Are short-term health insurance plans a good fit for your clients?
Check out this article on healthcare costs in Financial Advisor:
As health-care costs continue to rise and become a more substantial financial concern for Americans at every income level, financial advisors are increasingly being asked to weigh in on strategies for insurance and medical costs.
One option that advisors may be asked to weigh in on is the short-term medical plan. These plans are significantly cheaper than comprehensive coverage—premiums are often a fraction of the cost of traditional coverage. This is because they cover a lot less.
More Americans are becoming aware of short-term plans as an option because their coverage costs are rising so quickly. Further, President Trump’s administration has issued guidance to extend these plans and make them more competitive options against traditional, comprehensive coverage.
In some cases, choosing a short-term strategy can help your client avoid thousands in unnecessary premium costs. In other cases, selecting a short-term plan may expose your client to significant financial liability.
In either case, having a good grasp on these options and their differences allows financial advisors to help clients protect themselves and make the best decisions for medical coverage.
Here’s what financial advisors need to know about short-term plans, the risks of purchasing them and a few situations where they may be a good fit for your clients.
What Is A Short-Term Plan?
Sometimes called temporary health plans, these plans are designed to cover consumers who are in between other types of coverage due to a job change, move or another life change. Under current regulations, they cover the purchaser for up to three months and cannot be renewed with the same carrier.
They are different from other coverage options largely because they are not designed to be a long-term solution. Coverage under workplace, Medicare or Affordable Care Act plans extends through 12 months, but these plans have a shorter duration. Further, short-term plans do not cover pre-existing conditions and may or may not cover preventive care or prescriptions, unlike more traditional coverage types.
This means that if your client had cancer three years ago and is in remission but it returns, the short-term plan will not pay for any cancer care.
Again, the plans can also not be renewed, though in some states, a client could buy a short-term plan for three months through one carrier and then purchase another short-term plan through another carrier.
The Trump administration has proposed extending these plans to cover consumers for up to 364 days and allowing for renewals, making these plans a more competitive option against comprehensive health plans.
Questions To Ask
If your client is asking for your opinion on short-term plans, there are two key questions to ask.
First, what is the client trying to insure against? If they are just trying to have coverage for an unexpected trip to the emergency room or any kind of catastrophic medical scenario, a short-term plan can be a good fit. If the client is looking to be covered for preventive care or chronic condition management, this is not a good option.
Second, how long is the client needing coverage? Short-term plans may be a good fit for clients currently in a benefits waiting period for a new job, or for those who are retiring a few months before Medicare eligibility. But if the client is retiring several years before Medicare eligibility, or otherwise losing access to coverage for a longer period of time, a short-term plan may not be the right choice.
Two Scenarios Where Short-Term Coverage May Work
Short-term plans aren’t new, and they’ve been used appropriately for years by Americans bridging gaps between more comprehensive, longer-term coverage.
But as the cost of traditional, comprehensive insurance rises, more and more Americans are seeing an opportunity to use short-term plans as long-term fixes. Clients, or clients’ dependents, who are generally healthy and are not anticipating a lot of care needs may find this a good option to save thousands of dollars per year on premiums for comprehensive coverage.
If the Trump administration’s guidance to extend these plans for up to a year is approved, more clients may be asking whether these are a good fit for them.
Here are two examples where this might work well.
Healthy Dependent Wants Catastrophic Coverage
Let’s say your client is a divorced father with a 24-year-old son working as a graphic designer making $55,000 per year. The son doesn’t qualify for subsidies on the Affordable Care Act and would pay around $500 per month for individual coverage that includes comprehensive benefits like mental health, preventive care and more. But the son is healthy and doesn’t anticipate needing healthcare services throughout the year.
If the son is dropped from your client’s workplace plan, the father could drop down to employee-only coverage, saving significantly in premium costs. But your client doesn’t want to leave his son uninsured.
Largely, this scenario is trying to limit financial exposure for unanticipated injuries or emergencies. If the son’s appendix ruptured and he needed an appendectomy, he wants to have insurance to help cover the $10,000 hospital bill.
For this scenario, it may make sense to purchase a short-term plan for 364 days and average $117 per month versus $500 per month for an ACA plan. With this kind of insurance, the appendectomy would still probably cost around $4,000, but that is still $6,000 less than having no coverage at all.
Your client is not concerned about paying out-of-pocket in the event his son needs a flu shot or strep test, so this may be a good solution for this family.
As mentioned above, let’s say you have a 65-year-old client who wants to retire this month and sign up for Medicare coverage, but his wife won’t be eligible for Medicare for another six months. While the wife does have some health-care needs due to age, she is generally healthy and does not anticipate needing regular office visits or chronic care treatment during this time.
If your client keeps his workplace plan in order to cover his wife, he may be spending thousands of dollars unnecessarily. Having this client move to Medicare and insuring the wife through a short-term plan could be the most cost-effective solution.
For a 50-year-old man in Nashville, short-term plan prices range from $124 per month with a $10,000 deductible to $198 per month with a $5,000 deductible. Compare this to premiums ranging from $490 to more than $1,200 per month for comprehensive ACA coverage.
As you can see, there are circumstances where moving to a short-term plan can have significant financial benefits. Being able to provide some professional insight into your clients’ options will allow you to offer another level of service and assistance in an area that is of increasing concern to consumers.Learn more about rolling healthcare advisory services into your practice here.
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