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A guide to short-term health insurance

Most Americans have an additional health plan option in 2019. Short-term health plans are a low-cost plan. Don’t confuse them with standard health insurance plans though.

Yes, they provide health coverage, but they fall well short of what’s considered health insurance under the Affordable Care Act (ACA).

The ACA restricted short-term plans to young people and Americans who couldn’t afford any type of insurance. However, the Trump administration implemented a new policy for 2019 that will now allow anyone to apply for a short-term plan.

These are not catastrophic health plans. Catastrophic health plans are more commonly referred to as high-deductible health plans. Those plans as the name suggests have high deductibles.

High-deductible plans have low premiums and high out-of-pocket costs, but they provide all the protections of a health insurance plan. Short-term health plans aren’t considered an insurance plan because of their limited protections. They are now yearlong options with a chance to extend two more years. Short-term plans previously only lasted three months and let people renew up to a year.

Ryan McCostlin, a healthcare advisor at Bernard Health, said short-term plans aren't for everyone, but some Americans may want to consider the plans.

“More and more Americans are saying that figuring out health insurance is more like filing taxes than buying car insurance, and the resurgence of short-term plans for 2019 is a signal that there’s just another healthcare financial planning strategy to be considered by savvy consumers,” McCostlin said.

Let’s take a look at what’s a short-term plan, what it covers and what it costs:

What’s a short-term health plan?

Short-term health plans are low-cost, low-coverage plans. Starting in 2019, these plans are available for most people up to one year with the option to extend the plans twice. In effect, you could have a short-term plan for three years. That’s unlike regular health insurance, which doesn’t have time limits.

Not all states allow short-term plans. States that forbid the sale of short-term plans include:

  • California
  • Hawaii
  • Massachusetts
  • New Jersey
  • New York

Other states have regulations that restrict short-term plans beyond the federal rules. For instance, Maryland only allows short-term plans for three months with no renewals.

What does a short-term health plan cover?

What short-term plans cover varies widely. Federal regulations allow short-term plans to create their own coverage plans without any required mandates like a regular health insurance plan. So, you may find substance abuse treatment coverage in one short-term plan, while another might cover barely anything.

The Kaiser Family Foundation analyzed short-term plans available in 2018 and found that:

  • 43 percent don’t cover mental health services
  • 62 percent don’t cover substance abuse treatment
  • 71 percent don’t cover outpatient prescription drugs
  • None of the plans cover maternity care

“They have a lot of fine print exclusions,” cautioned Betsy Imholz, special projects director at Consumers Union. “It’s worth noting that 40 percent of pregnancies in the U.S. are accidental. So, women of childbearing age need to be mindful of that excluded coverage in short-term plans.”

The ACA requires health insurance plans cover the 10 essential health benefits:

  • Ambulatory patient services
  • Emergency services
  • Hospitalization
  • Maternity and newborn care
  • Mental health and substance use disorder
  • Prescription drugs
  • Rehabilitation services
  • Laboratory services
  • Preventive and wellness services
  • Pediatric services, including oral and vision care

Those are now standard parts of health insurance. Not so for short-term plans. In fact, you might have trouble finding a short-term health plan that covers most of those services.

Short-term plans vary, so you might find one that covers prescription drugs, while others don’t.

Short-term plans with more benefits will cost more than ones that provide little protection.

There’s also the issue of being denied coverage. While ACA plans require that insurers approve everyone regardless of health status, short-term plans can reject you. Some states may require “guaranteed issue,” which means a plan must cover you, but the federal law doesn’t demand that for short-term plans.

A short-term plan may reject you if you have a pre-existing condition. Or that plan may charge you exorbitant premiums. That’s not allowed in ACA plans.

More than half of Americans who aren’t in Medicare or Medicaid have some type of pre-existing condition. A short-term plan is likely not a good choice for those Americans.

Imholz said short-term plans can also cap the amount they pay to cover you annually and can limit how much it will spend on specific services, such as hospitalizations.

So, if your short-term plan covers hospitalizations, but only up to $5,000, you’ll be the hook for any amount above $5,000. That’s one reason why it’s critical to dig into what a specific short-term plan covers before signing up.

Plus, short-term plans can bring hefty out-of-pocket costs. Many short-term plans have lifetime limits on what they’ll cover. If you have a short-term plan and you’re diagnosed with a costly illness, the plan may stop paying for care after a limit is reached, such as at $100,000.

Short-term plans can also limit what they pay for specific treatments and hospitalizations.

8 Facts  about short term health plans

How much does a short-term health plan cost?

You can find a short-term health plan for less than $100 a month. Compare that with the average of nearly $400 for ACA-compliant health plans. Short-term health plan premiums are 80% less on average than ACA plans.

However, Imholz said premiums are just one piece of a financial puzzle. You must also look at a plan’s deductibles, copays, coinsurance and dollar limits and exclusions of services that aren't covered in short-term plans.

You may find that a low-cost, short-term plan may actually cost you more in the long run than an individual health insurance plan.

“There are all sort of pitfalls in these skinny plans that may not be evident at first blush and aggressive marketing emphasizing their lower premiums may make them sound tempting. But short-term plans cost less in premiums because they cover less. If you fall into one of the many gaps these plans have, it will end up costing you a lot more in the longer run,” Imholz said.

Who should get a short-term plan?

Healthy people might benefit from a short-term plan’s low premiums as long you don’t need health services.

These plans can provide you with some coverage but can lead to substantial out-of-pocket costs. A short-term plan is likely not a good idea if you plan to start a family.

“Short-term plans are not a panacea. They’re not a good fit for everyone, but they should be included in any serious analysis of healthcare financial planning,” McCostlin said.

Some major health insurers, such as UnitedHealthcare, offer short-term plans. Don’t confuse that coverage with regular health insurance. Just because a big-name insurer offers a short-term plan doesn’t mean that plan will provide you with full health insurance coverage. It’s not always easy to distinguish between plans, so it’s critical to read the fine print.

“One thing consumers can do is to ask the agent or company for a Summary of Benefits and Coverage, which is a standardized form required for ACA plans to help people compare plans. If there is not one available, that’s an indicator that it's not an ACA-protected plan,” Imholz said.

People with any illness and pre-existing condition like asthma or diabetes should avoid short-term plans. Even if a short-term plan covers you, your pre-existing condition will likely lead to significant premiums. The plan also won’t likely provide enough coverage to make it worth your while.

However, if you’re healthy and don’t plan on using healthcare services often, a short-term plan can be a wise choice. Just hope for a year full of healthy days and little time spent at the doctor’s office or in a hospital.

Of course, you can’t predict your health for the next year. Imholz gave the example of one woman who bought a short-term plan. She was healthy so thought it was a good fit. Then, she was diagnosed with diverticulitis. The plan covered that ailment, but not the infection that arose from the condition. The plan declined to cover the treatment and deemed it a pre-existing condition. That decision left her with thousands of dollars of medical bills.

“Accidents and illness often come unexpectedly, so while you may be healthy today, life can change in an instant. If you can swing a marketplace policy, it’s a much safer, better deal,” Imholz said.

Short-term plans are also an option if you need to bridge the gap between employer plans. You can buy COBRA insurance and keep your previous employer’s insurance plan temporarily. That’s expensive though.

A short-term plan is a lower-cost alternative to COBRA or an individual plan. It’s also better than not having any coverage at all.

“There are many Americans who are choosing between short-term plans and no coverage at all. For these consumers, short-term plans can be a good fit to protect against emergencies and unexpected accidents,” McCostlin said.

Short-term health plan shopping tips

Thinking of buying a short-term health plan? Here are some things to keep in mind:

  • Read the fine print of what the plan covers, and especially what it doesn't cover.
  • Understand how much you'll pay out of pocket. How much is the deductible? What percentage of covered medical expenses do you pay after the deductible? What is the maximum amount you will have to pay out of pocket?
  • Check the dollar cap on coverage -- the lifetime benefit maximum.
  • If the plan has a network of medical providers, make sure the network includes doctors and hospitals you would use.
  • Understand that if you enroll in a short-term plan instead of choosing COBRA coverage, you will lose eligibility for COBRA after the short-term plan expires.

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