“Should I buy short-term health insurance?” You are asking the question because you do not qualify for a health insurance premium subsidy on healthcare.gov. While searching for affordable health insurance you discovered short-term health plans. These products are also referred to as “short-term medical plans.
Maybe you have received a few short-term health insurance quotes, and they look good! In fact, they cost significantly less than a comparable plan on the health insurance marketplace. And these plans also offer a lower deductible.
As good as they look, you are nervous. You have always believed that if something looks to good to be true, it usually is! Perhaps you have even read or watched news stories where short-term health insurance was referred to as “junk insurance.”
Is Short-Term Health Insurance Junk Insurance?
Most of the short-term plans are actually great health insurance policies. Unfortunately, they were sold by “junk” health insurance agents! These agents either did not understand the products that they were selling or did not care about their potential clients.
The critics of short-term health insurance plans usually utilize examples of people who had large medical claims denied by the insurance company. Or they lump “limited benefit” plans into the discussion and talk about individuals who were left with very large medical bills after insurance paid. But both these discussions miss the real value of a good short-term health plan.
Missing in these discussions are the stories of the hundreds of thousands of Americans who have health insurance because these plans are affordable.
The Definition of Insurance
All the debate about health insurance has unfortunately missed the point. What you think of as health insurance today is not actually insurance. It is a transfer of money not risk.
If you look up the definition of insurance what you will find is: “coverage by contract whereby one party seeks to indemnify or guarantee another against loss by specified contingency or peril.” Most of today’s health insurance do offer protection against financial loss. But they also pay 100% of specified first dollar medical expenses.
Plans that comply with the Affordable Care Act pay 100% for your annual wellness exams. Many health insurance policies pay 100% of primary care physician visits or require a small copayment such as $25. Neither annual wellness exams nor simple physician visits would fall under the category of a contingency or peril. Instead of just protecting us from large medical bills, we have come to expect our health insurance to pay for low-cost, everyday events.
Short-term medical insurance policies generally do not cover these everyday affordable medical costs. Instead, they provide more catastrophic coverage. These policies are more like the health insurance policies of the mid-twentieth century. Up until the late eighties all medical expenses are subject to the policy deductible. Only then did insurance pay benefits.
Is Short-Term Medical Insurance Affordable?
Short-term plans age significantly less expensive than ACA compliant health insurance policies. They can be as much as 50% less expensive for the same out-of-pocket maximum.
I recently worked with a 40-year-old male, non-smoker who did not qualify for a premium subsidy. The cheapest ACA compliant health plan was $288 a month. This plan had an $8,550 deductible (and maximum out-of-pocket), using a very narrow network. In fact, only one of the two hospitals in Winston Salem was in-network. All medical expenses except for annual wellness exams were subject to the deductible.
This same individual could get a one-year, short-term health plan with a major, national insurance company for $162. This health plan had a $7500 deductible (and maximum out-of-pocket). Both hospitals would be in the network and many more doctors.
Assuming that you are healthy, would you rather pay $288 a month for an $8550 deductible or $162 for a $7500 deductible? That is a savings of $126 monthly or $1512 annually.
Why Are Critics Opposed to Short-Term Health Plans?
With this question I want to revisit a statement that I made in the fourth paragraph. Short-term health insurance is not junk health insurance. But too many insurance agents that sell short-term plans are junk insurance agents. It is very important that you work with an agent who really knows what he/she is doing.
These short-term health insurance policies are not subject to the provisions of the Affordable Care Act (https://myhealthcare360.org/the-affordable-care-act-obamacare-what-you-need-to-know/). Medical expenses such as prescription drugs are not usually covered. Policies that do provide a prescription drug benefit though it is often a very limited benefit. Maternity is not covered by these health insurance plans. Mental health and substance abuse are generally not covered by these plans. And like prescription drug coverage, when there is a benefit for preventive services, it is usually limited to $150 or $200. Of course, these plans also will not cover any preexisting conditions.
Is this limited coverage a bad thing? The honest answer it that it depends. Certainly, saving $1500 annually allows to you to supplement the $200 preventive care benefit. But if two months into your plan you develop a chronic health condition necessitating an expensive prescription you might be so happy.
Preexisting conditions can be a more problematic subject. All too often a consumer may not realize that they have a preexisting condition. Here are a couple of examples.
As an insurance agent I have had individuals tell me that they did not have any medical problems, only to discover when asking medical questions that they were a type 2 diabetic. One individual told me that he did not have any medical problems. In completing the application, I learned that he went to the doctor for chest pains but was told it was nothing. This last one can be a huge problem!
This is Not a Limited Benefit Plan
While there are short-term medical insurance plans that have limited benefits, most of these plans are more like an old-fashioned major medical plan. If you do not have any preexisting conditions and have a $100,000 medical claim, the insurance company will pay all but your total out-of-pocket liability.
Here is an example. A covered individual has a $5000 deductible after which the plan pays 100% of eligible medical expenses. This individual races to the emergency room with severe pain on the right side of his abdomen. He is immediately rushed into surgery for an appendectomy. His medical bills total $35,000. The insurance company will pay $30,000 since he had a $5000 deductible.
In a limited benefit plan, there would be policy limits on the services that were performed. So even though the insured may have had a $5000 deductible, the plan benefits may be limited to $20,000. That would have left the insured with $15,000 in unpaid medical bills.
This is just another reason why the insurance agent that you work with is so important.
1: Do you have any current medical conditions that you are monitoring, regardless of whether they are problematic today? If yes, do not purchase a short-term health insurance policy.
2: Are you taking any medications that would be too expensive in the absence of health insurance? If yes, do not purchase any short-term health plan.
3: Are you taking an expensive medication but have a discount coupon that requires that you have a prescription drug benefit on your health insurance? Again, short-term medical insurance plans are not a good choice.
4: Have you sought care for back pain within the five years? Back pain is a strange issue. Your doctor may have told you that everything was fine, but short-term health insurance may not be a good idea. And even though you have not had any issues for the last twenty-four months, any new back issues will probably not be covered.
5: You do not qualify for a premium subsidy and you cannot afford an ACA compliant health insurance policy. In this case a short-term plan is better than no health insurance at all. While not a perfect solution, you will be protected from the financial impact of most medical events.
Important Things to Know
Short-term health plans are not allowed to be sold in the states of New York, New Jersey, Massachusetts, Hawaii, and California. And in Colorado, District of Columbia, Maryland, New Mexico, Vermont, Illinois, and Washington short-term plans can only have a duration of either three or six months.
The first thing I want you to know is do not buy plans from another state! The insurance company will not be required to pay benefits if you are from one the states above.
Second: unless you are in-between jobs, do not buy a short-term health plan with a duration of less than a year. The only exception to this rule is if the plan would renew during the annual health insurance open enrollment.
Regardless of how tempting the premiums may be, remember that these plans cannot be renewed if you develop a medical condition. If your six-month plan ends in July but you develop cancer in June, you cannot be insured until January 1 of the next year.
Make sure that all plan expirations occur during the annual health insurance open enrollment. I cannot stress this enough. Do not overlook this.
Do not purchase your short-term health insurance from a random website, not even one with a solid reputation. Always work with a professional, independent health insurance agent. This individual will have access to multiple insurance companies and products. Health insurance policies are complicated contracts. It is easy to buy a policy that looks great but has limits on what it will pay.
Finally, and most important, remember that short-term health insurance is very different from an ACA compliant health insurance policy. It will not cover preexisting conditions and it will not provide the same level of benefits as a traditional health insurance policy.
What is the Best Short-Term Health Insurance Policy?
The number one question about short-term plans is: what is the best short-term health insurance policy?
While there are numerous websites focused on that question, there is no one best short-term medical insurance policy. There are too many factors to consider. Everything depends on your particular circumstances. Some plans ask fewer health questions. Other plans may offer some level of insurance coverage for preexisting conditions. There are plans that have a narrow healthcare network and others with no network.
The real question is: which plan is best for my circumstances and goals? Any health insurance agent that tells about the best plan for you before learning about your situation is a terrible health insurance agent!
Insurance products, especially health insurance was never meant to be a one-size fits all solution.