What is short-term health insurance and why would you ever need it? Short-term insurance, also known as temporary health insurance, provides health plan coverage for a specific period of time. Major medical health insurance that you receive from an employer’s health plan or through the federal exchange under the Affordable Care Act (ACA) are permanent plans. Medicaid and Medicare are permanent plans. But short-term health insurance is meant to fill a specific gap in coverage when a specific life situation leaves you uninsured. Short-term health plans can be a fit for any of these conditions:
- Job loss leaving you uninsured
- COBRA insurance is too expensive
- Newly married or divorced
- College student needing proof of coverage
- Moving to a new state
- Early retirement before Medicare-eligible
- Not eligible for Medicaid
- Unable to afford an ACA plan
It’s important to understand how short-term and ACA health insurance plans differ. Since short-term health plans are not permanent and only meant to insure you for a temporary amount of time, the benefits are not all-inclusive and don’t cover the same treatments or procedures that a permanent plan would. But if you are healthy and just need coverage while you determine what your next move is for health insurance, short-term medical insurance can be an economical option.
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Health insurance can be confusing and most people don’t want to spend a lot of time comparing the differences between plans. In a 2018 survey by PolicyGenius, the majority of Americans polled felt confident they knew the definitions of four simple insurance terms, but it turned out 96% of the survey participants got at least one wrong answer. Overall, 68% of participants felt confident in their knowledge going in, but only 42% comprehended the correct responses. So while we might feel like we know health insurance, statistically our self-confidence is overestimated.
Health insurance is a big financial commitment, so it’s important to know what is in your insurance contract, and what you are going to be financially responsible for. It’s important to know there are subtle variations in terms of short-term medical insurance plans. But if you understand the definition of the most common terms used by health insurance companies, you can be a step ahead and purchase with more confidence.
Deductible
The medical deductible associated with a health insurance plan is the total amount you are responsible for out of your own pocket before the health insurance company is on the hook for paying a portion of your claims. On a temporary health insurance plan, there can also be an emergency room deductible and a prescription drug deductible which are separate from the plan’s medical deductible.
Coinsurance
This is the insurance term that trips people up the most. To remember what the word means, focus on the start of the word, “co.” This implies that there are two entities involved – because there are. Once you reach your deductible, you will begin sharing a portion of your medical bills with your insurance company. They don’t automatically start paying 100%. You are responsible for usually 20% or 30% of the total cost, and your insurance company picks up the rest of the medical bill. But don’t worry – there is a dollar limit to how much you have to pay out in coinsurance.
Coinsurance Maximum Out-of-Pocket
Once you meet your deductible, you shift into the coinsurance phase of your contract with the insurance company. You are responsible for a portion of your medical bills, typically 20% or 30% and your insurance company pays the rest of your claims. The maximum coinsurance you have to pay from your own wallet is called the maximum out-of-pocket amount. Once you hit the maximum out-of-pocket limit, your insurance company is then responsible for paying 100% of your medical bills going forward.
Copay
Some short-term medical plans come with doctor office copays. A copay is a set fee for the office visit. It does not include any tests or additional treatments you might receive during the doctor’s appointment, just the appointment itself.
Coverage Duration
Temporary health insurance has duration limits, meaning, you can only keep the insurance for a set amount of time. One the federal level an individual can keep a short-term medical plan for up to 364-days for three consecutive years. However, states have the ability to create their own rules. Some states only allow you to have a temporary plan for 180 days. Others follow federal rules for up to 364-days. As of the writing of this article, there are eight states that don’t allow short-term medical plans to be sold at all.
Coverage Period
The coverage period is the amount of time you will have your insurance plan. When enrolling you might be asked how long you desire coverage. Some might only need 30 days of insurance and want to dictate the start and end date of their insurance coverage. That is the period that they will be covered.
Maximum Coverage Limit
Thanks to the ACA, Obamacare plans do not have a coverage maximum. You can incur millions and millions of medical bills and your health insurance company cannot cancel your policy or stop paying claims. However, since short-term health insurance is for temporary coverage only, there is a limit on how much the insurance company will payout. This is the maximum coverage limit. It’s also known as a coverage period maximum benefit.
State Availability
The current administration allows short-term insurance plans to extend up to three-years, but states have the ability to reign in the amount of time an individual can have a temporary health plan or reject short-term health insurance altogether. Your state availability could be a maximum of 90 days, 180 days or 364 days. The fastest way to find out how long you can keep a short-term health plan is to run a free quote based on your ZIP code.
All-Access Network
Short-term health insurance plans either have no network or a PPO network. If there isn’t a network, that means you have access to see any doctor or hospital you want to see. Your provider just submits a claim to the address on your ID card and payment is made based on a percentage above the standard Medicare reimbursement scale for providers.
PPO Network
Some short-term medical plans have a PPO network, meaning you have to see a doctor or hospital within a network of available choices. If you go outside the network, you will pay more for your medical visit. It’s important to check out the network before you buy to make sure there are doctors in your local area.
Out-of-Network Coverage
If you have a PPO plan and do not stay in-network when visiting a doctor or hospital, there can be out-of-network coverage that helps you from paying 100% of the bill yourself. Out-of-network coverage isn’t as robust as in-network coverage, but it helps take the sting from paying retail.
Premium
The monthly price you pay to keep your health insurance active is known as the premium. Your insurance premium is automatically withdrawn from your bank account or hits your credit card typically on or around the same day every month you have coverage.
Non-Insurance Association Membership
Many short-term health insurance plans include membership in an association that offers non-insurance benefits, like telemedicine. These benefits are typically discount health benefits that compliment your insurance coverage. It’s always a good idea to look at the added benefits to help you save money on your healthcare.
Exclusions and Limitations
Every short-term medical plan has limits. Not all medical claims qualify to be paid because the treatment incurred is on the exclusions and limitations list. It’s vital to review these plan details before purchasing a health plan.
Pre-Existing Conditions
Since short-term health insurance does not have to meet the federal marketplace standards like ACA plans, it can reject potential candidates for coverage based on health. This is done through medical question screening during the application process. And a temporary health plan is probably not the best coverage for someone with pre-existing conditions if ongoing medical care is needed.
Eligibility
If you live in a state that allows short-term medical insurance, are under the age of 65 and can pass the medical questionnaire, you are eligible for a temporary plan. Your eligibility is determined before the application and payment process, so you know right away if you qualify for coverage or not.
Federal Marketplace Requirements
ACA plans have to provide 10 essential health benefits in order to qualify as an Obamacare plan. It is mandated by the federal government and only these types of plans can be sold on the federal marketplace or a state exchange. These requirements are not required for short-term health insurance since its not a permanent plan.
Certificate of Coverage
When you purchase a short-term health insurance plan, you receive a contract from the insurance company called a Certificate of Coverage. It outlines what the insurance plan covers and what the company is responsible for. It also includes the exclusions and limitations of the plan that are not covered.
“Underwritten by”
What is an underwriter? The underwriter of your short-term health insurance plan is the health insurance company. It writes the terms, protections, limitations and exclusions of the certificate of coverage, which is essentially your contract for insurance.
Free Look Period
Many short-term health insurance plans come with a free 10 day look period. If you are not satisfied with your plan or change your mind, you can usually request a refund if you contact the company within the first 10 days of purchasing a policy. The certificate of coverage will be canceled as of the effective date and the premium and any fees you paid will be returned.
Explanation of Benefits
An Explanation of Benefits (EOB) is a document sent to you following a doctor’s office visit, hospital stay or some other medical treatment that was sent to a third-party administrator to review, re-price and pay the claim. The EOB is a summary of the services performed and what the final price of the services is. An EOB is not a bill but the opportunity for you to see what your provider is charging for their services and how the services are re-priced based on your insurance contract.
It’s All In The Terms
Depending on your state of residence, short-term health insurance can be a coverage solution for 30-days while you’re between jobs or up to 364-days with the option to extend your coverage for up to three years while you determine your next steps towards major medical insurance. Making sure you understand your coverage is key for being happy with payment outcomes if you do need to use your insurance.
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