Getting Short-term Health Insurance Policies

October 25, 2012

doctorNo one should ever be without health insurance coverage, not even if it’s just for a few months. A single large medical situation can leave you saddled with tens of thousands of dollars in medical bills. And what if you lose your job?

There is a way to deal with this, short of super expensive COBRA plans. Short-term health insurance policies can give you the coverage you need for anywhere from a few weeks to a few months.

Where is it available, and how long will it last?

Not all health insurance companies offer short-term health insurance policies in all states. You’ll need to check with the various providers to see which states they do offer the plans in.

Short-term health insurance policies generally run from 30 to one year, which depends on the state you’re living in. The length of time for the plans will also depend on the insurance company you’re working with.

Why you might need a short-term health insurance policy?

Short-term health insurance policies are a potential solution anytime you’re facing a temporary loss of health insurance coverage.

The most common situation is the loss of a job, but there are many others that could create the need. For example, if you leave your job to go take a new job, it’s common for the coverage at the new company to have a waiting period. 60 to 90 days is pretty typical, and while that may seem like a short period of time, it can be forever if you have no health insurance coverage. A single significant medical situation could cost tens of thousands of dollars.

Some other situations might include recent college graduates, who don’t find employment immediately after graduation, or those who are close to retirement but not yet eligible for Medicare.

Why not just go with COBRA coverage?

Most of us assume that if we lost coverage under an employer sponsored health insurance plan that we’d just switch to COBRA coverage until we get a new job and join the new employer’s benefit plan. That sounds good—until you actually have to do it!

COBRA plans are expensive, as in really expensive! They can be as large as a typical house payment. For one thing, once you go to a COBRA plan, you immediately lose the employer subsidy. If your employer was paying 50% of your monthly premium, a $500 premium will turn into $1,000 the first month after separation. And once the plan moves from your benefits administrator to the COBRA administrator, they can add a fee of up to 15% on top — now your health insurance is up to $1,150 per month.

Here’s something else: One of the ways people try to lower health insurance premiums is by raising their deductibles. But the problem with COBRA is that once you’re separated from your employer, your deductible will be locked in at what it was when you were still employed. You won’t be able to raise the deductible — or change anything else for that matter — to lower the premium costs specific to COBRA.

How much will it cost?

I ran some price comparisons on the Assurant website, and came up with two price quotes. Each is for a family of four, with a husband and wife — each 40 years old — and two dependent children. The quotes were for plans covering six month in my zip code. (Note: the price quote you get and the number of months available under the plans will vary depending on where you live.)

The first plan included a $1,000 per family deductible, an 80% coinsurance provision, and an out-of-pocket maximum of $5,000.* The plan includes a lifetime maximum of $2 million and prescription drug coverage. Monthly premium: $573.

The second plan included a $2,500 per family deductible, an 80% coinsurance provision, and an out-of-pocket maximum of $5,000.* The plan includes a lifetime maximum of $2 million and prescription drug coverage. Monthly premium: $396.

*Under this example, you will pay the first $1,000 of any claim, and be responsible for 20% of any charges above the deductible, up to $20,000 in medical charges, which means a maximum of $4,000. The $1,000 deductible, plus the maximum $4,000, equals the $5,000 out of pocket maximum. This is typical to nearly all health insurance plans of all kinds regardless of provider.

Two Major Drawbacks

In investigating the plans above there were two major drawbacks that were immediately evident. The first was that virtually all charges are subject to deductible, co-insurance and maximum out-of-pocket maximum provisions. Unlike permanent plans, there are no immediate benefits, such as preventative maintenance or doctor visits for minor illnesses and injuries in which you pay an upfront co-payment and the insurance company pays the rest. You will have to pay all first dollar expenses.

The second has to do with pre-existing conditions, and it’s pretty stiff. Excluded are any treatments involving a condition which either developed or you received treatment for in the previous five years. The coverage would be effective only for new health conditions or injuries, not ongoing therapies.

Considering the above, short-term coverage would be most effective for those in good health and having no pre-existing conditions. Still, it could be worth having even if you have pre-existing conditions in the event that you were hit with the onset of a new medical condition or injury while covered.

Have you ever had a short-term health insurance policy? Were you satisfied with it?

Have you ever tried Health Savings Accounts? They might be an option if you are looking for health insurance alternatives.

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Kevin

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Kevin
Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

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