Short Term Health Insurance Plans: A good option to bridge the gap before Medicare?
By Jenn King
Short Term Health Insurance Plans are health insurance plans that fill that short term gap in health insurance coverage you may have anywhere from 3-6 months up to a year. These plans were more recently in the news when President Trump signed an Executive order in August 2018 allowing these plans to cover individuals for up to one year versus the previous 3-month regulation, however, these plans have been in existence for decades.
Let’s discuss how this health insurance option might work during your pre-Medicare years and what things you should consider when evaluating this option.
You’ve retired early at age 63. Because you were comfortable with your health insurance providers as covered under your old employer plan, you decided to use COBRA insurance to take care of your needs. But COBRA only lasts 18 months. As a result, you will have a 6-month gap before you turn age 65.
You COULD opt to go into the ACA Marketplace and purchase a policy, but because your income does not allow you to qualify for tax subsidies*, ACA Health Marketplace plans are going to be even more costly than COBRA. In addition, you had heard that Short Term Health Insurance plans generally have LOWER PREMIUMS. BUT WHAT ARE THE RISKS?
MEDICAL UNDERWRITING – These policies require you to be medically underwritten to get approval which means you can be turned down for pre-existing conditions. This is unlike ACA Compliant health insurance which cannot decline you for pre-existing conditions.
LIMITS ON COVERED BENEFITS – There could be limits on number of doctor visits, costs covered for a hospital stay and limits on prescription drug coverage.
OUT OF POCKET COSTS – While most policies do have an out-of-pocket limit, this is usually for cost sharing ONLY. For things that are not cost-shared – like deductibles or copays – there is no limit to what you will pay out of pocket. This is unlike ACA Compliant health insurance which has an out-of-pocket limit for all costs – both cost sharing and not. For the 2022 plan year, the ACA out of pocket maximum is $8,700 for an individual and $17,400 for a family.
OPTION TO RENEW – At the end of your term, the insurance company can choose NOT TO RENEW the policy, quite possibly based on a claim you made while covered under the policy.
OTHER CONSIDERATIONS….
INDEMNITY POLICIES – Some of these contracts can be sold as indemnity policies where the health insurance company does not limit the coverage to certain doctors or hospitals. But what this also means is that there are no negotiated limits as to what these doctors or hospitals can charge you.
For example, if you unexpectedly get diagnosed with a condition that requires expensive procedures or treatments, the health insurance company will pay up to their coverage limits, but you could be on the hook for the remainder of those costs.
STATE LIMITATIONS – Because these policies do not cover people with pre-existing conditions, there are certain states that do not allow the sale of these policies: California, Massachusetts, New Jersey, and New York.
A handful of other states apply such strict rules to these policies that insurance companies that provide short term health insurance will not offer these short-term health insurance policies in those states. Please check your state’s health insurance website to see if this product is available.
WITH ALL THESE RISKS AND CONSIDERATIONS, CAN THIS BE A GOOD “BRIDGE OPTION TO MEDICARE?
Generally, if you are healthy and a low user of healthcare services, Short Term Health Insurance Plans can be an inexpensive short-term option to make sure you have coverage. More specifically, it’s better served for catastrophic events like a car accident.
However, if any of the risks above would be concerning to you, there are other options available that will be covered in this blog series. Ultimately, only you can decide what is going to be your best option to cover your retiree healthcare needs before Medicare.
WATCH THIS VIDEO TO LEARN MORE ABOUT SHORT TERM HEALTH INSURANCE PLANS
For additional guidance about Short Term Health Insurance Plans, we recommend watching the following video: Health Insurance Before Medicare. This is a self-help online course created by Paragon that is meant to help pre-retirees and retirees better understand common planning issues before the age of 65 in greater detail.
FOOTNOTES AND SOURCES
*The ACA Marketplace and its associated tax subsidies will be covered later in the series.
“ACA Open Enrollment: For Consumers Considering Short-Term Policies”, Published: October 25, 2019, https://www.kff.org/health-reform/fact-sheet/aca-open-enrollment-for-consumers-considering-short-term-policies/
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