Three months: that’s it and that’s all!
The Obama Administration seeks to shorten the contract periods for short term health plans.
A short term health plan is temporary health coverage commonly used to allow consumers access to health care during a lapse in major medical health coverage. These plans are not required to provide Minimum Essential Coverage as is required in ACA-compliant health plans. The plans will, however, provide a maximum dollar amount of coverage to shield against medical bankruptcy in the event of medical catastrophe.
As the rates for ObamaCare plans increase dramatically, many flock to companies selling short term health plans. Short term health plans feature low monthly premiums. As such, a consumer can purchase one of these plans for up to one calendar year for considerably lower amounts than major medical ObamaCare health plans. Temporary health plans are not ACA-compliant, but paying temporary health plan premiums in tandem with the Tax Penalty still comes out cheaper for many folks.
A healthy, 29 year old man in Tennessee with an income of $30,000 per year buys a Silver health plan from United Healthcare. The monthly premium costs the man $193 per month. Using none of the plan’s benefits, the plan would cost the man $2316. If he bought a short-term plan for 12 months for $50 and paid the tax penalty, then the man would spend a total of $1295. Short term coverage with an added tax penalty of $695 or 2.5% of income is way more economical.
Yes, many people looking for short-term health plans are motivated by price. These people are generally healthy, and often these consumers barely use the health benefits featured in ObamaCare plans. If they aren’t going to use it, then why pay for it?
The measure to limit short term health plans contract periods is a move to funnel more people to buy ObamaCare major medical health plans. If more healthy people bought into ACA-compliant major medical plans, then the premiums may go down. After all, health insurance is all about spreading risk over a large pool of individuals; less money will have to be allocated to the sick if the pool is filled with a larger majority of healthy people. If less people are sick, then less money needs to be demanded to pay for the sick.
This is the idea anyway, but it could backfire.
What happens if a consumer can only purchase short term health plans for three months? Also, what if this three months of coverage lasts entirely between the close of one Open Enrollment and the start of the following Open Enrollment?
Approximately 8 months pass between Open Enrollment periods. Someone could easily purchase a 3 month short term health plan during this time, and after the plan terminated, where would the consumer look for health insurance?
It isn’t easy to enroll in a major medical ObamaCare health plan post-Open Enrollment. One must have a qualifying life event to open up a Special Enrollment Period. Common qualifying events include — but are not limited to — having a baby, getting married, losing job health coverage, and moving. These events open up a Special Enrollment period of at least 60 days.
With a limit of a three month short term health plan duration, with no no option to renew, and with slim chances of enrolling in between Open Enrollments, folks could be left with no health insurance whatsoever.
Of course, the idea to limit contract terms for short term health plans is only a proposal. The public as well as regulators all have the chance to pick the proposal apart. Nothing may change.
We will still be selling short term health plans. It’s still business as usual for us no matter what limits the government places on the plans. If you need coverage post-Open Enrollment, we would love to help! Give us a call at 1-888-995-1674*!
Philip Strang never envisioned a career in the health insurance industry before October 2015. He fell in love with the industry instantly, and his goal is to make health insurance simple for you. Feel free to write him at firstname.lastname@example.org. Comments are encouraged!
*See disclaimer below