Insurance companies that offer short-term health insurance policies often tout low premiums as one of the top selling points. They aren’t wrong. One of the advantages of short-term health plans or STHPs is that they cost much less per month that major medical insurance does. For the average individual or family with limited income, temporary coverage makes economic sense in the short term. However, premium costs are only the tip of the iceberg when it comes to health insurance. Out-of-pocket spending, deductibles and insurer payout amounts affect how beneficial a policy will be. Let’s take a look at how much an STHP might cost you.
Average Costs Nationwide
In 2013, eHealth.com released a report summarizing a study that it had conducted on short-term health insurance costs in 2012. On average, individuals paid around $69 for an STHP while families paid about $160 per month in premiums. Your situation might vary. Like all insurance policies, exact figures are hard to determine because each person and family needs something different from a policy. In general, however, short-term policies cost much less up front than major medical plans. According to the Kaiser Family Foundation, individual premiums for major medical insurance cost around $226 per month in 2012, which is a significant increase over STHPs.
On the other hand, short-term health plans often come with higher deductibles and fewer benefits. Insurers can also set low lifetime payout caps, and they don’t have to renew your policy when your contract ends. The marketplaces under the Affordable Care Act offer subsidies to low- and medium-income families. Subsidies may make some major medical plans more affordable than STHPs in the long run.
Penalty Fees under the Affordable Care Act
Short-term health insurance policies don’t count as minimum essential coverage under the Affordable Care Act. If you don’t sign up for major medical insurance and you don’t qualify for an exemption or special enrollment period, then you’re subject to the penalty fine when you file your taxes each year. STHPs can’t prevent this from happening because they’re not qualified health plans under the terms of the ACA. In a post-ACA country, the cost of buying health insurance includes the cost of penalty fees.
When you file your taxes in 2016, you’ll pay a higher penalty rate, which is the greater of 2 percent of your taxable income or $325. The money you save with a short-term health plan in lieu of a major medical plan might be compromised by the taxes you owe. Before you decide to skip major medical in favor of STHPs as your primary coverage, know that you’ll be risking hefty fees in the future.
Maximizing the Value of STHPs
Despite the ACA fees, buying a short-term policy is still a better option than avoiding insurance altogether. The low premium costs associated with STHPs could make up for just one doctor’s visit without insurance. Medical providers often give discounts to patients who pay without insurance, but the discounts are negligible in most cases. With insurance, a trip to the emergency room might cost $100. That same trip without insurance could cost thousands. Having some kind of insurance available will save you money even with the penalty tax attached.
To maximize the value of your short-term policy, use it for how it’s intended. If you get a sore throat or break your leg, then see the appropriate provider. Because temporary policies have higher deductibles than some major medical plans, choose your doctor’s visits wisely.
Short-term plans act as safety nets while you’re waiting for major medical coverage, so use them when you need a temporary placeholder. These plans also allow you to find out what kind of coverage you need for your family if you’re not quite sure. When the open enrollment for major medical insurance starts up again at the end of the year, check out your options on the marketplace to see if you can get financial assistance.