The rapid growth of short term medical insurance in the United States has taken many by surprise and caused some confusion among consumers, the health care industry and insurance regulators. The recent popularity of this coverage is driven primarily by lower costs and easy online enrollment. In addition, insurers have taken steps to make short term medical insurance look more like regular long term coverage by adding policy features and extending maximum coverage periods. The number of short term medical policies issued online grew dramatically from less than 100,000 in 1997 to several million policies today. Short term medical insurance is the most popular type of health insurance issued to individual health plan applicants today. Many of these applicants have never been counseled by a qualified insurance adviser so the potential of problems related to misunderstandings is increased. This article is meant to highlight many of the areas of misunderstanding but is not meant to replace the advise of a qualified personal adviser or a careful reading of your insurance policy.
Background and History
Health insurance managers noticed through the 1980s and 1990s that most people who enrolled in individual health insurance plans kept that insurance for less than a year. Many people paid considerably more in premium for the legal right to renew their coverage year after year as long as the health plan remained in business. This is called “non-cancelable” coverage. That coverage option added as much as 35% to the cost of health insurance and was not necessary for more than 90% of the health plan’s members. Since cost has been the primary driver of health plan sales, insurance companies were eager to promote lower cost policies that expired after a certain length of time. These plans are especially popular with recent college graduates, people between jobs and those starting a new small business.
What is Covered
All short term medical insurance policies cover “ordinary and necessary medical expenses” as defined by the policy. This is the most generous definition of coverage in use among health plans today and basically means something that is prescribed by your doctor in accordance with American Medical Association standards. These policies cover medical expenses only. Dental expenses and ordinary vision care are not considered medical expenses. Most policies cover prescription drug expenses the same as any other medical expense. Most policies have a maximum coverage limit of $1 million to $5 million for catastrophic claims.
What is Not Covered
Short term medical insurance does not cover pre-existing medical conditions, no matter how long ago you had symptoms and treatment. If you had ear infections five years ago that were completely cured, a new ear infection will not be covered under a new short term medical insurance policy. Maternity expenses are not covered. All short term medical insurance policies have a per person deductible that is not paid. Some policies also have a co-insurance that could add to the uncovered expenses.
Quality of Coverage
Considering the fact that these are “indemnity” type plans offering liberal coverage with any doctor or hospital anywhere in the country, short term medical insurance is considered to be among the highest quality health insurance plans in use today. The obvious limitations of pre-existing conditions and overall length of coverage under a policy are the blatantly obvious restrictions on quality of coverage.
Length of Coverage
Most short term medical insurance policies are issued for six months at a time. The shortest policy is 15 days but most insurance companies require a purchase of at least 30 days coverage. Some plans may be available for up to three years. It is possible to enroll in one six month plan after another to achieve to total overall length of coverage needed. A few states require members to switch health plans every 12 months in order to continue to use this type of coverage.
Short term medical insurance averages about half of the price of regular health insurance. The price is based on , age, location of residence and policy details like deductible, co-insurance, optional coverage selected and the method that you choose to pay the premiums. Since coverage is based on age, a 64 year old might expect to pay $300 per month while a 24 year old might pay less than $60 per month.
Not everyone qualifies for this type of coverage. Eligibility is not guaranteed by any state or federal law. Certain groups do not qualify: 1) residents of MA, NJ, NY, and VT, 2) people with significant prior medical conditions, and 3) applicants over age 64. Applicants who have difficulty qualifying for a specific short term medical insurance should check the article “Short Tem Medical Insurance for Special Situations” posted at www.MedSave.com for possible alternatives.
Short term medical insurance is exempt from many federal and state laws that pertain to other health plans like HIPPA and some mandated benefits like maternity coverage. This is another reason for the lower costs.
Short term medical insurance is not COBRA coverage and is not subject to COBRA health insurance laws. Many people use short term medical insurance as a lower cost alternative to COBRA coverage. For more information on this topic and a list of Frequently asked questions about COBRA coverage and COBRA alternative coverage, see www.COBRAplan.com .
Health Savings Accounts
Short term medical insurance policies are probably not intended to be used with health savings accounts, although there is no tax reference for or against this position. Some applicants have used high deductible short term medical insurance policies with a health savings account, but they do so at their own tax risk because the insurance companies have stated that the plans are not HSA-qualified. Future federal legislation might open up this possibility.
Choice of Providers
Most states have a handful of short term medical policies available to individuals. Some states have only one or two companies that offer this coverage. A state-by state listing of the most popular short term medical insurance plans can be found at www.MedSave.com.
Preferred Provider Organizations (PPO)
Most health insurance plan in the US use preferred provider organizations to manage costs. Short term medical insurance plans do not use PPOs. You may use any doctor or hospital of your choice anywhere in the US. Some plans like Assurant include Canada and Mexico. Assurant and Celtic are the only short term medical insurance plans to offer optional access to the Preferred Health Care Systems national PPO network. ( www.PHCS.com ). There is no cost for this option, and it might help save some out-of-pocket costs for bills that are lower than the policy deductible.
Most people pay month to month through pre-authorized debit or credit card payments. Canceling coverage is simply a matter of withdrawing the payment authorization. Significant discounts in price are available by pre-paying months n advance but there is no refund offered if you cancel early.
Popular Insurance Companies
American Health Shield is the most popular national plan for young people under age 30, according to statistics compiled by Freedom Benefits Association and OnlineAdviser service. Assurant Health (www.FreedomBenefits.net), formerly known as Time Insurance and Fortis Health, is the nation’s most popular plan for applicants over age 40. An interesting point about Assurant is that the company does not allow its online enrollment Web site to be listed alongside of competitors for fear of adverse selection based on price without considering the quality differences between plans. Many people would argue that the primary benefit of online insurance enrollment is the ability to compare price and coverage quickly. Other interesting options are Celtic Insurance (www.CelticEnrollment.com) and Select STM from Health Plan Administrators (HPA). Blue Cross Blue Shield Associations offer this coverage. Links to regional Blue Cross / Blue Shield Association Web sites and contact information can also be found on the state pages at www.MedSave.com .
Most short term medical insurance policies are issued online at sites like www.MedSave.com. Online enrollment is fast, reliable and secure. Policies and ID cards are either printed out at the time of enrollment or mailed on the next business day. Enrollment support for any of the plans mentioned in this article is available online or toll-free telephone through OnlineAdviser service.
About the author: Tony Novak, MBA, MT, has personally handled questions from more than 200,000 users of OnlineAdviser service over a period of more than seven years; many of these questions were about short term medical insurance. “OnlineAdviser” is a trademark of Freedom Benefits Association.