11 Things to Know About Short-Term Health Plans

By

Debra Gordon

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Short-term health plans are exactly what they sound like—health insurance coverage for up to 12 months, paid on a month-to-month basis. These plans offer very limited coverage. They're typically used by people who find themselves between health insurance plans, such as when changing jobs or graduating from college. But more and more people are turning to short-term health plans because they missed the annual deadline for enrolling in individual health insurance on the state and federal exchanges.

Short-Term Plans Aren't ACA-Qualified

Unfortunately, such plans won't let you avoid paying the tax penalty required if you go more than three months without qualified health insurance. That's because short-term health insurance does not meet the requirements of the Affordable Care Act (ACA). So you'll have to pay the Internal Revenue Service (IRS) either 2% of your yearly household income up to the average national cost for a bronze plan (the least expensive option on the individual exchanges), or $325 per person for the year ($162.50 per child younger than 18), up to $975. If you're surprised to learn this, you're not alone: one in five people who opts for a short-term policy thinks he or she is exempt from the tax penalty.

Understand the Facts

The good news is that a short-term plan will provide at least some coverage if a major medical issue arises. However, the plans do have shortcomings—and consumers generally don't like them. A survey of short-term health insurance customers found that less than half were satisfied with their policies.

Here are 11 things you should know about before signing up for a short-term health plan:

  1. You may find yourself uninsured when your policy ends, which means you'll have to find new health insurance. That differs from plans that meet ACA requirements: plans on the exchanges automatically renew unless you want to make a change.

  2. Pre-existing conditions may not be covered. So you're not guaranteed coverage for your asthma, diabetes or cancer. An ACA-qualified plan, however, must cover all pre-existing conditions from the minute your insurance kicks in.

  3. There's no maternity coverage, and you may not even get a policy if you’re pregnant. Qualified ACA plans must cover maternity care.

  4. You have to pay a portion for preventive services like screenings and immunizations—if they're even covered. They're free under ACA-compliant plans, however, and coverage is required.

  5. You could lose your insurance if you become ill. In comparison, under the ACA, qualified plans cannot terminate your insurance because you get sick.

  6. You may have few doctors and other healthcare providers to choose from.

  7. You do not qualify for COBRA insurance (available to people who are laid off from their jobs) if you opt for short-term insurance.

  8. You probably won't have prescription drug coverage, which is required with ACA-compliant plans.

  9. It may be hard to get reimbursed for claims. A survey of people with short-term plans found that 62% had trouble getting paid after filing a claim.

  10. You will probably have lifetime limits on how much the plan will cover. ACA-compliant plans, however, have no lifetime limits.

  11. There are no limits on your out-of-pocket costs. Under the ACA, such annual costs are limited to $6,600 for an individual plan and $13,200 for a family plan.

Given the limitations on short-term health insurance, make sure you mark your calendar for open enrollment on the exchanges for 2016 coverage. For coverage beginning January 1, 2016, enrollment starts November 1, 2015, and ends January 31, 2016.

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