Why Short Term Health Insurance is a Coverage Option if You Don’t Qualify For a Subsidy

The open enrollment period for 2020 health insurance plans begins Nov. 1 and, when it comes to cost, the outlook is mixed. Some consumers will feel the pinch financially; others will experience relief from year-over-year increases. 

Overall, deductibles and out-of-pocket maximums are on the rise. Premiums swing from double-digit decreases to double-digit increases, depending on where you live. If you don’t qualify for a subsidy, short term health insurance could be worth investigating.

Here’s a closer look at a few key figures for 2020 ACA plans:

Out-of-pocket maximums. Out-of-pocket limits for plans sold through the federal and state-based exchanges will increase from $7,900 for an individual and $15,800 for a family to $8,200 for an individual and $16,400 for a family

These limits include what you spend on deductibles, copayments and coinsurance; they do not include premiums.

Deductibles. The IRS definition of high-deductible health plans (HDHP) will increase in 2020 from $1,350 for an individual and $2,700 for a family to $1,400 for an individual and $2,800 for a family

The annual out-of-pocket expenses (deductible, copayments and coinsurance) for HDHPs cannot exceed $6,900 for an individual or $13,800 for a family in 2020, up from $6,750 and $13,500, respectively, in 2019. The limit doesn’t include out-of-network expenses. 

Premiums. Final rates are not yet available for all states; however, the average premium for benchmark plans will drop 4% in the 38 states that use the federal health insurance exchange. Six states that use the federal marketplace will see double-digit rate decreases and three will see double-digit increases in 2020. 

Reinsurance programs are largely responsible for big drops in some states—those who use HealthCare.gov as well as those running their own exchanges.

In 2020 an Obamacare subsidy that helps lower monthly health insurance payments, possibly to just a few dollars, and cost-sharing reductions that help lower out-of-pocket expenses will remain available to those who enroll in ACA plans and qualify based on income. Again, if you’re not eligible for subsidies, you may be looking for other ways to obtain coverage that feels more affordable. 

Let’s take a closer look at why short term plans may be an option for some and what will be happening with ACA plans in different states.

Why Short Term Health Insurance?

For many, the decision to buy short term health insurance comes down to cost. Short term plan premiums tend to be lower than those of ACA plans because this coverage is more limited by design.

A short term policy will not cover all of the essential health benefits ACA plans must include—maternity or primary care, for example. Instead, you will have benefits that help pay for medical costs related to unexpected accidents and illnesses—hospitalization and emergency room care.

If you can’t afford health insurance, here are some additional short term health insurance facts to keep in mind as you weigh your coverage options: 

  • You can apply anytime. There are no open enrollment restrictions for short term health insurance.
  • You may be able to eliminate the yearly application process. In many states, purchase extended, consecutive coverage for two or three years is available.
  • Some short term plans have deductible options that are lower than Bronze plans. As with other types of health insurance, the lower the deductible, the higher the monthly premium and vice versa.
  • All-access, “see any doctor” coverage or PPO network options are available. Keep your preferred healthcare providers without concerns over network access, or choose a PPO plan that keeps costs lower when you utilize in-network providers.

Not everyone qualifies for short term health insurance. It is not subject to ACA requirements for minimum essential coverage, which means you can be denied coverage if you have pre-existing conditions based on your health history. So, if you are eligible for subsidies, you’ll want to visit your state’s exchange or federal marketplace and shop for an ACA plan (aka individual major medical insurance). 

Even if you’re not subsidy-eligible, you’ll still want to look at ACA plan costs in your state so you have all the information—as mentioned earlier, reinsurance programs have significantly reduced rates in some areas. If you still consider unsubsidized plans unaffordable, you may want to consider whether or not short term health insurance will meet your needs.

State Premium Increases And Decreases For 2020

While the national average may be a small decrease, there will be some rather significant decreases in a few states. What’s behind the biggest dips? In a word: Reinsurance.

Many states filed Section 1332 reinsurance waivers to establish programs that help reduce premiums in the individual health insurance market. The gist of it is that the reinsurance program pays health insurers to help offset the costs of high-claims enrollees. Ideally, the insurer passes the subsidy on to consumers via lower premiums. The program is also intended to make the state’s individual market more attractive to insurers—and when more insurers participate, consumers have more options.

As of July 2019, waivers had been approved in the following 13 states: Alaska, Colorado, Delaware, Hawaii, Maine, Maryland, Minnesota, Montana, New Jersey, North Dakota, Oregon, Rhode Island and Wisconsin. Five of these states were approved in 2019 (Colorado, Delaware, Montana, North Dakota and Rhode Island)—three of these five will see double-digit rate decreases next year (Colorado, Delaware and Montana)

Ultimately, in most places, it seems average rates won’t move too dramatically in either direction. In many states, premium increases and decreases appear to hover around 0%; in many others, increases range will be less than 10%.

Here’s a quick look at some key rate fluctuations and other state-related highlights as 2020 open enrollment gets underway:

California

For Californians, open enrollment began Oct. 15. Those shopping for 2020 coverage here will notice minimal average rate increases (record low increases, as a matter of fact). Final, approved rates for on- and off-exchange plans increased 0.9% from 2019 to 2020. Rates for individual plans sold through the state’s exchange, Covered California, increased 0.8% — a record low for the state. 

Starting with the 2020 coverage year, California will impose its own individual mandate and tax penalty. Unless they qualify for an exemption, most state residents will be required to have health insurance that qualifies as minimum essential or pay a state tax penalty if they are uninsured for more than three months.  

California will also introduce state subsidies for 2020. In total, $429 million worth of state subsidies will be available to Californians who earn between 200% and 600% of the federal poverty level. Those whose incomes are 200% and 400% of the federal poverty level will still be able to apply for federal subsidies as well. It is estimated that the state subsidy program could help lower the cost of coverage for nearly 1 million California consumers.

Short term health insurance plans are not available in California.

Colorado

Colorado introduced a reinsurance program and added new insurers for 2020. When open enrollment starts Nov. 1, consumers there will see significantly lower average premiums and some new coverage options.

Colorado’s individual market will experience some of the nation’s largest premium decreases. Rates droped an average of 20.2% that’s before subsidies. Broken down by region, rates decrease across all areas, ranging from a 17% drop in Boulder to a 30% drop in the western slope and mountains.

Because of the rate decreases, rates for the state’s benchmark plan, which is used to determine subsidies, also decreased for 2020. As such, Connect for Health Colorado, the state’s health insurance exchange, is encouraging people to shop for a new plan to see what kind of savings they might take advantage of—some could find low-cost or $0 Bronze plans and others could find the cost of a Gold plan comparable to a Silver plan after financial assistance. Connect for Health Colorado reports that 77% of its current customers qualify for advanced premium tax credits.

Connect for Health Colorado added Oscar Health to its lineup for 2020. That means eight health insurance companies will offer plans through the state-based exchange. A new cooperative called Peak Health Alliance will also offer exchange-based plans in Summit County via Bright Health.

Short term health insurance plans are not available in Colorado.

Delaware

Before the federal government approved Delaware’s reinsurance program in August 2020 rates were expected to drop about 6% for Highmark, the state’s only exchange carrier. Now Delaware consumers will see rates for exchange-based plans drop an average of 19.5%. State officials predict that the rate decreases will encourage more people to enroll on the marketplace, which will help make it more stable.

Montana

Montana is another state that introduced a reinsurance program and saw double-digit rate decreases for 2020—around 13% on average for the state’s three carriers. The new program is being credited for at least 65% of the average premium reductions

The state also reports that with rate decreases from about 2% to over 20%, every 2020 plan sold on Montana’s individual market will have lower premiums than in 2019.

New Jersey

While reinsurance didn’t result in double-digit rates drops for New Jersey, it did prevent sharp double-digit increases. Rates may be going up a bit in New Jersey’s individual market, around 8.7% for plans sold on and away from the exchange, but they could have gone up closer to 30%. 

The New Jersey Department of Banking and Insurance reported that rates are 22% lower than they would have been were it not for two laws signed last year—one to continue a state-level individual mandate following the repeal of the federal mandate, and the other to implement a reinsurance program.

State Health Insurance Mandates

Reinsurance and premium decreases may grab some attention heading into 2020 open enrollment, but they’re not the only story. 

While the federal tax penalty for going without minimum essential coverage went away at the start of 2019, six states have their own individual health insurance mandates and related tax penalties. The states and the year in which their mandates became or will become effective are as follows: 

  • California (2020).
  • District of Columbia (2019).
  • Massachusetts (2007—in effect even before the ACA).
  • New Jersey (2019). 
  • Rhode Island (2020). 
  • Vermont (2020).

Most people in the states listed above must have health insurance that qualifies as minimum essential coverage or pay the tax penalty set by their state unless they are exempt.

What Coverage Should You Choose?

As you decide what health insurance to select for 2020, remember that monthly rates are only part of the equation. You’ll want to also consider your out-of-pocket costs, network providers, subsidy eligibility, and state mandates. When you need a full range of benefits and qualify for premium tax credits and cost-sharing reductions, an ACA plan will be your go-to for coverage.

If you earn too much (or too little) for subsidies, you may want to explore alternatives. Medicaid may be an option if you live in a state where the program was expanded to those with household incomes below 133% of the federal poverty level or meet other state criteria. 

If you can’t get Medicaid and can’t afford Obamacare, short term medical insurance might be an alternative. You can apply online before, during and after 2020 open enrollment for ACA plans because short term health insurance is available year-round. 

If open enrollment hasn’t started in your state, you can still begin shopping around and comparing options. ACA plan previews are available ahead of open enrollment in many states, and online subsidy calculators can help you estimate what, if any, financial assistance you qualify for. You can also gather online quotes for short term health insurance now and see what plan options are available where you live. If you need help understanding any of the choices available to you, a licensed health insurance agent can answer your questions and assist you throughout the process.