Short-term health insurance: a bridge to 2018?

Temporary health plans offer refuge for millions facing premium hikes. Here's how and where you might use them to replace ACA coverage.

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  • December 30, 2016

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EDITOR’S NOTE: If you’re reading this because you missed the December 19 deadline that applied in most states to have coverage effective January 1, keep in mind that if you want to have an ACA-compliant plan effective February 1, you need to enroll by January 15 in nearly every state. If you don’t enroll until the second half of January, your ACA-compliant plan wouldn’t take effect until March, so you’d need to make sure your short-term plan covers you for January and February.

With recent headlines about higher individual-market health insurance rates in 2017, many consumers have been looking for coverage that isn’t ACA-compliant, but that will still provide a level of protection until premiums become more affordable – hopefully in 2018.

If you’re among those consumers, should you consider short-term health insurance plans as a temporary bridge?

Why consider short-term coverage?

There are currently about 3 million Americans who are caught in the coverage gap in 18 states that have refused to accept federal funding to expand Medicaid. Those consumers’ incomes are under the federal poverty level, so paying full price for health insurance is probably a non-starter.

Millions of Americans also have incomes above 400 percent of the poverty level, but not dramatically so. And thanks to the subsidy cliff, they can be facing premiums that are 25 percent – or more – of their income, depending on where they live.

If you’re among these consumers – and you’ve looked at all the on- and off-exchange options for regular health insurance and simply cannot afford them – it’s worth at least weighing the pros and cons of short-term coverage. So here’s what you need to know:

Availability varies by state

Short-term plans are available in most states, but the type of temporary plan can vary considerably. And, in fact, there are five states (New York, New Jersey, Massachusetts, Rhode Island, and Vermont) where short-term plans aren’t available at all.

Short-term health insurance is currently defined by the federal government as a plan with a duration of less than one year. But this is changing considerably as of January 2017. In 2016, HHS finalized their proposal to limit short-term plans to no more than three months in duration, for plans with effective dates of January 2017 or later.

Prior to 2017, eight states already limited short-term policies no more than six months. And even in the states where the pre-2017 federal definition (ie, less than one year in duration) was being used in 2016, the majority of available plans tend to have a maximum length of six months.

Potential savings

A lower monthly premium is the primary draw for short-term plans. My own family has the least expensive plan available through the exchange in our area of northern Colorado. We pay $685/month for a plan with a $5,000 deductible. As of January 2017, it will be $863/month, and the deductible will increase to $5,500.

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But we could get a six-month short-term plan with a $5,000 deductible, effective in late December 2016, for around $200/month. There are several plan designs available, and although none of them are as comprehensive as the ACA-compliant plan we have now, the trade-off is that they have much lower premiums — and that difference becomes even more pronounced as of our plan renewal in January.

For us, the downsides to short-term plans outweigh the cost savings. Under a short-term plan, we’d have to pay the ACA penalty for not having coverage, and I would lose sleep worrying about the fact that short-term plan are not renewable; you have to purchase a new plan when the first ends, so if a serious medical condition were to crop up, we’d be out of luck.

That said, I can easily see how the trade-off might absolutely be worth it for some folks. Particularly if you’re in an area where premiums are sky-high in 2017, if the choice is between a short-term plan and going uninsured, a short-term plan is a far better option.

Other obvious advantages

If short-term coverage is available in your state, there are some features with obvious appeal for consumers who are in dire straits.

  • Immediacy. With short-term policies, healthy applicants can secure immediate individual and family coverage, with plans that can kick in as early as the next day. If you already know the number of days you will need to be covered, your insurer may allow you to make a single payment for the whole coverage period.
  • Costs. Short-term plans are typically offered with a selection of premiums, deductibles and benefit maximums. The policies are considerably less expensive than ACA-compliant major medical plans, so you may find that you can afford to purchase a plan with a low deductible and a high-benefit maximum.
  • Flexibility. The policies also cover a range of physician services, surgery, outpatient and inpatient care. In addition, policyholders can often choose their own doctor and hospital without restrictions, though there may be financial incentives for using in-network providers.
  • Enrollment / eligibility. The enrollment process is quick and easy, with just a handful of yes/no questions regarding major health concerns.
  • You can extend coverage. You may be able to buy another short-term plan after the first one ends, but you’ll have to reapply, as the plans are not renewable. And any medical conditions that came up while you were covered under the first plan would no longer be covered under the second plan.

A few important caveats

  • No coverage for pre-existing conditions. Even if you’re eligible for coverage based on the short list of questions I just mentioned, you will not have coverage for any pre-existing medical conditions while you’re enrolled in the plan. Short-term plans exist solely to provide coverage for medical conditions that have not yet arisen. They will not be any help at all in terms of medical conditions you already have. Be sure to check the list of exclusions on any policy.
  • It’s not comprehensive coverage. These plans weren’t designed to cover everything, and they do not provide coverage for all of the ACA’s essential benefits. They typically won’t cover your routine office visits, maternity, mental health or preventative care. Again, be sure to check the list of exclusions on any policy.
  • You could still pay a penalty. This is biggie. Unless you qualify for an exemption from the ACA’s individual mandate penalty, you will owe a penalty if you rely on short-term health insurance. (Everyone in the coverage gap is exempt from the penalty, as is anyone for whom the least-expensive plan in the exchange — after accounting for any available subsidies — is more than 8.16 percent of household income in 2017.)
  • You could still end up facing a gap in coverage. When your short-term plan ends, you will not be eligible to purchase a regular plan in the individual market if it’s outside of open enrollment. Loss of minimum essential coverage is a qualifying event that triggers a special enrollment period, but a short-term plan is not considered minimum essential coverage. But if you know that you’re going to have a qualifying event during the year that will allow you to enroll in an ACA-compliant plan, a short-term policy might be the perfect bridge to get you there and save money on premiums. (So for example, if you’re getting married in June 2017, you’ll have access to an ACA-compliant plan at that point. And short-term plan for the first part of the year might end up being a good solution.)

How the new federal rules impact availability

The federal government’s changes to the definition of short-term health insurance were aimed at “curbing abuse” of short-term plans, as these policies were never intended to serve as a long-term solution to coverage needs.

The policies are supposed to fill in the gaps between other plans, and HHS is trying to ensure that they can’t continue to be used as a replacement for regular health insurance.

So as of 2017, all new short-term policies are limited to a duration of no more than three months. But policies with effective dates prior to January 1, 2017 will be able to continue until their already-scheduled termination date.

So in many states, it is still possible to purchase a 364-day policy with an effective date in late December, and maintain that coverage until almost the end of 2017. In that way, a short-term plan could still be considered a “bridge to 2018.”

Although the majority of the states do currently allow a single short-term plan to last nearly a year, most of the available plans have maximum durations of six months. In most states, you can reapply for another short-term plan after the first one ends, but you’d have to qualify again based on medical underwriting — and short-term plans with effective dates in 2017 won’t be able to exceed three months in length.

Keep your ACA-compliant coverage if you can

One other factor to keep in mind: If you’re healthy enough to enroll in a short-term plan and you drop your ACA-compliant coverage to do so, you’re inadvertently harming the ACA-compliant risk pool, and leaving it with sicker enrollees. If a significant number of people do this, the problems with rates that we’re seeing for 2017 could be repeated for 2018. If there’s any way you can remain in the ACA-compliant risk pool, we’ll all be better off in the long-run.

Obamacare has made it much easier for a lot of the previously uninsured population – including those who are temporarily uninsured – to obtain high-quality individual health insurance. The law has done a great job of providing considerable financial assistance in the form of cost-sharing subsidies and premium subsidies.

But there are still situations when a short-term policy makes a lot of sense. If you’re choosing between a short-term plan versus being uninsured in 2017, that’s probably a situation where short-term coverage is a good idea.

Will all of this change under a Trump Administration?

The ACA has never applied to short-term plans, so GOP plans to repeal the ACA wouldn’t change anything about short-term plans themselves. But if the penalty for not having minimum essential coverage is repealed, people would be able to enroll in short-term plans without being subjected to a penalty.

Some of the proposals that Republicans have put forth for replacing the ACA include requirements that people maintain “continuous coverage” in order to avoid medical underwriting and possible denials/rate-ups based on pre-existing conditions. We don’t yet have details in terms of what would constitute continuous coverage, but it’s possible that short-term plans might not be included. These are the sort of details that people will need to watch closely in the coming months, as ACA replacement plans are debated.

The rule limiting short-term plans to no more than three months in duration was enacted via HHS regulations. It is not part of the ACA or any other legislation. So a Trump Administration HHS — run by Tom Price — could reverse those rules with new regulations.

We’ll continue to update this page as more information becomes available.