Understanding short-term health policies
After leaving a full-time job in Northern California earlier this year, Christine Morrison is without work-based health insurance for the first time since the age of 18.
Now 26 years old, the Glendora resident is working at a temp job as a human resources recruiter. She expects to soon have another full-time job that offers health benefits.
To fill the gap in her insurance coverage until she settles into a new position, Morrison chose to buy a short-term health insurance policy.
“I figure within six months I’ll be in an actual career where I would have benefits again, so I wasn’t looking for anything long-term,” she says.
Short-term health insurance policies are just what their name implies. They are designed to provide temporary coverage primarily to people like Morrison who have a gap in employer insurance or who missed open enrollment under the Affordable Care Act.
The policies have become more popular since the health law took effect, according to a recent analysis of insurance purchases by eHealth, the country’s largest online health insurance broker. It found that applications for short-term policies more than doubled between 2013 and 2014.
These plans are appealing for a few reasons.
They’re less expensive than major medical health plans, particularly for people who earn too much to qualify for financial help from the government.
“The price is significantly better than virtually anything you can get under the ACA — unless you’re fully subsidized,” says Patrick Burns, president of the California Assn. of Health Underwriters.
The national average monthly premium for short-term plans sold by eHealth was $110 in 2014 for individuals and $262 for families. By contrast, unsubsidized major medical plans averaged $286 a month for individuals and $727 for families.
You can buy a short-term policy at any time during the year, making it one of very few coverage options for people outside of open enrollment.
“There are a fair amount of people who didn’t understand that after March 31st, they couldn’t get a health plan,” says Nate Purpura, vice president of consumer affairs at eHealth.com.
“Short-term is the product of choice” when people aren’t eligible to buy insurance after open enrollment closes, he says.
Experts outline some important details about short-term health insurance policies, how they differ from major medical plans, and what to consider when buying one.
Complying with the health law. Short-term policies don’t meet federal standards in the Affordable Care Act and won’t help you avoid a federal fine for going uninsured. For 2015 the penalty is the greater of 2% of your annual taxable income or $325 a person.
That’s a critical detail Morrison didn’t understand when she bought her policy.
“The only reason I have health insurance now is so I don’t get in trouble by the government,” she says. “Now that I know I might get fined anyway, it kind of seems worthless.”
Morrison’s situation illustrates the need for ongoing education on the part of the state’s health insurance exchange, Covered California, says Gerald Kominski, director of UCLA’s Center for Health Policy Research.
“It shouldn’t take a PhD to figure out the marketplace. We have to make sure people understand what the market is offering,” he says.
Understanding all your options. Morrison could have continued her work-based insurance plan for up to 36 months after she left her job early this year.
But the cost to continue her plan through COBRA (the Consolidated Omnibus Budget Reconciliation Act), she says, was “atrociously expensive.”
Another option she had was to shop for a major medical plan that does comply with the law, either through Covered California or a private broker.
The health law gives you 60 days from the termination of your job-based plan to enroll in a self-purchased individual or family health insurance plan outside of the annual open enrollment period.
If Morrison had exercised this option, she could have avoided the tax penalty.
And because she isn’t earning much money right now, she likely would have qualified for a subsidy allowing her to buy a major medical plan for about what she’s paying now for her short-term policy.
She says she tried the exchange but ultimately gave up. “I looked through the Obamacare website, but it was pretty difficult to navigate and it seemed more trouble than it was worth,” she says. “That’s why I went to the short-term plan.”
Preexisting medical conditions. The Affordable Care Act prohibits major medical plans from denying people coverage on the basis of their health or charging higher premiums for those with preexisting conditions. Short-term insurance, policies, however, aren’t required to comply with this part of the law.
“The most important thing you need to know is they don’t cover preexisting conditions. In fact, if you have a preexisting condition, your application may be declined,” says Purpura of eHealth.
In addition, these policies don’t generally cover maternity or mental health treatment, or preventive health services such as annual check-ups, colonoscopies or mammograms at no cost.
Pay and coverage limits. The health reform law also forbids most health plans to impose lifetime limits on what they pay toward care. Not so with short-term policies.
According to Burns, spending limits vary widely among short-term policies, commonly ranging from $100,000 to $1 million.
“I always recommend people take the $1 million,” Burns says. There’s very little difference in the price of these plans, he says, yet the extra coverage can make a huge difference should you need extensive care.
Time limits. Short-term policies are good for up to 11 months. After that, you generally can’t renew the plan, though you can switch from one company to another if it turns out you need more time.
When you apply, you can choose to make a lump-sum payment upfront if you know exactly how long you’ll need the policy. You can also pay month-to-month and cancel the plan at any time up to the maximum term limit.
Morrison, the Glendora woman with a temporary job, says she’s not sure she’ll bother holding onto her short-term plan since the only reason she bought it was to avoid a tax penalty.
She wishes she understood earlier that this plan wouldn’t help her do that. “I didn’t probably do as much research as I could have.”
Twitter: @lisazamosky
Zamosky is the author of “Healthcare, Insurance, and You: The Savvy Consumer’s Guide.”
