Is 'Short-Term' Health Insurance a Good Deal?

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Consumers struggling to afford health coverage are increasingly being targeted with an attractive pitch from insurance companies and brokers: Low-cost alternatives to Affordable Care Act plans that, they say, provide meaningful protection against large medical expenses.

The main draw of these plans—called “short-term” because they can currently cover only 90 days at a time—is that they come with much lower monthly premiums than many ACA plans.

For example, the cheapest unsubsidized ACA plan available to a 55-year-old man living in Indianapolis—a location recommended to us by eHealthInsurance.com, an online broker—costs $563 a month. He can buy a short-term plan through that company for $103 a month. 

Such plans are likely to become more popular in the coming year, for two main reasons.

First, the just-passed Republican tax plan eliminates the penalty on people who don’t have ACA-approved health coverage. So people will soon be able to buy short-term insurance without worrying about that penalty.

And President Trump is urging federal regulators to ease restrictions on the sale of the plans, which could let insurers sell “short-term” policies lasting up to 364 days. (Allowing them to be sold for a full year would require Congress to pass a separate law.) That would make it easier for insurers to market them, says Sabrina Corlette, a research professor at the Center on Health Insurance Reforms at Georgetown University.

But short-term plans don’t have to meet standards set by the ACA, so they often come with limitations that can leave people with huge medical bills if they get seriously ill. These plans can be cheap, Corlette says, “but they also don’t cover very much.”

For example, insurers can exclude coverage or charge extra for everything from maternity care and prescription drugs to mental health care. They also don’t have to cover pre-existing conditions—that is, any condition for which you have experienced symptoms or sought treatment for up to five years before enrolling. And if you get seriously ill after the policy starts, the company can refuse to later renew your plan.

Short-term plans can also have higher deductibles than what’s allowed by the ACA. For instance, a close reading of that $103 eHealthInsurance policy shows it carries a $5,000 deductible that you must reach before insurance kicks in. After that you still have to pay 50 percent of most of your medical bills until you spend another $5,000 out of pocket. Trips to the ER are capped at $500 and there are limits on what the plan will pay for surgery and outpatient visits. Plus, there’s no coverage for prescription drugs except in the hospital.

By contrast, ACA plans are prevented by law from putting a dollar limit on any of these essential health benefits.

Sean Malia, eHealthInsurance’s senior director of carrier relations, acknowledges the limitations of short-term plans. “Our primary recommendation to consumers is always, if they can, purchase major medical coverage,” he says. “These plans are primarily for people who for whatever reason cannot purchase an Obamacare policy.”

For some people, the limitations of the plans are worth the lower premiums, Corlette says. “It depends on the risk the consumer is willing to tolerate and the extent to which they can bear costs related to an unexpected medical event.”

And short-term plans have supporters in Congress. In urging regulators to ease the 90-day limit, a group of Senate Republicans called them “valuable protection against out-of-pocket costs” that offer “greater flexibility in the choice of health benefits than on-exchange plans.”

But some state regulators feel otherwise. “People don’t realize these products don’t cover much of anything,” says Janice Rocco, deputy commissioner of the California Department of Insurance. “If they end up needing significant care, they probably won’t be able to afford the share of the costs they have to pay.”  

The Pitfalls of ‘Affordable’ Plans

Stewart LaMotte, of Lawrenceville, Ga, learned of those limitations the hard way.

At age 64, he felt he could not afford an ACA policy, which he said had a $1,000 a month premium for 2017 and a $6,500 deductible.

A retired restaurateur, he earned too much from his investments to qualify for a tax credit to help with the premium. Online, he found a short-term plan that cost only $261 a month.

“I was looking for major medical catastrophic,” he says. “I wasn’t looking for them to pay for every Band-Aid.” And because he was in good health, he didn’t worry about the policy’s disclaimer warning that it “wasn’t an ACA-covered type deal.”

At a routine dental checkup about a month before the plan’s February start date, LaMotte says he mentioned a concern about his upper palate. Several referrals later, he learned he had oral cancer that required surgery, chemotherapy, and radiation.

The company denied the claim, pointing to a clause in the policy stating that it wouldn’t cover any cancer with symptoms or treatments that started within 30 days of enrollment. LaMotte is now working with a patient advocate to see if he can get his $200,000 plus in medical bills reduced.

He has put off reconstructive surgery until he turns 65 in February and goes on Medicare. “It will be the best day of my life,” he says. 

Concerns About Deceptive Advertising

Now that the penalty for not having an ACA-approved plan has been eliminated, and Trump is pushing to relax rules on how long the policies can last, insurers are more likely to aggressively market these plans.

“We expect to see lots of these plans flood the market,” predicts Betsy Imholz, special projects director for Consumers Union, the policy and mobilization division of Consumer Reports. Big players, like United Healthcare, have told investors they think that these changes can create a rich market for them to mine.

Already, regulators in some states are seeing problems.

In Montana, the state auditor recommended disciplining a group of insurers and brokers that used “misinformation and deception” to market short-term plans to consumers. An investigation found that many buyers didn’t realize their plans fell short of ACA standards and didn’t cover pre-existing conditions. Regulators said some consumers who bought these plans from insurer websites believed they were using the official government exchange site.

And Pennsylvania’s Insurance Department recently revoked the licenses of seven agents and brokers for deceptive marketing, says Jessica Altman, Pennsylvania’s acting insurance commissioner.

Another possible consequence of relaxing restrictions on short-term plans is higher premiums for ACA-sanctioned ones, Altman says. Low-cost options will likely appeal most to healthy, younger people who don’t have pre-existing conditions. But “individuals who know they have serious or chronic healthcare needs will stay with comprehensive plans,” she says. “That will drive up the average price for everyone else in that pool.” 

How to Protect Yourself

Stick with an ACA-compliant plan if you possibly can. As Sean Malia at eHealthInsurance said, ACA plans are better options if you can afford them. Comprehensive coverage could protect you from financial ruin. For example, had Stewart LaMotte bitten the bullet and bought that $1,000-a-month ACA plan, his total outlay for 2017 would have been roughly $19,000—a year’s premium plus the plan’s likely $7,000 out-of-pocket limit—instead of $200,000 and counting.

Although Open Enrollment for 2018 coverage has ended on Healthcare.gov, the federal government’s health website, it’s continuing in New York, California, and several other states. Check with your state’s marketplace to see if you can still enroll. And use this calculator from the nonprofit Kaiser Family Foundation to find out if you qualify for a subsidy on your premium: More than 80 percent of people who apply for an ACA plan do.

Take advantage of special enrollment. Don’t assume a short-term plan is your only option if you lose ACA coverage in the middle of the year—for example, by leaving a job or aging off your parent’s plan. In these situations you often can may be allowed to purchase an ACA-compliant plan even though it’s not Open Enrollment season.

If you have no alternative, buy the most generous short-term plan you can afford. Some short-term plans are better than others, Corlette says. For instance, UnitedHealthOne, United Healthcare’s short-term product line, offers a high-end plan with a $1,000 deductible, a $10,000 coinsurance out-of-pocket limit, a $1 million coverage cap, 30 percent coinsurance, and even limited drug and mental-health benefits.

Use a trusted local broker. “Make sure you’re working with a reputable local broker that you’re going to bump into at the grocery store,” Corlette advises. “Never, ever buy one of these over the phone or online.” Healthcare.gov and many state-run exchanges have lists of state-licensed brokers in your area. And take time to understand any restrictions on coverage. 

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