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Why Short Term Health Insurance is "Cheap"

The article is a discussion about how short term health insurance manages to cost much less than an ACA or Obamacare health plan.

There’s been a lot of talk about health insurance lately. It’s a hot-button issue in the news because regulations are once again changing, and it’s affecting short term plans especially.

We’re entering a new era starting in 2019, and short term health insurance is primed to be a major player due to regulations issued by several departments of the federal government.

Now in effect, a new regulation lifts the 3-month term limit that once applied to short term health insurance and reinstates the original 364-day term limit. The rule also permits carriers to give consumers in many states the option to reapply for short term policies for up to 36 months.

As you’ll soon discover, this type of health insurance that some dismiss as “cheap” or “junk” is a viable and consumer-savvy option for millions of individuals seeking health insurance today.

Cheap Health Insurance?

Short term plans are often less expensive than other forms of major medical coverage because fewer medical services are covered. Companies that underwrite these plans are also permitted to deny coverage to those with pre-existing conditions, which also keeps the cost of coverage comparably low.

Short term health insurance does provide medical coverage for illnesses and injuries while covering services such as emergency room visits, hospitalization, doctor/specialist visits, lab testing and other important benefits depending on the specific plan you choose.

While these plans aren’t for everyone, those in good health with no chronic or complex medical conditions could benefit from having a short term health insurance plan, especially if cost is a major concern.

What is the Penalty for not Having Health Insurance?

In addition to lengthening the term limits on short term plans, the December 2017 tax law has lifted the individual mandate penalty.

Up until recently, short term policyholders were subject to a tax penalty known as the individual mandate. Even though short term health insurance provides major medical coverage, it does not meet the minimum essential coverage (MEC) requirements established by the Affordable Care Act--which requires coverage for mental health, substance abuse, pre-existing illnesses, and other complex conditions.

As a result, short term policyholders were subject to a tax penalty of $695 per adult or 2.5% of household income, whichever amount was higher.

There are exceptions to this penalty however—mainly that you’re permitted to go without health insurance coverage for less than three months per year and not have to pay the tax penalty.

Furthermore, this penalty will no longer apply in 2019. So, if you’ve had some other form of major medical coverage for all of 2018, and are considering a switch to short term health insurance, you can purchase a short term plan today without the burden of having to pay that added cost.

Reactions and Forecasts for Short Term Health Insurance

Many critics of short term insurance describe it as “junk” or “cheap” insurance.

However, millions of consumers have relied on short term health insurance and the Congressional Budget Office (CBO) have recently estimated millions of people will enroll in short term insurance plans by 2023 (once the recently proposed changes take full affect).

Judging by this estimate, Americans could soon begin to see the value of short term health insurance as they become more aware of its existence, and moreover, its value.

However, consumers must take the initiative, and have the responsibility to research short term health insurance and the various plan types available for them before purchasing. This means going to insurance comparison sites that show ACA and short term plans, like HealthPocket.com, understanding the benefits of the plans available to them, and asking questions.

What this doesn’t mean is taking an article or soundbyte that deems short-term “cheap,” “junk” or “skimpy” insurance and letting that inform your decision to purchase this type of coverage or not.

Simply put, if you’re being priced out of other forms of major medical insurance, and don’t qualify for ACA tax credits, you owe it to yourself to research short term health insurance thoroughly.

According to Kaiser Health News: “It is not uncommon to find the cheapest short-term policy priced at 20% or less of the premium for the lowest cost ACA-compliant bronze plan,” depending on the state and county in which you reside.

Debunking the Idea of Cheap Health Insurance Further

One of the biggest reasons why short term health insurance is typically less expensive than other major medical insurance types is that they do not cover all medical services. Meaning if you have a short term plan, you generally cannot use it to pay for:

  • Maternity care
  • Mental health or substance abuse treatment
  • Prescription drugs (although many short term policies offer the option to enroll in a prescription discount program)
  • Expenses relating to pre existing conditions

Consider this: if you’re a male (or female) who won’t be physically birthing children, then there’s no need to have maternity expenses covered. The same goes for prescription drugs. If you don’t take them, there’s no benefit to having a plan that factors them into your premium. You’ll be paying more monthly for something you’re not using.

And lastly, there are pre existing conditions. This is a sensitive topic, but the fact is that if you don’t have any, you have more choices for health insurance.

Here’s another way to look at this: do you love football? If so, then it makes sense to subscribe to the NFL package from your TV service provider. But if you don’t care for football, or just never watch it - why would you pay for it?

In this economy, the smart move is to save as much money on monthly bills as possible, wherever possible.

This is the benefit of short term health insurance. It’s the stripped down version of health insurance that still works when you need it. It’s similar to getting a TV package with just the basic channels - it’s great for people that can’t afford HBO, but still want to watch TV.

And by the way, there’s some great shows on network TV that you may be missing.

There’s a misconception that goes something like: “if it’s good it’s not cheap; if it’s cheap it’s not good.”

Because of this, short term health insurance has received a bad reputation, one that’s grown as Affordable Care Act proponents worked to make Obamacare a catch-all solution to a nationwide health care problem - one that’s gotten more complex, and arguably more expensive since ACA-compliant insurance was required from 2014 to 2018. In 2018 the average monthly premium for a 40-year-old female on AgileHealthInsurance.com was $199.93 versus $495.32 average premium for same demographic on Healthcare.gov.

Cheap has negative connotations, it implies a lack of quality. There’s a reason they didn’t call it the Cheap Care Act. Affordable sounds better. But it does beg the question: are ACA plans even affordable?

For many Americans the answer is no. For these people, there needs to be another option.

In Conclusion

The healthcare industry is evolving, and there are two very important changes coming in 2019 that affect short term health insurance:

You will no longer pay a penalty on your federal taxes for having a short term health insurance plan.

In most states you can keep your short term insurance plan for up to 364 days (or longer in some cases).

This is a huge change, and demonstrates the ever evolving nature of our society to meet the needs of the people.

Another major sign of the times? The CBO has broadened their definition of health insurance to now include short term plans.

Many people may not yet realize that short term insurance is even an option, but the good news is that there’s still time.

Unlike the Obamacare plans, the window to enroll in a short term plan never closes. Speaking of which, many premiums for ACA plans are going up in cost, which may be due to healthy people opting into short term health insurance.

This is happening regardless, it’s part of the evolution of healthcare in this country. So if you’re still on that boat as a healthy individual, it might be worth considering a transition to less expensive health coverage like short term.

Healthy people deserve a less high-risk pool, one that’s affordable and still covers you in the event of emergency.

After all, isn’t that what insurance is supposed to be for? We should all be able to afford basic medical care when we need it, but there’s no need to pay more for something you don’t use.

Take charge of your health by taking charge of your insurance. You have options. Health insurance does not need to be expensive.

It can be relatively cheap in price while retaining its quality. And maybe after all, that’s a good thing.

Short Term Health Insurance is health insurance outside of the Affordable Care Act ("Obamacare"). Health Benefit Insurance is comprised of fixed indemnity and may include supplemental insurance products and non insurance supplementary health products/services; it is not major medical insurance. Neither Short Term Health Insurance nor Health Benefit Insurance cover pre-existing conditions, they do not include all ten of the minimum essential benefits of Obamacare, and you may be subject to the Affordable Care Act Uninsured Tax (The 2017 Congressional Tax Reform Act does not eliminate this tax until 2019). You can learn more here.