Let’s face it: One of the most important employee benefits, when you are employed, is the employer-sponsored health insurance you are offered. It provides you with peace of mind and financial protection for you and your family in case you have a serious illness or injury.
When you are unemployed, that health insurance (paid for partially by your employer) is usually gone. You need to find a way to replace it while you are looking for a job. There are a number of ways to do that, and short term medical insurance is one simple way to handle it.
This type of temporary health insurance provides the coverage you and your family need, and it has a number of other advantages:
- Short term health insurance is usually at a lower cost than an individual major medical plan
- Short term health insurance plans generally include more options than you will find with major medical plans on or off the marketplace.
- Short term health insurance usually does not have the doctor and hospital network restrictions that are part of most typical standard medical insurance.
- Short term health insurance plans may include additional features and services that you do not have access to now.
It is important to have health insurance whether you are employed or temporarily unemployed – for your financial protection, peace of mind and to help you focus on getting that next job. It’s easier to be positive and upbeat about job prospects, job applications and job interviews if you are not also worried about health insurance protection at the same time.
Why Is Affordable Health Insurance so Important for the Unemployed?
According to a study published in 2012 by Browning and Heinesen in the Journal of Health Economics:
- Job loss has been found to increase health risks for people, including circulatory disease, suicide and suicide attempts, and death and hospitalization due to traffic accidents, alcohol-related disease, and mental illness.
In other words, being unemployed is not healthy. It increases certain health risks and can also affect your emotional health and well-being, which can, in turn, affect or further aggravate any health conditions you may already have.
These risks make it even more important for you to have health insurance when you are unemployed. In addition, when you are unemployed, whether it was your choice to leave your last job or you were forced out by your previous employer due to job cuts or other reasons, you really do not know how long it will take to find your next job.
Many people think they can easily get back into a productive job, but sometimes there are roadblocks, barriers, or more competition than you expected for the type of job you want. For many people, it takes longer to find the next job than they ever anticipated.
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 percent of unemployed persons are unemployed for 15 weeks or more.
- 1 in 4 of the unemployed are unemployed for 27 weeks or more.
So, when people you know pat you on the back and say, “Enjoy your time off work; kick back and relax a little bit,” that is probably not advice you should take, since it may merely extend the time you are without work and without the income on which you had been relying.
You may be unemployed for several months, or even 6 months, 9 months, a year or longer. And, once you do start a new job, there may be a waiting period of up to about 3 months before you are eligible for the employer-sponsored plan. That also depends on whether your new employer offers health insurance.
Many small employers do not offer employer-sponsored health insurance because the cost is just too high for some smaller employers. However, for some people, it may be easier to land a new job with a small employer. If that’s the case, your decision will need to be: Do I take a job with a small employer and buy health insurance on my own, or do I say “no” to this job and wait for one that offers health insurance benefits? That is a tough call, and one for which you would need to weigh the risks.
Why Is It Risky to Go Without Affordable Health Insurance?
Do you have enough savings to cover your living expenses AND any medical expenses you may need for 4 months, 6 months, 9 months, a year or longer while you remain unemployed?
Most people do not. A recent study widely reported in January 2016, including in Fortune magazine, by Bankrate.com from a study done by Princeton Survey Research Associates International in December 2015 showed that:
- 63% of Americans do not have enough money in savings to cover an unexpected $1,000 medical event.
If you are one of that majority, then you need to consider taking action to protect yourself and your family. And remember, while you are looking for work, you probably also will be depleting any savings you do have that otherwise could be used for unexpected medical expenses.
That is why short term health insurance can be so important for unemployed people.
What Is Short-term Health Insurance?
Short-term health insurance, also known as temporary health insurance, is health insurance that is available anywhere 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.
Why is this temporary health insurance less expensive than a traditional major medical plan? One main reason is that these plans typically do not cover pre-existing conditions.
- If you are healthy, then this will not matter to you, and you can rely on this insurance in a true insurance fashion: to protect you against unforeseen sickness and injury.
- If you do have a pre-existing condition, you should talk with a licensed professional insurance agent about your options, which may include the public Healthcare Marketplace (Exchange).
What About Those Obamacare Tax Credits? Don’t They Guarantee Affordable Health Insurance?
Some people think that Obamacare and those tax credits are the answer for the unemployed. That may be true only if you expect that you will remain unemployed for a long time. Many people believe that their unemployment period will be less than a year.
So what happens if you do go the Obamacare health insurance exchange route to get tax credits? First, you have to apply online, indicate what you expect your income to be, so you can be determined to be eligible for tax credits. Then you select a plan, and the plans you have to choose from are limited and may be more restrictive than you are accustomed to in terms of doctors and hospitals you can use.
Let’s say you qualify for tax credits because you estimate your income for the coming year to be quite low. After all, you do not have a job now, and you do not really know when you will get a job and regain your income stream.
So that is all well and good. However, if it turns out you were credited too much throughout the year, any over-payments will be reconciled when you file your tax return. This means you may need to pay back some or all of the tax credit if your income turns out to be higher because you get a job during the year. Finding a job would be great news, but also it may increase your marginal tax rate a bit as you begin to earn income and, thus, phase out your premium tax credit.
What About COBRA? Why Is COBRA so Expensive?
If you had a job with employer-sponsored health insurance, then they most likely offered COBRA coverage when your job ended. COBRA stands for Consolidated Omnibus Budget Reconciliation Act. It requires that group health plans provide temporary continuation of coverage that otherwise may be terminated.
Continuation of coverage is the good news. The bad news is the cost. Instead of the employer paying for a good part of the health insurance premium cost, in most cases, former employees that take COBRA coverage pay the full cost of the insurance. In fact, they 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 Can Solve Your Temporary Need
For all of these reasons, short term health insurance can be the solution you need now. Why wait and risk and worry?
There also are some additional advantages to this type of insurance:
- The cost may typically be one-half the price of individual health insurance plans.
- Unlike enrolling in an individual medical policy, the short term application process is simple, many times providing next-day coverage in a matter of minutes. It’s easy to select a policy, easy to apply, and you will know right away when your coverage starts. Actual coverage can usually begin as soon as the next day.
- You choose the length of time you want for your coverage.
- Some of these plans also include additional benefits and features that you did not previously have. Some of these features can help you save time and money on various types of health care.
If you do not have health insurance during this critical period of unemployment, you may be tempted to avoid seeing a doctor or delay seeking care that you know you need. Avoiding or delaying medical care is usually not a good idea. Early diagnosis and early treatment can make the process of dealing with a medical condition much easier.
So, you need to weigh the risks. For most people, it’s a toss-up:
- Risk your physical health by not getting medical care that you need
- Risk your financial health by getting care and paying a lot out of pocket
Your unemployment is a temporary condition. It makes sense to have temporary short term medical insurance to protect you during this time.