When talking with a potential client the other day who was very frustrated about having to pay too much on her health insurance, we explored what is going on in the health insurance marketplace with things like out of pocket costs deductibles. Keep in mind this lady runs almost every day, eats right, and has regular physician check-ups. She would be considered VERY healthy. She was upset with having to pay so much in monthly premiums for plans that are clearly tailored for people who have preexisting conditions or other frequent medical expenses. She was looking for something that is going to help with the “big things” but does not want to throw monthly premiums away.
My client was referencing how much her employer based health insurance was and was also very upset with how much Obamacare (ACA Plans) were. Even the Subsidy provision in the Affordable Care Act couldn't bring the premiums down to an acceptable level when factoring in her income level. Premium subsidy is popular for those considering Obamacare, but you do have to qualify based on your income to receive it. Since my client did not qualify, she was going to have to pay full price for an ACA plan even though she was healthy with no pre-existing conditions.
The ACA policies were implemented a decade ago, and allowed anyone to get a health insurance plan no matter their health condition or the prevalence of preexisting conditions. This key attribute of ACA-Compliant plans means healthy Texans end up paying more since the cost of medical care for those dubious pre-existing conditions can be significant.
Here are three key reasons why healthy people may pay more for health insurance on these plans.
- Risk Pooling: Health insurance companies pool the risk of their policyholders. This means that they spread the cost of healthcare across all of their policyholders, regardless of their health status. Healthy people, who are less likely to use healthcare, help to subsidize the cost of healthcare for people who are sicker. If the total pool of people is not large enough, the cost for those in it will rise.
- Morbidity Risk: Health insurance companies also consider what is known as morbidity risk when setting premiums. Morbidity, which sounds similar to mortality, is the prevalence of sickness and conditions for a person. While this does include those preexisting conditions, it also includes over sickness, Emergency Services, Mental Health Services, and other medical care that occurs throughout the year. People who have experienced a gap in coverage or who have not had comprehensive health insurance often have an immediate uptick in medical events when they obtain one of these individual health plans.
- Administrative Costs: Health insurance companies have administrative costs, which are the costs of running the business. The cost of running both the health insurance company and the health care providers offices is increased because of the amount of paperwork that each side of that equation requires. These costs are higher for healthy people since they are less likely to use healthcare. This means that healthy people may pay more for health insurance to help cover these costs.
A healthy person option that doesn’t break the bank
Now that we've addressed the why of health insurance costs, let's go back to my potential client from the beginning of this story. We introduced a lesser understood option of purchasing a short-term medical plan. These short-term insurance plans will pay for key illnesses, some doctors visits, urgent care visits, prescription drugs (depending on chosen plan), and injuries. That list isn't comprehensive, but is there to give you an idea of what a short-term coverage plan is capable of today.
In the last decade, short-term medical insurance has been a great option for healthy people looking for an alternative to what many will consider traditional health insurance coverage. Specifically because they can often find price relief from those high premiums and greater flexibility in both coverage options and network provider options. Let's break this down.
- Lower premiums: Short-term health plans will typically have lower premiums than traditional health insurance plans for a couple of reasons. These short-term plans are not beholden to all of the essential components of an ACA plan, which means that some of those items are not covered. Because of the lower requirements, the premiums do not need to be as high. The other primary driver of lower premiums is that these plans are underwritten. This fact means that short-term plans do not cover preexisting conditions. This keeps medical expenses lower overall for the health plan.
- Flexibility: Short-term health insurance plans are more flexible than ACA approved health insurance plans. They can provide access to more health care providers, different health care services, and offer various term lengths. Not only is this appealing with the restrictive HMO networks that Texas currently faces on Marketplace plans, it also allows for creativity in both the period of time that needs to be covered as well as the type of coverage needed for you and your family.
All of this likely sounds great to you as it does to many Texans. If you are between jobs, taking a gap year from college, or looking towards retiring early the allure of lower premiums and greater flexibility in coverage sounds great! However, it's important to note that short-term health insurance plans also have some limitations that cannot be overlooked when making a sound decision for affordable health insurance.
- Limited coverage: Short-term health insurance plans typically don't cover as many services as traditional health insurance plans. This could include things like preventive care, prescription drugs, emergency care, and maternity care. Make sure that any medical condition that you might need covered has a component in the plan you choose.
- Shorter duration: Short-term health insurance plans can only be purchased for up to 36 months as they are considered a stop gap measure for health insurance coverage. After that, you'll need to purchase a new plan.
- No guaranteed renewal: Short-term health insurance plans are not guaranteed to be renewed. If you have a major diagnosis or other emergency care event, you will need to grab alternate coverage when the plan term expires. Understanding open enrollment periods and how to obtain a marketplace plan is going to be important if your short-term plan is non-renewed.
So Should Texans Use Short Term Plans Or Not?
Like most things in life other than Blue Bell ice cream, it depends. Overall, short-term health insurance plans can be a good option for healthy people who need affordable health insurance coverage. However, it's important to carefully consider the pros and cons before you purchase a plan.
Here are some additional things to keep in mind when considering short-term health insurance:
- Your age: Short-term health insurance plans are typically more expensive for older people since you are more likely to need to make a claim.
- Your health: If you have pre-existing conditions, you will have a harder time qualifying for a short-term health insurance plan. It's part of how they keep health care costs down.
- Your location: Short-term health insurance plans are not available in all states.
- They Are Temporary: While the health insurance costs for short term plans is appealing, it's also wildly important to remember that these plans are considered temporary health insurance and have a limited shelf life for use.
- Out of Pocket Costs: Part of why these plans are considered to be more affordable coverage is because the premiums are kept low. They do this by transferring medical costs to your pocket if you do need to use it or go to the doctor. So be aware.
- Preventive Care: The harsh reality is that short term plans, unlike marketplace plans, generally don't cover preventive care at no charge to you. While this may not be a big deal to you, factor it into your budget and spending plan.
- Prescription Drug Coverage: Similar to routine preventive care expectations, prescriptions
If you're thinking about purchasing a short-term health insurance plan, be sure to compare plan proposals from different insurers to find the best plan for your needs. This is why an independent health insurance broker can go over all your options and help you find the coverage you need at a price that you can live with.
Times, they are a-changin!
Short Term Insurance is on the verge of being limited. The current presidential administration is adjusting the rules for short-term insurance. This happens with each new person in the Oval Office since the ACA was passed. These changes affect your options! It's important to note that the changes are not finalized as of now. BUT! If you are considering a short-term option, make sure you get one in place before the changes are placed in effect.
In a recent article in early July it was written that:
“What’s in the rule: If finalized, short-term health plans would last for three months and can only be renewed for one more month.
The Trump-era rule enabled these types of plans to last up to a year and be renewed for up to three years. A 2016 rule under the Obama presidency limited the short-term plans to three months.
Short-term plans do not have to meet the same requirements as a health insurance plan sold on the Obamacare insurance exchanges. These requirements can include coverage of pre-existing conditions and certain essential health benefits such as prescription drugs.”
Get’em while they’re hot
Contact us at Insurance for Texans. Our independent agents can show you your options when it comes to short-term insurance. The insurance carriers that write such short-term policies tell us that we can still provide our clients plans that can go from one month through 36 months. But, we have to have those in place BEFORE the new rule is implemented. We can help you pass underwriting, get you covered at a great price point, and get the plan in place so it can be “grandfathered,” therefore not subject to the new rule that limits the plans to 3-4 months at a time. My soon-to-be client is happy she got her affordable short-term health plan before the government requirements are enacted. She will not have to worry about her health coverage for the next 36 months.
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