Short Term Medical Insurance: Low Cost, Sold Online, Gaining in Popularity

Short term medical insurance has become the most popular type of health insurance purchased online by individuals. The growth is driven by low cost and easy online enrollment. In addition, insurers have taken steps to make short term medical insurance look more like regular long term coverage by adding policy features and extending coverage periods.

The number of short term medical policies issued online grew dramatically from less than 100,000 in 1997 to several million policies today. The rapid growth of short term medical insurance in the U.S. has taken some by surprise and caused confusion among consumers, the health care industry and insurance regulators. These plans are especially popular with recent college graduates, people between jobs and those starting a new small business.

Many applicants have never been counseled by a qualified insurance adviser, so the potential for problems related to misunderstandings is increased.

Background and history
Health insurance managers noticed through the 1980s and 1990s that most people who enrolled in individual health insurance plans kept that insurance for less than a year. Many paid considerably more in premium for the legal right to renew their coverage year after year as long as the health plan remained in business. This so-called “non-cancelable” coverage option added as much as 35 percent to the cost. Since cost has been the primary driver of health plan sales, insurers were eager to promote lower cost policies that expired after a certain length of time.

What is covered?
All short term medical insurance policies cover “ordinary and necessary medical expenses” as defined by the policy. This is the most generous definition of coverage in use among health plans today and basically means something that is prescribed by your doctor in accordance with American Medical Association standards. These policies cover medical expenses only. Dental expenses and ordinary vision care are not considered medical expenses. Most policies cover prescription drug expenses the same as any other medical expense. Most policies have a maximum coverage limit of $1 million to $5 million for catastrophic claims.

What is not covered?
Short term medical insurance does not cover pre-existing medical conditions, no matter how long ago the insured had symptoms and treatment. If an insured had ear infections five years ago that were completely cured, a new ear infection will not be covered. Maternity expenses are not covered. All short term medical insurance policies have a per person deductible that is not paid. Some policies also have a co-insurance that could add to the uncovered expenses.

Quality of coverage
These are high-quality “indemnity” type plans offering liberal coverage with any doctor or hospital in the country. The obvious limitations of pre-existing conditions and overall length of coverage are the blatantly obvious restrictions on quality of coverage.

Length of coverage
Most short term medical insurance policies are issued for six months at a time. The shortest policy is 15 days but most insurance companies require a purchase of at least 30 days coverage. Some plans may be available for up to three years. It is possible to enroll in one six-month plan after another to achieve to total overall length of coverage needed. A few states require members to switch health plans every 12 months in order to continue to use this option.

Cost
Short term medical insurance averages about half the price of regular health insurance. The price is based on sex, age, location of residence and details like deductible, co-insurance, optional coverages and the payment method. A 64-year-old might expect to pay $300 per month while a 24-year-old might pay less than $60 per month.

Eligibility
Not everyone qualifies for this type of coverage. Eligibility is not guaranteed by any state or federal law. Certain groups do not qualify: residents of Maine, New Jersey, New York, and Vermont; people with significant prior medical conditions; and applicants over age 64.

Legal issues
Short term medical insurance is exempt from many federal and state laws that pertain to other health plans like the Health Information Portability and Accountability Act, COBRA and some mandated benefits like maternity coverage.

Health Savings Accounts
Some applicants have used high deductible short term medical insurance policies with a health savings account, but they do so at their own tax risk because the insurance companies have stated that the plans are not HSA-qualified.

Choice of providers
Most states have a handful of short term medical policies available to individuals. Some states have only one or two companies that offer this coverage. A state-by state listing can be found at www.MedSave.com.

Payment methods
Most people pay month to month through pre-authorized debit or credit card payments. Canceling coverage is simply a matter of withdrawing the payment authorization. Significant discounts in price are available by pre-paying months in advance but there is no refund offered if cancelled early.

Popular insurance companies
American Health Shield is the most popular national plan for young people under age 30, according to the Freedom Benefits Association and OnlineAdviser service. Assurant Health (www.FreedomBenefits.net), formerly known as Time Insurance and Fortis Health, is one of the nation’s most popular plans for applicants over age 40. Other options are Celtic Insurance (www.CelticEnrollment.com) and Select STM from Health Plan Administrators (HPA). Blue Cross Blue Shield Associations offer this coverage. Links to regional Blue Cross Web sites and contact information can also be found on the state pages at www.MedSave.com.

Tony Novak has personally handled questions from more than 200,000 users of OnlineAdviser service over a period of more than seven years; many of these questions were about short term medical insurance. “OnlineAdviser” is a trademark of Freedom Benefits Association.