low-income families with nutrition resources to help manage chronic conditions. As a student, Gemma had a health plan through her school. Now that she’s no longer a student and doesn’t live with her parents, she’ll need to find health insurance on her own. Her internship, while paid, does not offer health benefits, but she’s hoping to get hired as a full-time employee once the six-month contract ends.

In the meantime, Gemma needs coverage. Because she just graduated from college and lost her health insurance in the process, she likely qualifies for a special enrollment period to sign up for a major medical policy through an Affordable Care Act marketplace. Let’s compare what Gemma might pay for a full, comprehensive policy from the exchange (with subsidies) against her cost for a short term plan.

All short term health insurance plans offered on the market until October 1st will be limited to a three-month duration, so the benefits used in all of the below examples are based on that shortened duration. Starting on October 1st, however, Gemma and all of the other people in the examples listed below will be able to get a short term health insurance plan that lasts 364 days.

For this example, we’ve used the subsidy calculator from Kaiser Family Foundation and a short term policy from UnitedHealthcare. Gemma doesn’t smoke, has no dependents and makes $26,000 a year as a paid intern.

In Gemma’s case, there’s a strong argument both for and against buying major medical coverage, but it comes down to cost and timing in her case. Because she’s hoping to get a full-time position in six months, she could wait to buy major medical until her company offers benefits, which may cost less and cover more than an ACA plan. The short-term plan option for Gemma covers accidents, unexpected injuries and office visits. The out-of-pocket max is lower than the ACA silver plan, as is the deductible. She could save about $50 a month by choosing a temporary policy.

Under current law, the policy would run for three months. As long as she developed no pre-existing conditions during that time, Gemma could apply for a new policy once her contract ended. This strategy might cover her well until her new job offers her full-time employment with benefits. And if that didn’t happen, she could sign up for an ACA plan when open enrollment starts in November. If Gemma purchases a short term health insurance plan after October 1, 2018 instead of getting an ACA plan or full-time benefits from her employer, the plan can cover her for 364 days, under the new duration rule and she will be permitted to renew that policy two times.

Note that for this year (2018), Gemma would also be subject to the individual mandate penalty for not having major medical (ACA-compliant) health insurance for longer than three months. She would have to pay this penalty for the six months that she didn’t have approved coverage (assuming her student health plan ended in June). The individual mandate penalty was zeroed out in 2017 as part of the Tax Cuts and Jobs Act, so it won’t be in effect starting in 2019.

Scenario 2: Chris, a 26-year-old, who’s aging out of his family plan

At 26, Chris is still living with his parents, a not-uncommon scenario for millennials given the recent economy, especially where he lives. Unfortunately, because he just turned 26, Chris has officially aged out of his parents’ health plan. He’s allowed to stay on the plan until the term ends at the end of the year, but after that, he’ll need to find his own coverage.

Chris has an associates degree in medical coding, but he can’t find full-time work because he lives in Emmett, one of Idaho’s poorest cities. He works at a restaurant in the meantime, saving up for his own place and searching online for work in his field. Idaho’s minimum wage matches the federal rate of $7.25 an hour, but Chris is a server who depends on tips, which means he doesn’t always hit that minimum. Still, he values the protection of health insurance even if he can’t afford it.

Here’s how an ACA plan stacks up against a short term policy for our 26-year-old Idahoan. Chris doesn’t smoke and earns about $12,000 a year. For this comparison, we’re using rates from BlueCross BlueShield of Idaho and the Kaiser subsidy calculator.

Chris would save just over $300 a month in premiums by choosing a short term policy. Because he earns less than the federal poverty level ($12,140 for an individual in 2018), he doesn’t qualify for tax credits on the marketplace that would reduce his monthly premium. Idaho is one of the states that hasn’t expanded Medicaid under ACA guidelines, which means Chris doesn’t qualify for the federal program for low-income households.

The rates from Blue Cross of Idaho assume a policy that lasts between one and four months. Federal guidelines limit policies to just three months. Chris might pay more in out-of-pocket costs with his short term policy if he starts seeing a doctor regularly or needs more extensive care, but he’d at least have protection in place for unexpected emergencies.

Scenario 3: Eileen, a Gen X-er who’s changing careers

Eileen was a teacher for 20 years, but she grew tired of administrative red tape and increasingly taxing requirements for standardized testing for her fourth graders. Ready to make a change, Eileen retired from her position once the school year ended and opened up her own small business selling decorative artwork. She soon found a following on Etsy. Unfortunately for Eileen, her health benefits ended with her teaching career, and she found COBRA coverage and retiree benefits too expensive with her now-limited income. But Eileen turned 42 last month, and she knows that she’ll need more healthcare as she ages. She wants to buy a major medical policy, but she can’t until November when open enrollment starts again.

Eileen could wait another five months for open enrollment, but she risks experiencing a medical catastrophe if she injures herself or gets sick unexpectedly. In the meantime, she’s decided to shop around for short term health insurance. Here are a couple of options for Eileen. We’ve used the Kaiser subsidy calculator and a short term policy from The IHC Group.

Again, after October 1st, Eileen can get year-round coverage with a short term health insurance plan so she doesn’t have to worry about her deductible and out-of-pocket caps resetting every three-months, as is the case now.

Eileen likes working for herself and being her own boss, so she’s unlikely to seek out full-time employment from an employer again. The older she gets, the more she’ll benefit from the comprehensive benefits afforded by an ACA-compliant plan, but for now, the cost savings are substantial with a short term policy for her. She’ll save over $700 a month with the IHC plan. And, unlike any other temporary policy, the one from IHC includes limited protection for select pre-existing conditions. Eileen earns too much money between her retirement benefits and self-employment income to qualify for tax credits on the marketplace.

Scenario 4: Larry, a retiree who’s waiting for Medicare

Larry retired early at age 60, but he’s been waiting to draw Social Security benefits until he can also sign up for Medicare at age 65. He’s now 64, and he’s tired of paying the exorbitant rates for his retiree plan from his old job. Because he’s on a fixed income and has no additional government benefits at the moment, he finds the premiums for his current health insurance to be too expensive. He travels a lot to see his grandkids, and to help keep costs low, he recently downsized to a retirement community from the large family home that he shared with his wife. He plans to buy an RV and travel the countryside full time once he can sign up for Medicare.

In a perfect world, Larry would have a major medical policy to cover his needs until he can sign up for Medicare in December. Getting older can be expensive, especially when it comes to medical care. But since he’s unhappy with the retiree coverage and will be eligible for Medicare in about six months, short term coverage might work for Larry.

For this comparison, we’re once again using the Kaiser subsidy calculator. This health plan comes from Standard Life. Larry lives in Ohio, doesn’t smoke, and only needs coverage for himself (not his wife). We’re also assuming that Larry has no pre-existing conditions.

Because Larry is already enrolled in retiree benefits, he can’t just drop his plan and switch to an ACA-compliant plan on the marketplace. He won’t qualify for a special enrollment period for voluntarily dropping his coverage. He also wouldn’t qualify for a tax credit to reduce his premiums, anyway, since he’s enrolled in a retiree plan, which counts as minimum essential coverage under the law. He would need to wait until open enrollment in November, and by that time, he would almost be eligible for Medicare. Based on these factors, Larry would save money (about $650 a month) by getting a short term policy until he can sign up for Medicare in December.

In cases like Larry’s, you would need to carefully weigh the pros and cons of getting short term coverage. These plans cover very little compared to a comprehensive major medical policy, especially for seniors. Our scenario assumes that Larry has no pre-existing conditions, which is fairly unlikely given his age. Companies offering short term policies can deny coverage for pre-existing conditions – which are determined by individual insurers – or refuse to issue coverage altogether based on your medical history. Non-covered conditions could include high blood pressure, obesity, heart disease and diabetes, among a slew of other problems.

The bottom line is that short term health insurance serves a specific purpose for specific people. Note that short-term health insurance doesn’t count as minimum essential coverage under the Affordable Care Act. If you don’t have major medical insurance and you don’t qualify for an exemption from the individual mandate, you’ll owe a penalty fee when you file your 2018 taxes in 2019. Starting in 2019, the mandate will be eliminated per the Tax Cuts and Jobs Act of 2017.

The penalty fee isn’t the only reason to consider a comprehensive health plan, but sometimes, it’s just not in your budget, or you might not need it. During times of transition, times when you just can’t afford major medical insurance and times when you need to bridge a gap between traditional health insurance, short term policies give you peace of mind for unexpected medical problems, accidents and injuries.