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Ask Emily: No Health Insurance? The Pros And Cons Of Short-Term Plans

CarbonNYC / Flickr
 

CarbonNYC / Flickr

Emily Bazar | Kaiser Health News

Open enrollment for 2016 ends Sunday for those who buy health plans from the private market or health insurance exchanges.

But if you don’t act by the deadline, are you completely out of luck?

Not necessarily. If you lose your job, have a new child in the family or experience another qualifying life event, you may be eligible for a special-enrollment period during the year.

Another option is a short-term health plan.

These plans last less than a year, have lower premiums than regular ones and often come with beefier doctor and hospital networks.

For some people – especially those who are young, healthy and don’t qualify for a tax credit from Covered California or other health insurance exchange – short-term plans might make financial sense, even though they don’t shield you from the Obamacare tax penalty.

“Depending on your age and income level, you could get one of these plans, pay the uninsured tax penalty and still pay less than if you had purchased a” comprehensive plan, says Kev Coleman, head of research and data for HealthPocket, a health insurance comparison website based in Mountain View.

If this sounds too good to be true, it probably is for most people.

Short-term plans won’t cover your pre-existing conditions and they don’t offer coverage for certain medical services.

“If you get cancer or something really serious, you’re going to want really robust health insurance,” says Nate Purpura, vice president of consumer affairs for eHealth.com, a private online health insurance marketplace also based in Mountain View. “And you don’t want to pay the tax penalty.”

Before the Affordable Care Act (ACA) took effect, short-term plans (also called “term health insurance”), were purchased primarily by people between jobs, by those waiting for their new job-based insurance to kick in or by recent college graduates.

“They were designed to be transitional coverage, not a permanent type of insurance product,” Purpura says.

But since the law’s major provisions took effect in 2014, eHealth and other insurance retailers report that sales of short-term plans are picking up. Affordability is the biggest selling point, they say.

If your income doesn’t qualify you for a tax credit to help pay for insurance from Covered California (or another health insurance exchange), premiums can be expensive. Even with a subsidy, you still may owe hundreds each month for coverage.  

“There are several million people nationally who don’t get subsidies. That’s basically the growth engine for the term health insurance market,” Coleman says.

The tax penalty hasn’t deterred some people from signing up for short-term plans, especially the young and healthy: 18- to 34-year-olds accounted for more than half the buyers of short-term plans last year at both eHealth and AgileHealthInsurance.com, another Mountain view-based company, which sells only short-term health insurance plans.

“The biggest demographic is Millennials,” says Sam Gibbs, Agile’s executive director. That is, the same young and healthy people considered key to the stability and success of the ACA’s health insurance exchanges.

George Goldman, a 22-year-old Century City resident, dropped his regular health insurance plan early last year because he was paying $300 a month for coverage he didn’t think he needed.

“It was a financial decision,” he says. “I don’t care if I’m fined.”

Later in the year, however, Goldman became nervous without coverage and purchased a short-term plan from eHealth for the final months of 2015. It cost a little over $200 a month, and covered a visit to the emergency room.

This year, he enrolled in a regular health plan again because he thought he was taking on too much risk. “It’s still a financial burden, but when you need it, you need it,” he says.

Before you try a short-term plan, consider the pros and cons:

PROS

  • You can buy them any time of year.

  • Their premiums are generally lower than major medical insurance plans. The average premium for short-term plans sold by eHealth in California last year was $177 per month, Purpura says.

  • They may have broader networks of doctors and hospitals than some plans available from exchanges.

CONS

  • They won’t accept you if you have pre-existing conditions, or if they do, they won’t cover them.

  • They may not cover benefits such as maternity care, preventive services or prescription drugs. Some may offer drug or dental discount plans, but those aren’t the same as insurance.

  • They last less than a year and you have to reapply at the end of each term. There’s no guarantee you’ll be accepted again, especially if you got seriously ill while you had coverage.

“Term health insurance isn’t good for someone who has chronic health conditions or who takes expensive medications,” Coleman says.

If you think it will be cheaper to buy a short-term plan and pay the ACA tax, make sure you’re using the correct equation.

For the 2016 tax year, the tax penalty grows to $695 per adult or 2.5 percent of annual household income, whichever is greater. “Whichever is greater” means you could owe thousands of dollars.

In general, health consumer advocates warn against short-term plans and urge you to see if you qualify for a special-enrollment period to get a full-fledged plan. Though the federal government says it will tighten the rules governing special-enrollment periods, many of you still will qualify if you have legitimate qualifying life events.

“If you have an alternative to get regular health insurance, certainly try that first,” urges Cheryl Fish-Parcham, private insurance program director for Families USA.

Finally, if you do have short-term insurance and aren’t happy with the level of care or service, contact the plan first. If you’re still having trouble, reach out to the California Department of Insurance (800-927-4357).

Questions for Emily: AskEmily@kff.org
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This story was produced by Kaiser Health News, which publishes California Healthline, a service of the California HealthCare Foundation.