What is short-term health insurance?

Short-term health insurance plans are coming back

Is there anything about our healthcare system, especially the insurance market, that isn’t confusing?

The Affordable Care Act (ACA) finally phased out most short-term health insurance plans last year, but last week the current administration changed the rules to bring them back.

The cost of health insurance is really expensive for anyone who doesn’t have an employer-provided plan or doesn’t qualify for a subsidy. Short-term health plans may offer a more affordable option.

But what is short-term health insurance? Who does it benefit? When will these plans be available? And what about the ACA’s you-must-buy-a-qualified-health-plan-or-suffer-the-tax-consequences mandate?

Here’s my attempt to make sense of the confusion.

Coverage for no more than one year

Short-term health plans aren’t new. Before the ACA, you could buy coverage in most states for 3 months, 6 months or up to 12 months (actually, 364 days).

The ACA capped short-terms plans to 3 months.

How do these plans differ from ACA-compliant health plans?

First the good points:

Unlike plans offered by the traditional health insurance companies, short-term plans are typically indemnity plans. There are no narrow networks (yay!) because they don’t contract with specific doctors or hospitals.
There are no open enrollment periods; you can apply anytime.
Coverage can begin almost immediately.
Premiums are much lower, especially for the 20-somethings (the ACA’s premium hikes hit young people especially hard). A plan may be $50/month rather than $250.

Then the not-so-good points:

Pre-existing conditions matter. You must fill out an application for coverage and will be denied if you have a history of smoking, cancer, high blood pressure, diabetes or pretty much any chronic condition.
There are no mandatory benefits, such as preventive exams, screening tests, vaccinations, maternity care, mental health, prescription medications, etc.
There are no limits on out-of-pocket costs or lifetime costs.
Plans are not renewable; you must reapply to extend coverage. If your health has changed, or you used a lot of health care during the previous coverage period, the company is under no obligation to cover you again.
There are fewer consumer protections. The ACA outlawed “recission,” or the retroactive cancellation of a policy because the insurance company decided you failed to tell them about the cigarette you smoked that one day back in middle school. That law does not cover short-term plans.

Who will be attracted to these short-term plans? Only young, healthy people who aren’t covered by their parents’ health plan, don’t qualify for a generous subsidy, or don’t have health insurance through their employer.

For others, it’s buyer beware. The devil will be in the details, so read the fine print!

Coming fall 2018

Only the 3-month plans are available now. The 6-month and 12-month plans may be available by October of this year.

That’s when most insurance companies will notify customers about premium price hikes, which for some will be in the double digits—again.

There is no doubt young, healthy people will abandon the ACA individual marketplaces. That will leave an older and sicker group behind, and insurance companies will feel justified in raising premiums by double digits yet again. That’s going to especially hurt families and older individuals who don’t qualify for a subsidy.

The federal government (i.e. our tax dollars) will take a hit, too, as those subsidies will have to be much larger to cover the higher premiums.

Also, some states may decide to not allow the new short-term plans. Check with your state’s insurance commissioner.

The mandate’s not gone yet

Here’s another bit of confusion: Yes, the administration repealed the mandate that we must all buy health insurance. HOWEVER, it doesn’t take effect until 2019.

So…anyone who buys a current short-term health plan (3 month) this summer may be penalized at tax time. Unless they’ve filled out the paperwork that exempts them from the penalty because ACA health insurance is more than 8.05% of their annual income and therefore unaffordable.

And I’m still a bit confused about whether anyone is actually enforcing that mandate or not. 😕

Bottom line: Allowing short-term health insurance to be sold again will definitely help a few, but will also harm many others through rising costs.

Let the confusion continue…

Sláinte,

Frugal Nurse

This post has been updated since its original publication in March, 2018.