Short Term Health Insurance or COBRA?
- By Deb Shields
These days, the high costs of health care make medical insurance an important part of your financial security. That’s why losing your health care coverage – even if for just a short time – can be a daunting prospect.
You’ll want to know available options for bridging the health care coverage gap if you:
- Lost your job
- Aged out of your parents’ medical coverage
- Have a new job but are in the waiting period for your benefits to commence
- Are legally separated or recently divorced from a spouse who had provided your health care coverage
- Retired before you are eligible for Medicare
Continuation of your coverage might be available under the Consolidated Omnibus Budget Reconciliation Act (COBRA). But if you’re looking for comprehensive coverage at a significantly lower cost, short term health insurance might be the right choice for you. Let’s take a closer look at how these two options for short term health care coverage compare.
What is Short Term Medical Insurance?
Also called temporary medical insurance, short term medical insurance provides health care benefits for a specific period of time depending on your need and your state’s insurance regulations. In the past few years, short term health insurance plans have become increasingly popular, especially with younger, healthy individuals.
Key features include:
- Health care provider visits, hospitalizations, emergency care, lab tests, prescription drug costs and more.
- No restrictions on provider networks. You select the health care providers and hospitals you want to see, without worrying about whether your benefits are paid at different rates for “in-network” versus “out-of-network” providers.
- Monthly premiums, deductibles, coinsurance, copays and out-of-pocket maximums, just like you’ll find with permanent health insurance.
- Medical screening when you apply for coverage – you’ll need to answer questions about your health care history during the application process, as certain pre-existing conditions may make you ineligible for coverage.
Short term health insurance does not provide the 10 essential health benefits, as required by Obamacare-compliant plans. However, with short term medical you may choose the benefits that best fit your situation, rather than purchasing a plan that provides coverage you may not want or need.
What is COBRA?
For a temporary period, you may be able to keep the health insurance coverage you had thanks to a federal law known as COBRA. Officially titled the Consolidated Omnibus Budget Reconciliation Act of 1985, this law requires employers (with 20 or more employees) to offer their employees the opportunity to temporarily keep their health care coverage that they otherwise would have lost due to:
- A termination in employment
- A reduction in work hours that would render the employee ineligible for health care benefits
- Other stipulated circumstances, such as active military duty, the employee becoming eligible for Medicare, etc.
Certain states also have laws similar to COBRA regarding the continuation of benefits which may apply to all employers – regardless of size – so even if you don’t qualify for COBRA under federal law, you may be able to continue your health insurance coverage under your state’s law.
Does Short Term Health Insurance Provide the Benefits I Want?
Short term health plans, such as those offered by Pivot Health, provide you with up to a $1 million maximum benefit per covered period. You receive coverage for health care-related services such as:
- Doctor office visits, medical services and treatment, surgery and hospitalization
- Extended care facilities, home health care and mental health services
- Local ambulance or air transport
In addition, with Pivot Health’s plan, you receive access to non-medical benefits, including:
- Telemedicine consultations with physicians who can diagnose and provide you prescriptions in just minutes
- Discounted vision services
- Card for discounted prescription medications
The key advantage to continuing your health insurance coverage under COBRA, of course, is that your benefits and provider networks don’t change. For people with chronic conditions or those who require specialized health care services or prescription drug medications, the convenience of maintaining coverage may be a determining factor in their health insurance decision.
However, if that is not your situation, you may want to consider short term health insurance because you will have freedom of choice of your medical providers, up to $1 million in benefits, and a lower premium cost.
Which Costs More – Short Term Health Insurance or COBRA?
Health insurance shoppers will find that the monthly cost for short term health insurance is significantly less than other comprehensive insurance plans. That’s because short term health insurance coverage is usually purchased by healthy individuals. When people apply for short term health insurance, they typically answer some questions about their medical history to qualify for coverage.
In addition, a short term medical plan helps you meet your budget needs by allowing you to select from a wide range of deductible, co-payment, and out-of-pocket maximum options.
On the other hand, many people find that the cost of continuing their health care coverage under COBRA can be prohibitive. That’s because once your employer stops subsidizing its portion of the premium, you become responsible for paying the entire premium amount. In fact, you may even be charged an additional 2% administrative accounting fee in addition to the full cost of the insurance coverage. These factors will significantly increase the amount you had been paying for your employer-sponsored health plan.
How Long Can I Keep My Coverage?
As the name implies, short term health insurance plans are designed to provide coverage for limited periods of time. The maximum time period for your short term health insurance coverage will depend on the state in which you live.
Under COBRA, the length of time you may continue your health care coverage depends on two factors:
- Whether the coverage is for the employee or the qualifying beneficiaries
- The type of qualifying event that occurred
18 Months of COBRA Coverage
Both the employee and any dependents on the plan are eligible to continue their coverage under COBRA for 18 months if:
- The covered employee’s employment is terminated (voluntarily or involuntarily); or
- The employee’s hours are reduced, and the employee no longer qualifies for benefits
Coverage Under COBRA for Longer Periods of Time
Under certain circumstances, coverage under COBRA may be continued for even longer periods of time. Here are a few examples:
- If a covered employee enters the military or is called to active duty, the employee and qualifying beneficiaries may continue coverage under COBRA for 24 months.
- If an employee became eligible for Medicare less than 18 months before termination of employment, or a reduction in hours, the employee’s spouse and dependents may continue coverage for 36 months after the date the employee became entitled to Medicare.
- If a beneficiary becomes disabled either before or within 60 days of coverage continuation under COBRA beginning, the period of coverage may be extended for another 11 months (for a total of 29 months)
- If a qualifying event (death of the employee, divorce or separation of employee and spouse, the employee becomes entitled to Medicare, or the dependent child ages out of the parent’s plan) occurs during the COBRA continuation period, coverage is extended to 36 months for the spouse and dependents from the original continuation start date for the qualified beneficiary losing coverage due to the secondary qualifying event.
How Easy Is It to Enroll?
Applying for Pivot Health’s short term health insurance is quick, easy and efficient. In just a matter of minutes, you can answer all necessary questions from your phone, laptop or tablet and pay your first premium. Coverage can begin in 24 hours, so there is almost no waiting period.
Enrollment in COBRA requires a number of steps and typically takes weeks to complete. Once your coverage is terminated, you still have 60 days to elect to continue your coverage under COBRA. The good news is that your coverage is retroactive to the first day that your coverage ended if you pay the retroactive premiums.
If you will have permanent health insurance starting within 60 days of your previous coverage ending, you may even decide to wait to elect COBRA. Because your coverage is retroactive (as long as you pay your retroactive premiums), some people even choose to delay electing COBRA, waiting to see if they require any health care services within the first 60 days of the coverage terminating. However, keep in mind that COBRA coverage is significantly more expensive than a short term health insurance plan that you could purchase for that same time period.
What If I Elect COBRA but Decide It Is Too Expensive to Continue?
If you decide to continue your coverage under COBRA, but after a while decide that it is too expensive, you have a couple of alternative options. You may choose to:
- Apply for short term health insurance
- Enroll in an Obamacare-compliant health insurance plan either on or off the exchange – if you are within 60 days of your coverage ending. If more than 60 days have passed since your initial coverage ended, you must wait until the next annual open enrollment period to purchase an Obamacare-compliant plan – or experience a life event that qualifies you to purchase coverage under a special enrollment period.
Keep in mind that if you want to purchase an Obamacare-compliant plan, the process may be lengthy. In addition, coverage may not begin until the beginning of the next month.
Short Term Medical Insurance: Cost, Features and Flexibility You Want
There’s no doubt that for qualified individuals, it’s hard to beat the affordability, flexibility and coverage options that short term health insurance provides. It can be the perfect fit if you need to bridge gaps between more permanent insurance solutions by providing you the financial protection you need against unexpected health care costs.
Editor’s Note: At time of publication, short term medical insurance plans are subject to a tax penalty if carried for three months or more because it is not considered “qualifying” health insurance coverage under the Affordable Care Act.
Call or message us today to learn more about the best health coverage options for your situation.