EDITOR’S NOTE: Short-term plans that were purchased by March 31, 2017, can remain in force as late as December 31, 2017, if allowed by the insurer. But policies purchased after that date are limited to 90-day terms.
The premium increases for ACA-compliant health insurance were substantial for 2017. And although premium subsidies in the exchanges offset most or all of the increases for people willing to shop around for coverage, they don’t help everyone.
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 2.6 million people who are caught in the coverage gap in 18 states that have refused to accept federal funding to expand Medicaid. Their household 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.
Others are caught by the family glitch, and although their coverage is technically considered “affordable,” that may not actually be the case.
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:
Plans are now limited to less than three months in duration
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.
Availability of short-term plans has always varied from one state to another. But prior to 2017, short-term health insurance was defined by the federal government as a plan with a duration of less than one year (states were free to set shorter durations, and some states limited short-term plans to six months). The federal rules changed as of January 2017, though. In 2016, HHS finalized their proposal to limit short-term plans to “less than three months” in duration, for plans with effective dates of January 2017 or later.
However, they noted in the final rule that they wouldn’t take enforcement action on this until April 1, 2017. So short-term plans with longer durations were still available for sale through the end of March, as long as they were scheduled to terminate on or before December 31, 2017. As of April 1, no short-term plans can be sold that have durations of three months or longer (90 days is ok).
Prior to 2017, eight states already limited short-term policies no more than six months — in addition to the five states that didn’t have short-term plans at all. 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 tended to have a maximum length of six months.
That has all changed now that the new rules are being enforced. In every state, new short-term plans are now limited to less than three months in duration.
A lower monthly premium is the primary draw for short-term plans. My own family has one of the least expensive plans available through the exchange in our area of northern Colorado. We pay $863/month for a plan with a $5,500 deductible.
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But we could get a 90-day short-term plan with a $5,000 deductible, for around $200/month, and purchase another short-term plan when that expired. 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.
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 a short-term plan or 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 (even if your health conditions are not included, bear in mind that all short-term plans have blanket exclusions that apply to any pre-existing condition, regardless of whether it’s one of the conditions that determines eligibility for coverage).
- 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 a 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 that wasn’t being enforced until April 1, 2017, so short-term plans were still being sold for the first three months of 2017 with durations that extend — in many states — to as late as December 31, 2017. For people who purchased coverage in early 2017, a short-term plan could still be considered a “bridge to 2018.” That ceased as of April 1, however, when the new rule enforcement took effect.
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 saw heading into 2017 could be exacerbated 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 eventually repealed, people would be able to enroll in short-term plans without being subjected to a penalty. The American Health Care Act (AHCA), which passed the House in early May, would eliminate the individual mandate penalty retroactively to the start of 2016.
The AHCA instead includes a provision to increase premiums by 30 percent when people apply for individual market coverage after having a gap in coverage during the previous year (alternatively, a state could opt to allow insurers to base premiums on an applicant’s medical history in that situation, although that provision might not make it into the version of the bill that the Senate is drafting). Short-term coverage would be considered creditable coverage, meaning that a person who had been covered under a short-term plan would not be charged the higher premiums.
The AHCA’s tax credits would apply more broadly than the ACA’s tax credits, and would be available for off-exchange coverage. But they could not be used for the purchase of short-term coverage.
The new rule limiting short-term plans to 90 days started to be enforced after Trump took office, but it was an Obama Administration rule change, promulgated under then-Secretary of HHS, Sylvia Burwell. On June 8, 2017, a group of 14 Republican Senators sent a letter to HHS Secretary Tom Price, asking the new administration to revert to the old rules for short-term plans.
The Senators claim that the new rules hurt consumers by eliminating the option for short-term plans with durations longer than three months. This is a controversial stance, though, since it hurts the ACA-compliant major medical risk pool when healthy consumers opt for short-term plans instead of regular major medical coverage. Since short-term plans don’t cover pre-existing conditions, they are really only an option for healthy people. And when fewer healthy people sign up for regular health insurance, the risk pool for that coverage tilts more towards the sick end, driving up costs for everyone.
We don’t yet know how the Trump Administration will respond, but it’s certainly within the realm of possibility that we could see the rules relaxed in terms of how long short-term plans can last.