Short-term health insurance on the rise

Friday March 16, 6:00 am ET
Margarette Burnette

If you are in between jobs, whether by your choice or that of your former employer, you may have discovered that acquiring reasonably priced health insurance is no easy feat. COBRA, the federal continuation health coverage plan, gives you the opportunity to continue with your previous policy, but the high premiums probably put it out of reach.

Some people find short-term health insurance, also known as temporary insurance, to be an affordable alternative. It helps bridge the gap between having an employer-sponsored plan and having nothing at all.

Understanding short-term insurance
Leaving a job often means leaving group health coverage, a risky move if you don't have any additional insurance. "You roll the dice by going uninsured, and you can only test your luck for so long," says Renee Guariglia, executive vice president and benefit specialist at Falcone Associates, Inc. in Syracuse, N.Y.

Short-term insurance products help remove the gamble by offering restricted policies. Typically, they only protect against unforeseen sickness or injury.

"It would not be a great product to buy if during your temporary time you want to just go get an annual checkup with the doctor," says David Andrews, vice president of product management at Assurant Health, a Milwaukee, Wis.-based insurance provider with a short-term insurance specialty.

"But say you have a short-term policy and you spike a fever of 103 degrees and you choose to go to the doctor. As long as it is not a pre-existing condition, the doctor's visit is covered. If the doctor prescribes you medication, that is covered. If you need to go to the hospital, that is covered. But if during that same time you say, 'I want to go get a physical because I'm thinking of running a race next month,' in most states and with most policies, that would not be covered."

Not everyone sees this insurance as a cure-all. Many policyholders believe that insurance providers are using pre-existing conditions clauses to deny legitimate claims that should be paid.

After receiving more than two dozen recent complaints about rejected claims, Connecticut Attorney General Richard Blumenthal has asked his state's insurance commissioner to audit certain insurance companies, including those that offer temporary insurance, to determine if they are refusing to pay claims based on "questionable conclusions that patients' medical conditions pre-existed their insurance policies."

Regardless of the outcome of this audit, pregant women, and people who are undergoing current treatments for chronic conditions, are probably better served with continuation coverage under COBRA.

"You usually have to be very healthy to qualify for (temporary) plans," says Philip Grisafi, a senior consultant with Mosse and Mosse Associates, an employee benefits consulting firm in Lynnfield, Mass.

Andrews says that short-term policies are restrictive by design.

"We do very limited underwriting (for temporary plans)," he says. "We are not gathering lots of information (on policyholders), so we have to be very careful about what things we are able to cover."

Facts about short-term health insurance:

• Policies generally cover unforeseen illness and injury.
• Coverage typically lasts from 30 days up to a year.
• Pre-existing conditions are generally excluded.
• Premiums are usually cheaper than insurance premiums under COBRA.
• Policies are true insurance plans under government guidelines, not private "reimbursement" plans.

Many forms of protection
Premiums of short-term coverage are likely cheaper than the premiums paid for COBRA. However, the fees can still seem high for a person who just lost his or her job. It may be tempting to forgo insurance altogether, but financial security is the main reason people buy short-term health insurance in the first place.

"Many people don't understand the trade-offs between the cost of a doctor's visit co-pay (under employer-sponsored plans) versus the true expenses of a catastrophic illness," says Andrews.

Without coverage, an unexpected trip to the hospital could send a family several thousands of dollars into debt. Several published studies cite medical bills as a leading cause of bankruptcy. Short-term health insurance is designed to cover these catastrophic events.

"It is financial protection that also happens to protect your health," Andrews says.

Beyond financial protection, temporary insurance can also help prevent future insurance claims from being rejected under federal HIPAA, or Health Insurance Portability and Accountability Act, laws.

"An employee can get new health insurance through their new employer, and it can be a fabulous plan. But if (the employee) was uninsured for longer than 63 calendar days, the new health plan can deny (his or her claims) for pre-existing conditions for one year," says Guariglia.

In other words, treatment for existing conditions such as high blood pressure, allergies or diabetes would remain uncovered for up to a year after enrolling in a new employer's comprehensive health plan.

"It is a short-term issue," says Guariglia. "But it can be become a long-term issue with severe financial effects."

The good news is that approved short-term insurance products are "creditable," meaning policyholders escape the "uninsured" label. This applies even if the short-term plan never even offered coverage for those same pre-existing conditions. Of course, the short-term plan would still have to be purchased within the 63-day limit, and it would have to be a true insurance product, not a private "reimbursement" product.

Private products, also called discount plans or nonlicensed risk-sharing plans, are often marketed as a way to control medical costs, but these plans are not licensed by state insurance departments and they are not considered to be health insurance.

"If the plan you bought short-term met the minimum guidelines for health insurance, you would not have an issue," says Guariglia. Different states may have different requirements and restrictions, so check with your state's insurance department for answers to specific questions. State Web sites also offer extensive insurance information.

Where to find short-term health insurance coverage
"If you are looking for a personal touch, perhaps your agent would be the best place to start," says Andrews.

Agents and brokers have knowledge of the different regulatory requirements in your area, and they should be able to explain how those requirements affect your coverage. Contact your existing car or homeowners insurance agent, or even the agent who handles your former employer's insurance. If they can't sell you a policy directly, they are probably able to recommend an experienced professional who can.

In addition to face-to-face help, you can shop for short-term insurance online by typing "short-term medical" or "temporary insurance" into an Internet search engine. It is a good way to get a general overview of what's available in the marketplace.

"Many carriers also (sell) direct plans on the Web," says Grisafi.

Before applying for any policy, make sure the prospective provider is financially stable.

When getting quotes from insurance companies, Denise Ramm, an independent broker in Maple Park, Ill., looks for a minimum "A" rating by A.M. Best. "The rating simply indicates if a company has the financial wherewithal to be able to pay a claim," she says. "Many insurance companies will have (rating) information in their company profile."

Insurance ratings, and their definitions, can also be found at the Web sites of A.M. Best and other rating firms.

According to Grisafi, the terms of short-term medical plans usually run from 30 days to a maximum of one year, depending on state requirements. Some policies are designed to provide coverage for a specific number of days, while other policies offer flexible monthly plans.

"With (month to month) plans, we send out a bill, and (the policyholder) decides each month whether or not they will pay to keep it in force," says Andrews. "If they stop paying, then the policy would lapse, but as long as they continue to make the payment, they keep the policy" until the temporary period expires.

Shifting to a long-term solution
Since temporary insurance is only designed to last a few months, policyholders still need to plan for a long-term solution. If you find a new job and enroll in your new employer's group insurance plan, make sure you find out when the new coverage goes into effect.

"An employer might hire a new employee, but it could be three months or six months until the employee can get on the company insurance program," says JoAnn Laing, president of Information Strategies, a publisher of health care-related e-newsletters in Ridgefield, N.J. This means that there is still a need for temporary coverage. Laing has found that more employers are offering this coverage as a supplement to their traditional health plans. "They are using it to bridge insurance until activation."

Once you determine when your new policy goes into effect, send the short-term provider a written cancellation letter. Most plans require written notices to be received at least 30 days before the policy ends. Be sure that the cancellation date does not leave you with a gap in insurance. Check the policy's small print for any other restrictions.

If you don't have any group insurance options, your next choice is probably an individual plan. This is expensive, but programs are available to offer assistance. For example, if you have accepted a position as a self-employed contractor, you might be able to join an industry-specific association that offers special rates on insurance coverage. Your insurance agent or local chamber of commerce representative would be a good source for help.

If you are experiencing severe financial issues, you could also be eligible for Medicaid or another state-funded insurance plan. These programs offer free or reduced-cost insurance for low-income families. Some are only for individuals with disabilities; others cover only children.

Awareness of short-term insurance is on the rise. A recent survey by Information Strategies found that only three percent of 18,000 individuals surveyed have short-term insurance. However, "the number of searches for 'short-term insurance' on our Web sites has increased four times in the last twelve months," says Laing.

It's not a long-term panacea, but workers in transition are increasingly considering temporary insurance as an interim solution to ease financial and healthcare concerns.

Bankrate.com