Term Health Insurance is a health insurance is major medical insurance for a set period of time. It covers doctor visits, hospitalizations, emergency care, lab tests, x-rays, and other common medical needs. Term Health Insurance is associated with low premiums and broad healthcare provider networks that accept the insurance; under many plans, a member is not locked into a network and can go to any provider they choose, though in some cases the member will have to pay for the out-of-network expense first and then submit the receipts for reimbursement. Applicants for Term Health Insurance have their health status evaluated as part of the process that determines whether the applicant is accepted or rejected. While application approval criteria vary among states and insurers offering Term Health Insurance, applicants with significant health problems (e.g. morbid obesity) or expensive pre-existing conditions (e.g. cancer) are not approved for coverage.
Because Term Health Insurance has numerous differences from health insurance plans that operate under the Affordable Care Act (Obamacare), it’s important to understand these differences. The material below provides a quick overview of the characteristics of Term Health Insurance as well as what consumer profiles are best served by it.
"Term" indicates that there is a specific period when the coverage is active and after the conclusion of that period, coverage discontinues. When the coverage period for a Term Health Insurance policy ends, an enrollee may be eligible to submit an application for a new Term Health Insurance plan or seek other health insurance coverage such as coverage provided by an employer or coverage provided by an Obamacare plan. A new application for coverage will be evaluated and negative changes in health status can result in the application being rejected.
Term Health Insurance has a lower price point than the typical prices of of unsubsidized Obamacare plans—the premiums for Term Health Insurance can be half the cost. Premiums do not increase during the coverage period defined by the term.
Term Health Insurance can vary from state to state because some states may mandate a benefit that is not part of the typical Term Health Insurance benefit design. For example, most states limit the maximum term to 364 days but some states limit the maximum term to a shorter period of 6 months.
Term Health Insurance isn’t for everyone. People with certain chronic conditions or poor health would not be served well by a Term Health Insurance product. Additionally, people who have had a significant health event or medical condition in the past two years also are advised to seek other forms of health insurance because pre-existing medical conditions are not covered by Term Health Insurance.
The ideal profiles for people who purchase Term Health Insurance include:
Health plans that operate under the Affordable Care Act(Obamacare) are quite different than Term Health Insurance plans. Affordable Care Act plans typically have broader benefits than found in Term Health Insurance and, without the premium subsidies available to some qualified purchasers, typically cost much more than Term Health Insurance.
All health plans that comply with the Affordable Care Act must have "10 Essential Health Benefits." Term Health Insurance plans, in comparison, do not have a standardized set of benefits and typically offer what would be described as "major medical coverage" that covers healthcare costs in the event of serious medical issues. In addition, normal doctor visits for routine illnesses and injuries are typically covered.
The chart below attempts to illuminate some of the major benefit differences between Term Health Insurance plans and Affordable Care Act plans. It is important to note that Affordable Care Act plans do not deny care for pre-existing conditions nor do they reject insurance applicants based on health problems.
|Benefit Description||Typical Term Health Insurance||Standard Affordable Care Act Plan||Additional Commentary|
|Doctor visits & other outpatient ambulatory care||Yes||Yes|
|Prescription drug coverage||No coverage or limited coverage||Yes||Term Health Insurance: Many Term Health Insurance plans provide a drug discount card but do not provide drug coverage. Some new Term Health Insurance plans have a prescription drug coverage option for generic drugs not associated with a pre-existing condition (brand name drugs & specialty drugs are typically uncovered). |
Affordable Care Act: Minimum of 1 drug per class must be covered but the minimum number of drugs per class is often more due to state benchmark plan choice.
|Maternity & newborn care||No||Yes||Term Health Insurance: Complications of maternity covered but not standard childbirth services. |
Affordable Care Act: Applicants cannot be denied based on pregnancy as a precondition.
|Mental health services||No coverage or limited coverage||Yes||Term Health Insurance: Coverage included only when mandated at state-level. |
Affordable Care Act: Coverage included, but states vary on their definition of “mental health” services so while some do include learning disabilities or conditions like Autism, other states do not.
|Substance use disorder services||No coverage or limited coverage||Yes||Coverage included only when mandated at state-level|
|Rehabilitative and habilitative services and devices||No coverage or limited coverage||Yes||Coverage included only when mandated at state-level|
|Preventive care||No coverage or limited coverage||Yes||Term Health Insurance: Some plans have selected preventive care benefits with cost-sharing while most plans do not cover preventive care services. |
Affordable Care Act: Preventative services must be provided without cost-sharing (cf.https://www.healthcare.gov/preventive-care-benefits)
|Pediatric services - oral and dental care||No*||Yes||Coverage included only when mandated at state-level|
|Broad healthcare provider networks||Yes||No*||Term Health Insurance: These plans typically have broad acceptance among healthcare providers. Some Term Health Insurance plans have a preferred network with negotiated pricing for healthcare services with a larger non-preferred network where the plans pay 'usual and customary' fees for covered healthcare. |
Affordable Care Act: These plans have been noted in the press for a significant use of "narrow networks" to increase the ratio of enrollees to healthcare providers.
|Adult vision care||No||No|
|Adult dental care||No||No|
|Uninsured penalty for enrollees?||Yes||No||The maximum penalty is the national average premium for a bronze plan. In 2016, the tax is the greater of 2.5% of modified adjusted gross household income/$695 per person.|
|Medical underwriting for insurance applicants?||Yes||No||Term Health Insurance: These plans evaluate health status or pre-existing conditions within the processing of an insurance application and this evaluation has consequences for whether an applicant is approved or rejected for insurance coverage. |
Affordable Care Act: These plans do not consider health status or pre-existing conditions within the processing of an insurance application.
Yes. Since Term Health Insurance plans do not conform to the requirements of the Affordable Care Act, the plans do not qualify as "minimum essential coverage" and, consequently, their enrollees must pay what is called the “Shared Responsibility Tax.”. The maximum penalty is the national average premium for a bronze plan. In 2016, the tax is the greater of 2.5% of modified adjusted gross household income/$695 per person. You can learn how to calculate the monthly cost of term health insurance with the tax and compare it with an Obamacare premium here.
A pre-existing condition is a medical condition that existed prior to the enrollment in a Term Health Insurance plan. Pre-existing conditions are not covered by Term Health Insurance plans even if that pre-existing condition is not specifically discussed on the Term Health Insurance application form. Pre-existing conditions are typically subject to a ‘look back’ period (e.g. 2 years) where an insurer can review medical documentation to confirm that a current medical condition was diagnosed or treated during the look back period. Some insurers may use a "prudent person" definition of pre-existing condition where a pre-existing condition is defined as a medical condition for which symptoms were present prior to insurance enrollment and a prudent person would have sought treatment.3