Short-Term and Major Medical Health Insurance

Short Term Coverage Vs. Major Medical Coverage

Short term and major medical insurance plans both provide coverage in case of a medical catastrophe, but they have significant differences.

• Short-term plans are typically used to fill in the gaps between major medical coverage. They act as a temporary coverage and often offer lower premiums for less benefits and higher cost sharing amounts.
• Major medical plans are mean to be held year round and provide all benefits, rights, and protections required by law. Many major medical plans have higher premiums than short-term plans, but they typically also offer better benefits and cost sharing amounts.

If you need medical coverage, you may be able to buy short-term health insurance outside open enrollment. However, short-term is not the same as a major medical policy, which is also insurance for catastrophic medical expenses. Major medical insurance is ACA-compliant.

Short-term insurance is outside of the ACA and will not protect you from the fee (the fee is reduced to zero in most states 2019 forward). Major medical insurance is often a 12-month policy period, includes ACA coverage and benefits, and must be bought during open enrollment. Short-term insurance is usually bought with a 3 to 12 month policy period, can be bought at any time, and provides stated payments to you for covered medical expenses.

Short-term insurance is designed for high-cost injury or illness. It is an income replacement plan. There will be a high deductible as well as a maximum payout. For example, you might have a $1,000,000 maximum for illness with a $5,000 deductible. You can combine it with a second temporary accident policy with, for example, a $15,000 maximum along with a $5,000 deductible.  Dental and vision coverage can be purchased separately. The money is paid to you after you pay your medical bills and submit proof to the insurance company.

Pros and Cons of Short-Term Health Insurance

Pros. Short-term health insurance has significant benefits.

1. It is low cost.
2. You can get it any time subject to insurance company acceptance.
3. It will give you protection against specific catastrophic illnesses or accidents up to the limit of the policy.
4. It will provide you with insurance coverage for a set amount of time.

Cons. It also has significant negative aspects.

1. Short-term insurance is not ACA compliant, so is not required to provide minimum essential coverage or essential health benefits.
2. It is a not a “guaranteed issue” policy so you may be rejected.
3. It can exclude any pre-existing conditions.
4. Since you only buy coverage for the term of the insurance contract, the company is not required to renew your plan even if you are in the middle of an expensive hospitalization or chemotherapy at the end of its term.
5. If you lose your job and buy a short-term policy, you may not be eligible for COBRA insurance.
6. If you are eligible for any guaranteed issue individual health plans, commonly referred to as HIPAA (Health Insurance Portability and Accountability Act) plans, purchasing a short-term medical insurance plan will prevent you from qualifying for those HIPPA plans.

Short-term health insurance is the only insurance option for people who want a catastrophic-like health coverage outside of open enrollment. You may need it if you are:

• Between jobs
• Waiting for employer group coverage to start
• Waiting for Marketplace coverage to start
• Traveling outside of your network area
• A recent college graduate
• A temporary or seasonal employee
• A dependent no longer covered under parents plan
• on strike, laid-off, or a terminating employee.

What is Major Medical Insurance?

Major medical insurance is also catastrophic insurance. However, it is an annual contract which must provide the ten essential benefits of the ACA and sometimes dental or vision care. The 10 benefits are:

1. Outpatient care.
2. Emergency room visits.
3. Hospitalization.
4. Maternity and newborn care.
5. Mental health services and addiction treatment.
6. Prescription drugs.
7. Rehabilitative services and devices.
8. Laboratory services.
9. Preventive services, wellness services, physicals, immunizations and chronic disease treatment.
10. Pediatric services.

For more details about the ACA benefits, please see our page on essential health benefits for more details. Depending on the plan, you may be able to use an HSA with a major medical plan.

Pros and Cons of Major Medical Insurance

Pros. Major medical health insurance has significant benefits.

1. It provides emergency coverage (see Emergency Services).
2. There are no lifetime limits.
3. It includes preventive coverage mandated by the ACA.
4. It allows you to preserve past HSA contributions, and often, to continue to make tax-free contributions.
5. Comparatively affordable premiums.
6. You are guaranteed issue.
7. Coverage can’t be canceled for any reason other than fraud or non-payment.
8. Gender and health status don’t affect premiums.

Cons. It also has significant negative aspects.

1. It has high deductibles.
2. It may or may not qualify for an HSA pairing (the insurer is required to inform you if a plan qualifies as a high deductible health plan for HSA).
3. You will have out-of-pocket costs and will have high deductibles.
4. Coverage can be limited.

Major medical insurance may be your best choice if you are:

• Self-employed with no other ACA-compliant insurance choices
• Cannot get health insurance through an employer
• Healthy and on a tight budget.
• Concerned only with coverage in the event of a catastrophe.
• An early retiree who does not yet qualify for Medicare and need a low-cost plan.

Understanding Short Term Health Insurance and Major Medical Insurance