Here’s why short term health insurance plans aren’t going to be ACA (Obamacare) complaint.
For those who failed to sign up for the Affordable Care Act (Obamacare), it might be tempting to purchase short term health insurance to bridge the gap between today and the next Obamacare sign up period that begins on November 15. However, individuals without health insurance should be aware that enrollment in short term health insurance plans will not exempt them from end of year tax penalties.
Individuals who did not qualify for Medicaid or Medicare or those who received health insurance through their employers will not have to pay the Obamacare tax penalty at the end of 2014. However, those who did not qualify for these coverages and failed to enroll in Obamacare by the April 1, 2014 deadline will have to pay a tax penalty of $95 or 1 percent of household income, whichever value is greater. This tax penalty increases incrementally in 2015 and beyond. Those who enroll in short term health insurance plans that last anywhere from 30 days to 6+ months will also have to pay the end of year tax penalty.
Why? Because short term health plans do not qualify as what the Obama administration calls “minimum essential coverage”. Any healthcare plan that does not cover a minimum of 60 percent of medical expenses or provide 10 essential health benefits is not considered to be “minimum essential coverage”. These required benefits include the following: oral and vision care, emergency services, ambulatory services, hospitalization, maternity, pediatric services, mental health, substance use services, rehabilitative services, prescription drugs, chronic disease management, behavioral health treatment and general wellness services.
While Medicaid, Medicare, job issued health coverage and CHIP are considered to be minimum essential coverages, short term health coverage is not. It skimps on various and oftentimes simple healthcare functions that other plans provide. Simply put, short term healthcare plans do not meet Obamacare’s individual responsibility requirement. Therefore, those enrolled in such plans must pay the annual healthcare penalty tax.
For some individuals, paying a $95 penalty tax or 1% of household income isn’t a big deal. When one considers the low cost of short term healthcare plans and the typically high cost of Obamacare, it might make more financial sense to pay the penalty tax. This commonly held opinion might change by 2016 when the penalty tax jumps all the way to either $695 or 2.5% of household income, whichever value is greater.
Part of the Obama administration’s logic in forcing a penalty tax upon those who fail to acquire adequate healthcare coverage is to force the hand of the young, healthy, middle and upper middle class workers to enroll in Obamacare. Obamacare will only be a success if enough healthy people pay premiums to supplement the high costs of caring for the elderly and the recurrently sick. By imposing a penalty tax that gradually increases over the next couple of years, the young and healthy will be more likely to enroll in Obamacare instead of acquiring merely short term health insurance, not insurance or paying the annual penalty.
If the Obama administration had allowed for those with short term healthcare to avoid the penalty tax, significantly less people would have enrolled in Obamacare. The young and healthy would have been particularly less likely to enroll because cheap short term healthcare that covers major medical events caters specifically to their demographic.
Unfortunately, many of those insured through short term health insurance policies do not understand that they will be subjected a penalty when they do their taxes next spring. EHealth, an online broker of traditional and short term health coverage, conducted a survey amongst its short term health insurance customers. The results were troubling. 20% of respondents incorrectly believed that their short term health coverage met Obamacare standards to avoid an end of year penalty tax. An astounding 64% of respondents said that they were not sure if they would have to pay the penalty.
Federal laws state that short term health insurance providers must communicate to customers that their plans do not qualify as minimum essential coverage. Yet the majority of these customers fail to understand Obamacare’s extensive terminology and the mandatory minimum requirements that trigger the end of year penalty tax.