Got the Obamacare Blues? Cure 'em with Short Term Health Insurance
Open Enrollment is upon us. That means it’s time to evaluate your healthcare options. Since 2012, the months of November through January have become a stressful time for many for that very reason. If you are experiencing the same stress, you may be surprised to find out that you have other options. Read on to learn more about the benefits of short term health insurance vs. Obamacare.
Finding a Comprehensive & Affordable Plan
Finding a comprehensive plan to cover your needs takes time and energy. You also have to consider the impact your new plan will have on your monthly income and annual budget. And, depending on when you sign up, you could go some time without coverage. For example:
- If you sign up between Nov. 1, 2016, and Dec. 15, 2016, your coverage will start Jan. 1, 2017.
- If you sign up between Dec. 16, 2016, and Jan. 15, 2017, your coverage will start Feb. 1, 2017.
- If you sign up between Jan. 16 and Jan. 31, 2017, your coverage will start March 1, 2017.
You may have caught our previous blog post warning consumers of expected Obamacare rate hikes. If not, you should know some comprehensive plans are increasing 25-56 percent in 2017.
So, why are premiums increasing?
A June 2016 article from The New York Times explained that as insurers prepared for the ACA's fourth year, many struggled to find the best ways of providing care to their customers. The article’s author, Robert Pear lists UnitedHealth Group as an example. He says the healthcare giant lost money on individual policies under the federal health law. As a result, it's pulling out of many insurance exchanges in 2017. Meanwhile, many health insurance cooperatives created under the law have shut down. Consequently, as more insurers back out of the exchange, the competition that helps drive down prices decreases.
What about subsidies? While you may be in a position to receive a subsidy, many consumers are not. The Congressional Budget Office estimates that 12 million people will receive subsidies next year in the form of tax credits. On the other hand, it says that an equal number — three million on the exchanges and nine million buying insurance outside the exchanges — will have to pay the full unsubsidized price.
The harsh truth: you could end up sacrificing coverage for a good price, or vice-versa. Or, like many, you might even decide to forgo health insurance and pay the tax penalty. In either case, other options exist.
Say hello to your other option.
Short term health insurance (aka temporary health insurance or short term medical insurance) is a lesser-known health insurance option. Its benefits range from flexible coverage durations to affordable premiums. Here are some quick facts about short term health insurance plans:
- They provide coverage for less than one year.
- They are generally less expensive than individual plans. Thus, premiums are usually more affordable than traditional coverage.
- Many plans do not have preferred healthcare provider requirements. This means you’re covered for visits to any hospital or healthcare professional in the country.
- Most plans take effect within 24 hours of the application date.
Is a Short Term Health Plan Right for You?
A short term plan might be suitable for you if:
- Health coverage is required while waiting for a complete, group health plan to begin. For example:
- You're between jobs, and/or
- You have not elected COBRA
- You are waiting to enroll in an ACA plan but are currently outside the Open Enrollment period
- You need immediate coverage.
- You need only 30 days to 12 months of health coverage.
- You have been dropped from your parent’s health insurance plan.
In addition, there are many life situations in which temporary health insurance may be ideal, including:
- Seasonal or temporary workers.
- College students, including international students.
- Foreign travelers who have lived in the United States for 12 months.
- Self-employed individuals and their families.
- Unemployed individuals and their families.
- Recently divorced individuals and their dependents.
- Individuals and families who cannot afford major medical coverage now and/or do not qualify for Affordable Care Act tax credits and subsidies.
- Individuals and families who are exempt from obtaining health insurance under the Affordable Care Act and do not qualify for low-cost or free qualified health insurance coverage through Medicaid.
Be Aware of Potential Disadvantages
Short term health insurance plans do have potential disadvantages. These disadvantages may or may not have an effect on your healthcare needs. Either way, you should be aware of uncovered costs and the tax penalty before making your final decision.
Short term plans may not cover things like:
- Pre-existing medical conditions
- Prescription drugs
- Preventive care
This can cause problems for people who develop long-term illness. In such cases, the short term plan is completely terminated at the end of the coverage period.
The ObamaCare Tax Penalty
Plans are not considered "adequate coverage" under ACA and Obamacare. Therefore customers are subject to the tax penalties of not having insurance.
The Obamacare tax penalty is calculated according to the number of months you don't have coverage. You will owe one-twelfth of the annual penalty amount for each month you go without insurance. If you have coverage for at least one day of any month, you're considered covered for that month. And you're allowed one annual gap of less than three months during which you can avoid a penalty.
The projected penalty for 2017 is $695 per adult plus $347.50 per child. There is a maximum of $2,085 per family or 2.5 percent of annual household income. In many cases, especially for healthy young adults without families, it makes sense to forego health insurance and pay the tax penalty. In that case, short term health insurance is a cheaper alternative that will keep you insured.
Short Term Health Plans vs. Obamacare & ACA Plans
The mechanics of health insurance and the options for purchasing plans has changed under the ACA. As a result, the difference between traditional group health insurance plans and short term health insurance plans has broadened. All health plans compliant with the ACA must cover at least 10 Essential Health Benefits. They must also pay at least 60 percent of covered medical expenses for a typical pool of enrollees.
The Essential Health Benefits Required by ACA
- Ambulatory patient services
- Emergency services
- Maternity and newborn care
- Mental health services
- Substance use disorder services
- Prescription drug coverage
- Rehabilitative and habilitative services and devices
- Laboratory tests and services
- Preventive and wellness services as well as the management of chronic diseases
- Pediatric services (including both oral care and vision care)
In conclusion, short term health insurance plans are not required to follow the ACA’s coverage requirements. Therefore, ACA health plans in the Obamacare marketplace differ greatly from short term plans. As a result, short term plans are usually cheaper.
Can You Afford a Short Term Health Plan?
As noted earlier, short term health plans attract not only those between jobs, but also people who missed the deadline to sign up for an ACA policy and those who say they can’t afford a more comprehensive plan.
From a cost perspective, consider the following:
- The average national premium for a short term health insurance policy is about $110 a month for an individual. It carries an average annual deductible of $3,589.
- Short term health plans are less expensive for younger people. They average $89 a month for those between the ages of 25 and 34, the biggest group applying for coverage.
- No subsidies are available to help people buy short term health insurance because they don’t qualify as ACA plans.
Short Term Health Insurance: An Interesting Option for Millennials?
While millennials are participating in ACA, they're definitely not enthusiastic.
In a recent survey by Transamerica Center for Health Studies, seven out of 10 millennials identify cost as the biggest barrier to acquiring and utilizing healthcare. Almost 60 percent say that a monthly premium of $200 is unaffordable. Furthermore, those that do have insurance are unlikely to use it due to the high cost of copayments and deductibles.
This article from Bold.Global states that “many young adults are opting to pay a penalty rather than enroll in the ACA during the time when they are building careers, buying homes and paying off school debt.” It compares the added cost of a subpar insurance plan to a luxury item that is often eliminated from the budget.
Yet, it’s not just millennials struggling with these decisions. In a survey of adults under the age of 64, the following reasons were given for not having insurance:
7 Shopping Tips for Short Term Health Plans
Here are some things to keep in mind if you are thinking of buying a short-term health plan:
#1. Read the fine print
Know what it covers and especially what it doesn't cover.
#2. Understand how much you'll pay out of pocket.
How much is the deductible? What percentage of covered medical expenses do you pay after the deductible? What is the maximum amount you will have to pay out of pocket?
#3. Ask about potential discounts
Some insurance carriers allow you to pay your total premium for the full length of coverage upfront – resulting in possible discounts.
#4. Check the dollar cap on coverage
Also known as the lifetime benefit maximum.
#5. Check the network
If the plan has a network of medical providers, make sure the network includes doctors and hospitals you would use.
#6. Time the coverage period right
The end of a short-term plan does not qualify you to enroll in a standard health plan outside the annual open enrollment period.
#7. Don't forget about COBRA
Understand that if you enroll in a short term plan instead of choosing COBRA coverage, you will lose eligibility for COBRA after the short term plan expires.
All things considered, purchasing healthcare insurance is an important decision. Most importantly, you must weigh the facts, your needs, and the needs of your family and your budget to determine the most appropriate plan. If you believe short term health insurance is a suitable option, we invite you to shop for short term health insurance plans here.