Buyer beware: short-term medical plans are convenient, but come with a catch

They don’t offer much protection and won’t get consumers out of paying penalties for going without health insurance under the Affordable Care Act, but an increasing number of people are turning to short-term medical plans as a temporary solution for basic coverage.

Short-term plans are good in a pinch for some since they aren’t subject to hard-and-fast enrollment deadlines like company plans or coverage offered through the ACA, and can be purchased when needed. In Texas, these policies can become active the day after they’re purchased and remain in effect for up to 364 days or as briefly as a month.

Many consumers get full medical coverage through their jobs or the federal- and state-run health insurance exchanges set up by the ACA. These are health plans that offer all the benefits required by the Affordable Care Act, such as hospitalizations, preventive care, prescription drugs, maternity care and mental health services.

But short-term medical plans are gaining in popularity, some brokers say, despite the fact they don’t comply with the Affordable Care Act and don’t protect consumers from having to pay penalties to the IRS for going without full-fledged health coverage as a result.

Independent insurance broker Maria Lipscomb, president of Customized Group Benefits in San Antonio, said she’s been fielding more calls recently from clients interested in the plans.

“I’ve been surprised to see more and more clients calling me and asking me about a short-term medical” plan, she said.

Insurer IHC Group’s nationwide sales of short-term medical products increased 25 percent last year compared with 2014, said Dave Keller, chief marketing officer of IHC Specialty Benefits, based in Minneapolis. The company’s sales of short-term plans followed the same general trend in Texas.

That heightened interest could be partly due to their prices, insurance brokers say. Premiums for short-term plans are far cheaper than any found on the government-run exchanges.

For instance, a 50-year-old San Antonio woman who doesn’t smoke and lives alone could buy UnitedHealthcare’s cheapest short-term medical plan for $110.10 per month, while the lowest-cost health plan available to her on the federal exchange starts at $272 a month. Lower-income consumers may qualify for tax credits to offset premium costs for ACA plans.

Short-term medical plans also sometimes offer bigger doctor and hospital networks than traditional health insurance.

But there’s a catch.

Temporary policies don’t cover any pre-existing medical conditions — unlike ACA-qualified plans. Insurers who sell short-term medical insurance can decline to cover patients who have been treated or should have received care for cancer, diabetes, heart problems, liver or kidney disorders, digestive problems, HIV or other major illnesses.

Patients who are pregnant, undergoing fertility treatments or adopting a child also can be rejected.

Short-term medical plans are generally designed to cover unexpected, catastrophic health problems, such as a car accident or a heart attack. The coverage also generally doesn’t start until the policyholder has fully paid the deductibles — which are steep, usually costing from $2,500 to $10,000.

And there are limits to how much coverage these policies will provide, usually a maximum of $1 million or $2 million in a policyholder’s lifetime.

“They’re less expensive, because there’s much less risk to the company,” said Debie Knowles, chief marketing officer of health products at Standard Life and Accident Insurance Co., which recently entered the short-term medical coverage market.

Lipscomb said she’s always careful to let her customers know that short-term medical coverage is not like a true health insurance plan.

“If you have a medical condition, I wouldn’t recommend it,” said Lipscomb, a member of the San Antonio Association of Health Underwriters.

Short-term coverage is usually purchased by people between jobs or waiting for a new job to start, consumers whose ACA plans were discontinued after they failed to make timely payments, or young adults no longer eligible to be on their parents’ health insurance plans, said IHC’s Keller.

“We strongly discourage anyone using it as a replacement for an Obamacare policy,” Keller said.

Robbie Kothmann, an independent broker at Davidson Camp Insurance Services in San Antonio, said several of her customers opted to buy short-term medical policies because they didn’t want to pay the higher prices for ACA-compliant health plans. Those clients were willing to pay penalties to the IRS for bypassing full coverage, she said.

Those penalties can be significant. People who don’t get full medical coverage this year through their jobs or who missed the Jan. 31 open enrollment deadline on the exchanges will owe fines to the IRS next year amounting to 2.5 percent of their annual household income, or $695 per adult and $347.50 per child — whichever is greater.

If someone had coverage for part of the year but was uninsured for a few months, those fines are prorated.

UnitedHealthcare also sells short-term medical plans. The health insurance company said consumers continue to show interest in those offerings, but declined to say if sales have been increasing or what market factors drive the public’s attractions to such plans.

Several other major insurance carriers have stopped selling short-term coverage. Blue Cross Blue Shield of Texas temporarily halted sales of its short-term products in the fourth quarter of 2015 so the company can “refresh” those benefit designs, but it plans to later sell revamped versions of these plans, spokesman Gustavo Bujanda said.

Humana stopped selling short-term coverage at the end of 2013, but spokesman Ross McLerran declined to explain why.

Short-term medical policies are not renewable. Once the temporary coverage has expired, consumers wanting to continue those benefits must reapply — and they will be scrutinized for pre-existing conditions each time.

“It’s like you’re starting all over again every year,” Knowles said.

pohare@express-news.net