One Long-Term or Two Short-Term Plans?

For those who qualify, short-term health plans can be a great alternative to ACA compliant individual plans, especially now that the individual mandate penalty has been reduced to zero. True, short-term plans do not cover preventive care or pre-existing conditions, and they are not guarantee issue like individual plans are, but they do offer much lower monthly premiums than individual plans.

And now that the administration has increased the maximum length of a “short-term” plan to twelve months, with the ability to renew for up to three years in many states, individuals who use utilize health care less, do not have chronic conditions, and have a tight budget may have the opportunity to save on their health insurance one year at a time.

Here’s the strategy:

1. At the beginning of the year, clients can purchase a short-term plan with a term of twelve months so that the plan will be up for renewal on January 1, 2020. Similarly, someone purchasing a plan with a May 1 effective date could get a term of eight months. The key is to buy coverage that lasts through the end of 2019.
2. If the client is still generally healthy at the end of the year, he or she can renew or re-write the short-term coverage for another year at a lower premium than many individual ACA plans.
3. If, on the other hand, the client develops a medical condition during the term of the short-term plan that would make it difficult or impossible to renew or rewrite the short-term coverage, he or she can simply purchase an ACA plan during the open enrollment period that runs from November 1 to December 15. Of course, the decision would need to be made no later than December 15, two weeks before the short-term policy is set to expire and the last day to purchase an ACA plan.

Is it worth the higher premium?

The problem, of course, is that most short-term plans are significantly more expensive when the client chooses a term longer than 180 days. This makes it tempting to purchase a shorter-term policy and renew or rewrite it in the middle of the year. That’s a fine strategy for those who are still healthy, but individuals who develop a medical condition during the first term might find themselves without any options at that time. It’s much less risky when the timing of the renewal/rewrite coincides with the individual open enrollment period.

For that reason, it probably makes sense to go with a longer-term policy. Yes, it’ll cost the client more money, but he or she will still save versus the cost of individual coverage and won’t be at risk of not having any coverage at all in the middle of the year.

When a shorter term is the best solution

The exception to the strategy of purchasing short-term coverage that lasts through the end of the calendar year is when someone is buying short-term coverage to get through a short-term gap in coverage. If an individual is starting a new job and needs coverage during the 90-day waiting period, for instance, a shorter term would be ideal. The same would be true for a young person who needs coverage until school begins and he or she can sign up for student coverage through the university.

Different Advice for Different Clients

Long story short, the answer to the question about shorter versus longer short-term plans depends on the client’s situation. If you’re simply helping the client fill a short gap in coverage, then the policy should last until the new coverage begins. If, on the other hand, your clients want you to help find them an alternative to coverage in the individual market, it’s less risky (but more expensive) for the policy to last through the end of the year.

Either way, AHCP can help. Check out the Carriers page on our website for information about the short-term plans available to your clients.