The basics of short-term health insurance

Last Updated: April 25th, 2014

Short-term health insurance plans are designed to fill temporary coverage gaps for people in transition -- recent college graduates, people between jobs and early retirees. You choose the term when you buy the policy - anywhere from one to 11 months in most states and up to four or six months in others.

But these plans aren't just temporary versions of the standard individual health insurance plans you buy from insurers and the government-run exchanges under today's health care reform rules. And they don't count as coverage to meet the federal government's requirement to have health insurance. You could still get fined a tax penalty for being uninsured, even if you have a short-term health plan for most of the year.

Limitations and exclusions of short-term health plans

Unlike the "metal plans" - bronze, silver, gold and platinum - short-term health plans don't have to meet Affordable Care Act (ACA) standards.

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.
• Time the coverage period appropriately. The end of a short-term plan does not qualify you to enroll in a standard health plan outside the annual open enrollment period.
• 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.

The ACA metal plans must cover an average of at least 60 percent of covered medical costs, and they must cap out-of-pocket expenses -- the amount you pay for covered care -- at $6,350 for individual plans and $12,700 for family plans in 2014. They can't cap the dollar amount of annual or lifetime benefits you receive, and they must cover 10 essential health benefits, such as preventive and wellness services and maternity care. Finally, with the metal plans, insurers can't deny coverage or charge you higher premiums because of your medical history.

Not so with short-term health plans. With these plans, insurers can:

• Deny coverage because you have a health condition.
• Exclude coverage for benefits deemed essential under health care reform, such as substance abuse treatment or mental health services.
• Cap the dollar amount of benefits you receive.
• Charge deductibles above the out-of-pocket cost threshold for metal plans.
• Refuse to renew your coverage at the end of the policy period.

No government subsidies are available to help purchase short-term health plans, and you can't buy them through the government exchanges. Insurance companies sell them directly to consumers or through brokers or websites.

What short-term health plans cover

UnitedHealthcare, Blue Cross and Blue Shield and Assurant Health are among the insurers offering them. The plans vary widely in the services they cover, deductible and coinsurance amounts and the dollar caps on coverage. Like traditional plans, many short-term plans have medical provider networks. You pay more out of pocket to use out-of-network than in-network doctors and hospitals.

Short-term health plans from UnitedHealthOne, a UnitedHealthcare company, for instance, feature a choice of deductibles from $1,000 to $10,000. The least expensive plan covers outpatient doctor visits for injury and illness, x-ray and lab work, mammograms, pap smears and PSA screenings, hospitalization, emergency room visits for injuries and emergency visits for illnesses if you're admitted to the hospital. It pays 70 percent of covered medical expenses after the deductible. The plan does not cover outpatient prescription drugs, preventive care or mental health services, and it caps lifetime benefits at $250,000. The most expensive plan pays 80 percent of covered services after the deductible, includes prescription drug and mental health coverage, and has a $1.5 million lifetime benefit maximum.

Temporary health plans generally have lower monthly premiums than the metal plans if you don t count any government subsidy you might qualify for to purchase an exchange plan.

Less coverage and lower premiums

A six-month short-term plan with a $5,000 deductible could cost a 30-year-old Los Angeles man as little as $99 a month, according to an analysis in late November by HealthPocket, a Sunnyvale, Calif. company that ranks and compares health plans. The least expensive bronze plan with a $5,000 deductible offered on the California exchange would cost the same man $175 per month.

Short-term health plans may appeal to people who want coverage for catastrophes but are willing to sacrifice other benefits to get a lower premium, says Martin Rosen, cofounder of Health Advocate in Plymouth Meeting, Pa. a service that helps individuals and employers navigate the health care system.

"I think it would come down to economics and circumstances," he says. Even if they have to pay a tax penalty for being uninsured, "the math could still work out."

But, he adds, "People should understand the limitations of the plans."

The plans are not intended to be a substitute for permanent coverage.

The target market is "people who truly have a short-term need for coverage, for example are in between jobs and are without coverage for 30 to 60 days," says Maryann Schultz, a spokesperson for Blue Cross and Blue Shield of Illinois. The insurer offers SelecTemp PPO, a one- to six-month plan with deductibles ranging from $500 to $5,000.

They could also fill a coverage gap for people who missed the open enrollment deadline for the metal plans and need bridge coverage until the next open enrollment period, Schultz says. You can purchase a short-term health plan at any time of the year.

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