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Be Very Careful Before Buying That Ultra-Cheap Health Insurance Plan

If you buy health insurance on your own, rather than through an employer, and you’re shopping for coverage as part of the annual open enrollment period that began this week, you might notice that you have a cheaper option for coverage this year.  

But the coverage consists of new plans that frequently aren’t available to people with pre-existing conditions. They also have big gaps in benefits. In short, there’s a reason this new option costs so much less.

If you decide to get one of these policies instead of a more comprehensive plan, and if an insurer will sell one to you, you really could save a lot of money on premiums. But later on, if you get sick or injured, you might end up owing a lot more in medical bills. Or you might simply have no way to get the care you need.

Here’s a guide to what has changed and what it could mean for you.

Short-Term Plans Have Become A Long-Term Option

The big development this year is the new availability of “short term, limited duration” health plans. These sorts of policies have been around for a long time, and historically they served as a stopgap for people whose coverage had temporarily lapsed ― say, because they were between jobs.

Starting this year, it’s easier to hold on to these plans for an extended time, so that they can serve as your main source of coverage.

Two big policy changes have made this possible. One is the 2017 Republican tax cut law, which eliminated the financial penalty for people who don’t have comprehensive coverage that lives up to the standards of the Affordable Care Act. The other change is a new Trump administration regulation that allows insurers to sell these plans for up to three years, minus a few days.

Yes, it’s weird that you could use a “short-term” policy for what is really the long term. In fact, some consumer groups have asked a federal judge to block the new rules, making more or less that argument. 

But for now, anyway, the short-term plans are available for longer periods, just as the Trump administration had hoped they would be. And premiums for these plans may be a lot lower than the ones you will see if you go looking for traditional, comprehensive coverage at HealthCare.gov or one of the state-run insurance exchanges, such as Covered California or the Maryland Health Exchange.

Overall, premiums for short-term plans are 54 percent lower than they are for comprehensive policies, according to a new study from the Henry J. Kaiser Family Foundation.

To be clear, whether you as an individual buyer would end up paying lower premiums for one of these plans depends on a bunch of factors, not least among them your household size and income.

If your income is at or just above the poverty line ― specifically, up to about $35,000 annually for a family of four ― then you may qualify for Medicaid, depending on whether your state has opted into the Affordable Care Act’s expansion of the program. And Medicaid is basically free.

If your income is above that threshold but still less than four times the poverty line ― about $100,000 for a family of four ― then you are eligible for federal tax credits that the Affordable Care Act made available and that can discount premiums deeply.

In fact, if you qualify for those tax credits but your income is still relatively low, and if you live in certain parts of the country, you might be able to get relatively generous plans while paying nothing in monthly premiums.

But if your income is higher than that, premiums for so-called Obamacare policies may cost more ― a lot more.

You might even be one of those people for whom a family policy would cost more than $20,000 a year, and that’s not including the deductible that, worst-case scenario, could be $14,700.

Especially if your income is above the threshold for assistance by only a small amount, you may be struggling to pay those premiums. You might even have given up and decided to remain uninsured altogether. A short-term plan might be within your budget.

But if that is what you are thinking, you should be aware of what you would be getting for your money ― and, more important, what you would not be getting for your money.

Short-Term Plans Can Have Big Gaps In Coverage

If you already have a medical problem, chances are good that insurers won’t sell you a short-term policy at all. And if they do, they can charge you more, refuse to cover anything associated with your pre-existing condition, or both.

The list of conditions that might trigger denials, surcharges and restrictions is long, including everything from cancer to diabetes, from Crohn’s disease to sleep apnea. And it’s not just the obvious stuff. An old sports injury from years ago can be enough to get an insurer to exclude related conditions or deny coverage altogether.

But even if you can get one of these short-term policies without surcharges or restrictions, you might develop a medical problem after purchase. You could get a cancer diagnosis. Or have a car accident.

If that happens and you have one of these policies, you could discover that the policy doesn’t cover everything you need ― and that you won’t have a way to get a new, more comprehensive policy for weeks or months.

There are a few reasons for that. One is that insurers who sell short-term plans frequently engage in what’s known as “post-claim underwriting.” They will look through your medical records and if they find anything that looks like a hint of the medical problem to come, they’ll refuse to pay on grounds that it was actually a pre-existing condition.

Another issue is that short-term plans don’t have to include each of the 10 benefit categories that the Affordable Care Act deems “essential.” They frequently leave out not just mental health and maternity coverage, but also full prescription coverage. They also have annual or lifetime limits on benefits, which is something the Affordable Care Act prohibits.

And then there is the problem of renewability.

One of the big new changes that the Trump administration put in place was allowing insurers to sell policies that basically last up to a year, with a possibility of renewing them twice. In other words, somebody could hold on to the same short-term plan for three years ― and then, quite possibly, replace it with a new, mostly similar policy when the three years is over. 

But the discretion for renewability lies with the insurer, which means that, under the new rules, insurers don’t have to renew once you’ve gotten sick. If that happens, and if your short-term plan lapsed in the middle of the year, you wouldn’t be able to pick up a comprehensive Obamacare policy ― the kind available to anybody, regardless of pre-existing condition ― until late in the year when enrollment reopens. (That’s because loss of a short-term insurance plan does not qualify as a “qualifying life event,” like a divorce or loss of job, that entitles somebody to enroll in an Affordable Care Act plan even outside open enrollment.)  

In any of these scenarios, if you bought a short-term policy and got seriously injured or ill, you could be on the hook for tens or even hundreds of thousands of dollars in medical bills.

All of this helps explain why the plans are as cheap as they are. The insurers who sell them frequently avoid paying the biggest medical bills because they don’t have to cover those treatments and they don’t have to enroll the people who need them.

The Details Matter, And They’re Not Easy To Understand

Figuring out the limits on insurance policies is complicated, even for experts. It’s easy to misinterpret what you hear or read from sales agents, insurers and websites, especially if the person or company trying to sign you up for a policy is more interested in making the sale then in informing you about the limits of coverage.

When the Trump administration proposed the rules and, later, when it finalized them, consumer advocates and public officials warned that consumers would be vulnerable to unscrupulous sellers, in part because many buyers are likely to assume that any policy available nowadays is subject to the Affordable Care Act’s rules.

That is why it’s so important to read the fine print and, if necessary, find somebody with expertise to decipher it. Some short-term policies from UnitedHealth help pay for prescription drugs, for example, but they have a maximum benefit of $3,000. That’s a pretty big deal when medications for even some relatively routine medical conditions cost hundreds of dollars for each prescription, even with discounts that the plans provide.

Checking the coverage details is especially important because some of the policies on the market these days offer even thinner coverage than many short-term plans will. There are, for example, “indemnity” plans, which pay fixed amounts per visit or episode of care.

Indemnity plans frequently advertise that they have no physician or hospital networks, which can make them sound great. But they leave subscribers on the hook for the difference between what the policies pay and what the providers charge ― and that difference can quickly get into the tens of thousands of dollars.

You might still decide on a short-term plan or some other alternative to comprehensive coverage, especially if you feel like you can’t afford the plans at HealthCare.gov. Short-term plans can still help you pay for medical bills, up to a point, and that might have real value to you.

But signing up for one of these plans, rather than a more comprehensive policy, means accepting extra financial risk, which is precisely what insurance is supposed to reduce.

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