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The basics of short-term health insurance

It's possible that a change in your job or schooling status has just made you eligible to own the lowest-cost health insurance available. If you are healthy and unemployed, employed part-time, going to school, graduating from college, leaving home for the first time, or even retiring early, you might consider carrying short-term health insurance coverage.

One of the major appeals of a short-term policy is its low premiums. Short-term health insurance is the ticket for people in transition. If you are one of the 16 million Americans who will be buying individual health insurance this year, take note: the insurance industry may have a low-cost health insurance policy for you. In fact, if you are eligible to buy such coverage, competition among health insurers has now driven the cost of short-term coverage down to much less than the cost of a monthly car payment for most people.

Designed for healthy individuals and families who do not need coverage for pre-existing conditions, short-term policies can provide a low-cost safety net in case of illness or injury that might develop during the coverage period. Depending upon the plan, benefits can be generous and wide-ranging, with most policies providing up to $1 million or $2 million per person. Numerous insurers now offer short-term health policies in most states and the competition for your business is fierce.

However, just as the name implies, short-term health policies are a temporary solution. While some plans now offer coverage for up to 36 months, most short-term policies limit the amount of time that you can keep the policy to 12 months or less. Short-term health insurance is typically bought in one-month increments which makes it convenient to drop at the end of any month.

The most important thing to remember when buying short-term coverage is that these low-cost plans are not designed to cover any pre-existing conditions. This limitation explains why the monthly premiums are so low for this kind of coverage. Pre-existing conditions are typically defined as any condition or symptom which you had during the 36 month period prior to the start of coverage. For this reason, its always a good idea to be painstakingly honest when you answer every question on the application itself, otherwise you may wind up having claims for pre-existing conditions being denied.

All short-term policies have a laundry list of limitations and exclusions, so its also advisable to settle in with that second cup of coffee to read these carefully before you buy. And dont be bashful about asking your agent for help and advice prior to the purchase.

Who needs short-term health insurance?

Because of its low monthly cost and high coverage limits, sales of short-term health insurance policies have grown in popularity in recent years. Short-term insurance has the shortest application in the health insurance industry and many insurers now offer credit card payment plans. Because of its low cost, high coverage amounts and fast purchase process, short-term health insurance serves an important function for certain groups of healthy people:

Part-time and temporary employees are among the most likely consumers of short-term health insurance as many corporate plans wont cover part-timers.

People between jobs are also among the most likely consumers of short-term health insurance. Short-term underwriters will gladly accept individuals who are temporarily out of work, which is often not the case with the standard health insurance markets. Many people who are laid off or are between jobs can continue coverage with their previous employer under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for up to 36 months depending upon the circumstances, until a new employer's plan kicks in. Some people might experience sticker shock upon learning what their COBRA premiums will be in order to maintain a corporate plan. If COBRA premiums are too high for your budget, and you dont need coverage for pre-existing conditions, a short-term policy with lower premiums might be the solution.
Recent college graduates are another group of consumers of short-term health insurance. Many grads will look for jobs offering health insurance benefits, but until they succeed, short-term insurance can fill the gap. (For recent grads looking for more permanent coverage, many college alumni associations offer some sort of group health policy to their members.
Those losing dependent status under their parents' health coverage are also likely consumers of short-term coverage. If you reach age 18 and are not enrolled as a full-time student, you will most likely be dropped from your parents' health insurance policy. In this situation, you will be eligible for COBRA, but premiums can be very high. A short-term policy can keep you insured for less until you find a job that offers health insurance, or you enroll in an individual health plan.
Finally, you might consider a short-term plan if you are temporarily without insurance for some other reason. Maybe you are on strike, recently discharged from the military or have retired early and need coverage until you qualify for Medicare.

How does it work?

A short-term health insurance policy works like an "indemnity" plan which generally gives you the freedom to go to any doctor or specialist you like. However, most plans do require pre-certification, which is an obligation that you should become familiar with.
Surgery, hospital care, emergency services, diagnostic tests, prescription drugs, follow-up office visits, and even limited mental health care are included under most short-term health policies, albeit with sub-limits and special conditions.
Because of its low cost, short-term health coverage does not typically pay for routine preventative care such as physical exams, immunizations, and PAP tests. A good rule of thumb to remember with short-term health coverage is that it doesnt pay unless youve actually suffered a defined illness or injury for the first time during the policy period of coverage.
Like most individual health insurance policies, short-term coverage excludes pre-existing conditions. The "look-back" period for these conditions can vary by state, but the most common rule for short-term policies is that providers might exclude coverage for conditions or symptoms known to exist within the last three years.
While many short-term policies are now renewable for up to 36 months, keep in mind that some insurers will refuse to issue you a second or third policy if you filed any claims under your previous short-term policy. Others might offer you another policy, but they will treat any injuries or illnesses that occurred during your previous short-term policy as pre-existing conditions and will not cover treatment related to such conditions.
Most reputable companies and agents offer a 30 day guarantee period of satisfaction and will refund 100% of your premium within this time frame should you decide that you dont want the policy after all. To get your money back during this window, however, you must not have filed any claims.

What will it cost me?

One of the major appeals of a short-term policy is its low premiums. The reason the premiums are so low is because the policies do not pay for any pre-existing conditions. The short-term health insurers have established, then, pools of healthy people and families, each of whom will only need the coverage for a short period of time. Given the low risk characteristics of this group, it stands to reason that the cost of insurance remains low for everybody precisely because so few people will have claims.

To illustrate the point, a family of four in Chicago suburban DuPage County can buy a $1 million major medical short-term health policy for only $305 per month, with a $1,000 deductible, from Bankers Life Insurance Company. The Bankers Life Competitor 12x3 short-term major medical policy provides 24 hr. coverage, a bundled array of hospital, doctor and intensive care coverage, and is renewable for up to 36 months.

A single male in his early 20s would pay only $72 a month for this same coverage.

With some short-term policies, your deductible will apply on a per injury or per illness basis. After you've met your deductible, most insurers will pay some portion, say, 50% or 80%, of the next $5,000 of expenses before 100% coverage kicks in, up to the plan maximum of $1 million or $2 million.

Many short-term plans will allow you to pay your all of your premiums up front, or on a monthly basis. Most companies give discounts when you choose the single payment method.

Who's eligible?

Most insurers only sell short-term health policies to people under the age of 65. And if you have ever been denied health insurance, you probably wont qualify for short-term insurance.

You shouldnt buy short-term health insurance if you are already covered by another policy. Each short-term health plan has its own application that contains a number of qualifying gatekeeper questions. Additionally, you must meet published acceptance guidelines, usually including acceptable height and weight charts.

If you are not one of the 174 million Americans covered under an employer plan, short-term health insurance coverage might present an appealing, low-cost option worth considering.