When Is Short Term Medical Insurance the Right Choice?
When most of us think about health insurance, we think about it being there to protect us year in and year out. So, we may think of short term medical insurance as being just for a few limited situations when we find ourselves in need of health insurance for just a few months.
However, with the changes in health insurance that have been happening in the past few years, short term medical insurance, sometimes called temporary health insurance, also provides an economical and convenient way to pivot your health coverage to meet your needs, your wants and your budget. And the term of coverage does not need to be as “short” as you may initially think.
The current market for insurance products, including rising premium costs and rising out-of-pocket costs even with insurance, makes this an ideal time to think about health insurance in a new way. Short-term health insurance is one of the remaining choices in which you can have more control over the coverage you choose, the doctors you choose, the hospitals you choose and the budget you choose.
What Is Short Term Medical Insurance?
Short term medical insurance is health insurance that is available for periods of time from one month to 364 days, depending on your state of residence.*
- Short term medical insurance covers doctor visits, hospitalizations, emergency care, lab tests, prescription drug costs and more.
- Most short term medical insurance policies are “network-free.” This means you can choose any doctor or hospital. That’s important because when you need medical care, you really want to be able to choose where you go for that care.
- Short term medical operates similarly to permanent health insurance, which means monthly premiums, deductibles, coinsurance, copays and out-of-pocket maximums apply.
- Short term health insurance does require consumers to answer medical questions in the application, as some pre-existing conditions disqualify an individual from applying.
- Short term health insurance plans typically cost one-half the price of individual health insurance plans.
Who Needs Short Term Health Insurance?
Certainly, those who have or may have a health insurance coverage gap for a limited period of time are people who need short-term medical insurance. However, there also are many people who want or need an alternative to the traditional major medical insurance who should consider short term health insurance.
Listed below is a sample of situations in which you may find real advantages in short term insurance coverage. This list does not include all circumstances when this insurance product is a good fit, but it provides a representative example and should help you more fully think about your own needs and the needs of your family and friends.
People who can find short-term health insurance beneficial include those in the following life situations:
- Missed open enrollment period
- Employer doesn’t offer coverage
- Temporarily unemployed
- In transition period / waiting for employer coverage to start
- Lost employer coverage (a COBRA alternative)
- Want Obamacare alternative
- Student or recent grad
- Bumped from parent’s plan
- Early retiree
We will explore each of these a little more closely in this article.
Employer Doesn’t Offer Coverage
With the Employer Mandate as part of the Affordable Care Act (ACA), you may think that almost all employers offer health insurance to their employees, but the statistics say otherwise.
According to a report by The Henry J. Kaiser Family Foundation in 2015, 45.7% of private sector employers offered health insurance to their employees.
Private sector firms in this report included incorporated for-profit firms and nonprofit firms, but did not include unincorporated private sector firms or public sector (government) establishments. The self-employed and firms with no employees were also not included.
Small employers are sometimes the forgotten entity in health care and health care reform strategies, but according to the U.S. Small Business Administration:
- There are approximately 28 million small businesses in America.
- These small businesses account for 54% of all U.S. sales.
- Small businesses provide 55% of all jobs and 66% of all net new jobs since the 1970s.
However, it is also evident from statistics that fewer small employers are offering health insurance to their employees.
The Employee Benefit Research Institute analyzed the percentage of employers offering health insurance from 2008–2015 and reported that almost all large employers (with 1,000 or more employees) offered health insurance benefits. Employers with 100–999 employees also overwhelmingly offered coverage: 92.5% to 95.1% in this employer size category.
But the story was different for smaller employers, and the percentages offering their employees health insurance coverage has been falling since 2009:
- Employers with fewer than 10 employees, from 35.6% in 2008 to 22.7% in 2015 (a 36% decrease)
- Employers with 10–24 employees, from 66.1% in 2008 to 48.9% in 2015 (a 26% decline)
- Employers with 25–99 employees, from 81.3% in 2008 to 73.5% in 2015 (a 10% decline)
These employees and their families still need health insurance coverage, even if it is not offered by their employers. As you will see below, Obamacare and the health insurance exchanges have not provided the answers that many of them sought because of cost and type of plans available. That is why these people may find that short term health insurance fits their needs and their budget.
Missed Open Enrollment Period
For any number of reasons, you may have missed the annual open enrollment period for Obamacare and off-exchange major medical plans. This period is now generally November 1 – January 31, although it has varied in the past and could be changed from year-to-year by the government.
While most people know that this is the enrollment period for the exchanges, many do not realize that this same period is used by insurance companies for off-exchange enrollment. That means whether you are considering purchasing a plan on the exchanges or “off-exchange” from an insurance agent or the online website of a major medical insurance company, those dates are the same. Most insurance companies hold to those same enrollment dates so that they are not subject to consumers waiting until they are diagnosed with a serious illness to enroll in coverage.
There are special enrollment rules that allow consumers to enroll in coverage at other points in the year, but you must experience one of the specific situations specified in order to qualify for Special Enrollment. And even then, this Special Enrollment is for a limited period of time following a specific qualifying event.
Short term health insurance provides a good choice for people who missed an enrollment period and want insurance to cover them at least until the next enrollment period.
If you are unemployed, whether by your own choice or circumstances beyond your control, you may be without health insurance during the time you are seeking another job.
The duration of your unemployment is something that is usually not known. The Bureau of Labor Statistics (part of the U.S. Department of Labor) reports the following statistics for the duration of unemployment:
- More than 40% of unemployed persons are unemployed for 15 weeks or more.
- 1 in 4 of the unemployed are unemployed for 27 weeks or more.
Short term health insurance is a simple way to handle this temporary period of time, even though you do not initially know how long the period may be.
In the Transition Period – Waiting for Employer Coverage to Start
When you begin a new job, some employers offer you health insurance coverage immediately from your date of hire. However, most employers have implemented a “waiting period” during which you are not offered coverage. This period is usually 30 days, 60 days or up to 90 days after your hire date. This protects the employer from the administrative burden of enrolling employees that do not remain in the job for more than a short time.
Included in the Affordable Care Act (ACA) legislation, group health plans cannot have a waiting period longer than 90 calendar days. Some employers can extend this waiting period up to another month, if they have a bona fide orientation period that employees must complete as part of their eligibility for benefits.
While you are in a waiting period for employer-sponsored health insurance coverage, short term health insurance can provide the protection and security that you and your family need for this temporary period of time.
Lost Employer Coverage [COBRA alternative]
If you lose employer-sponsored coverage that you had, either because you are no longer employed or your hours were reduced, you may be eligible for COBRA coverage. COBRA stands for Consolidated Omnibus Budget Reconciliation Act. It requires that group health plans provide temporary continuation of coverage that otherwise may be terminated.
However, COBRA coverage is expensive. On COBRA, you pay the full cost of the insurance. In fact, you can even be billed 2% over the full cost, to account for administrative expenses for the COBRA coverage. If you take the COBRA coverage offered and then decide that it is too expensive for you to continue, you can drop the coverage, but in that case, you cannot apply for Obamacare exchange coverage (and most other standard health insurance plans) until the next annual open enrollment period. This period has been starting on November 1 for coverage that begins the following January 1.
Short term health insurance provides a less expensive alternative to COBRA coverage for many people who have lost employer coverage.
Want Obamacare Alternative
Some people simply want an alternative to Obamacare, because they do not agree with it or they find it too expensive and/or too restrictive in its medical network.
According to the ACA, an employer-sponsored health insurance plan is “affordable” if the cost to the employee is no more than 9.69% of the employee’s household income in 2017. However, for many employees, this amount is not affordable to them in the real world. As an example:
- $30,000 annual income (approximately $14.40/hour for a 40-hour week)
- 9.69% of $30,000 = $2,907
- $2,907 = $242.25/month premium cost maximum to the employee at 9.69%
For employees at higher incomes than this example, the “affordable” amount also increases. For many, this cost becomes a serious individual or family budget concern.
Short term health insurance can be an affordable alternative with costs for some plans about half that of Obamacare health plans.
Student or Recent Grad
If you are a college student or a recent graduate, you may not be on your parent’s health insurance even if you are under age 26. Many employers offer dependent coverage, but they may require employees to pay the full cost of dependent coverage. This can make the coverage too expensive for some families.
Short term health insurance provides a more economical option to cover college students and recent graduates, at least until they are employed and can access employer-sponsored coverage as an employee.
Bumped from Parent’s Plan
Happy 26th Birthday! Once you turn 26, whether you are still a student or not, most employers end your coverage on your parent’s insurance plan. The ACA only requires that group health plans offer coverage until children of employees are age 26. Some states may extend this further.
Most individuals who remain on their parent’s plan until age 26 are students, unemployed or employed in a job that does not include health insurance benefits.
Short term health insurance is an economical choice for you when you turn age 26 and are no longer covered on a parent’s insurance plan.
If you retire before age 65, you are most likely not eligible for Medicare, and you will need to purchase health insurance on your own.
The cost of health insurance that you find through Obamacare or off-exchanges for a standard major medical plan may be quite high. And, you may not be able to use your own doctors under some of these plans, as their medical provider networks may be restrictive.
Short term health insurance can be an affordable option for early retirees, especially if you are generally healthy and do not have serious or chronic health conditions.
Short Term Medical Can Be the Solution for Many
There are many situations that may be temporary or for rather extended periods of time when a short-term health insurance plan could provide exactly what you need at a cost you can afford.
Don’t be caught without health insurance when unexpected sickness or injury occurs. Avoid many thousands of dollars in medical debt by applying for coverage now.
* Plans purchased before April 1, 2017 may have an effective date through December 31, 2017.