The advantages and pitfalls of short-term health insurance

Whether you’re a college student searching for health coverage to tide you over before you start a new job, or a recently laid-off breadwinner who no longer can afford the COBRA coverage from your old job, you may want to consider exploring a short-term health insurance policy.

Short-term plans offer temporary coverage for a designated period of time (often one month to several months) to pay for things like office visits, diagnostics, inpatient care, emergency services, immunizations and prescription medications.

Often, they are high-deductible plans that would provide coverage for major medical events or emergency care — but not regular checkups until the deductible is met. After the term of the policy lapses, you must reapply for another term. Companies like Fairmont Specialty and Blue Cross Blue Shield offer various short-term health insurance packages that you can tailor for your needs and budget — ideally with the help of a credible local agent.

The advantages and pitfalls of short-term health insurance
The advantages and pitfalls of short-term health insurance

Short-term health policies may present a viable option for:

  • Individuals who can’t afford COBRA coverage.
  • Individuals in a holding period before coverage kicks in at a new employer.
  • Seniors nearing retirement who are not yet eligible for Medicare.
  • College grads or other young professionals who lack coverage but who plan to find employment soon.

One of the attractive aspects of short-term policies is that they provide stopgap protection at potentially lower rates than COBRA coverage.

A 30-year-old male who doesn’t smoke could pay as little as $30 in monthly premiums for a short-term plan with a $5,000 deductible, according to a preliminary online quote from UnitedHealthOne. Fairmont Specialty’s short-term medical insurance plan provides a lifetime maximum of $1 million in benefits per policy. This kind of coverage helps consumers hedge against catastrophic medical bills stemming from, for instance, a sudden illness or a motor vehicle accident.

According to Families USA, a nonprofit organization that advocates for health care consumers, family COBRA premiums consume, on average, 84 percent of unemployment benefits. The group says COBRA monthly premiums average $1,069, while monthly unemployment benefits average $1,278. In nine states, COBRA premiums actually exceed (or are equal to) the average benefits that unemployed workers get.

Ron Pollack, executive director of Families USA, summarizes the situation bluntly: “COBRA health coverage is great in theory and lousy in reality … for the vast majority of workers who are laid off, they and their families are likely to join the ranks of the uninsured.”

The major downside is that short-term health insurance does not cover those who have pre-existing conditions when they apply — and does not cover pregnancy-related expenses.

There’s also the lack of continuity. If you develop a medical problem or suffer an injury during the term of your coverage, this problem will be treated as a pre-existing condition when you apply for a subsequent term or another kind of insurance.

In other words, say you find a short-term policy that gives you low rates. It seems like a reasonable alternative to COBRA coverage, so you sign up. But during the term of the policy, you develop diabetes. As a result, you must engage in a costly course of therapies and medications. When it comes time to re-up your coverage, your rates almost certainly will skyrocket. Plus, you may not be able to get coverage for this new pre-existing condition.

Furthermore, you may not reapply for short-term coverage indefinitely. For instance, with the Fairmont Specialty insurance plan, people who are 65 or older cannot reapply. Terms, conditions and exclusions for short-term insurance, as with all health insurance, will vary from plan to plan and from consumer to consumer.

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