Don't Get Short-Changed by Short-Term Medical Insurance

It can be an alluring alternative to COBRA, but watch out for pitfalls in the fine print.

Video: Health Insurance Basics

Video: Health Insurance Basics

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For Sebesta, these details proved confusing. She had been healthy, she says. But on the last day of her first monthlong plan, her doctor ordered a CT scan to be sure the cause of her constipation wasn't serious. She assumed it wasn't. The next day, when Sebesta says her new six-month plan kicked in, she learned she had an "intestinal obstruction" that could be malignant. Surgery to find out followed a day after. In December—months into her chemotherapy treatments—she received a jolt in the form of a letter from Assurant. That CT scan, as she understood it, meant that she began her new policy with a pre-existing condition. Therefore, nothing related to her cancer would be paid for. She had no idea that her two plans were unrelated to each other, she says. Recently, to her relief, she got word that her appeal has paid off; Assurant is reversing the pre-existing condition determination and will reprocess her claims. Sebesta still doesn't know what the company will pay. "It's going to be a whole lot better, but it's still not over as far as I'm concerned," she says. (Assurant told U.S. News that it can never comment on a customer's coverage because of privacy concerns.)

Short-term plans do have a place and may be a good option for certain healthy people, experts say. College graduates, no longer able to get coverage on their parents' plans, may elect these to tide them over until a first job with benefits starts, for example; so too might folks who are waiting to be approved for a permanent major medical plan or those who have a new job lined up that requires a waiting period before group health insurance can begin (though Pollitz cautions that if they have an accident that makes them unable to work, they could get into trouble). However, experts tend to advise against short-term plans for people who have lost a job, unless they have definite coverage options ahead or understand the pitfalls.

[Lost your health insurance? Some resources.]

Laid-off workers who choose short-term plans should be aware that doing so disqualifies them from COBRA coverage or "any guaranteed-issue individual health plans commonly referred to as HIPAA Plans," according to eHealthInsurance.com, a website that sells and markets health insurance. HIPAA plans are an option after someone exhausts COBRA benefits, says Ankeny Minoux, president of the nonprofit Foundation for Health Coverage Education, and give people the right to buy an individual policy without being subject to waiting periods before any pre-existing conditions are covered. Short-term plans do not, notes Cheryl Fish-Parcham, deputy director of health policy at Families USA, another nonprofit. And laid-off workers with ongoing medical conditions are especially encouraged to consider COBRA if eligible, since the benefits they had on their previous plan will generally stay the same, say experts. Long-term individual plans generally do not require customers to sign a multiyear contract and will accept payment on a month-to-month basis, says Minoux. So people could get a comprehensive plan and close it out once they find a job with employer-sponsored health benefits, she says. Public programs may also be an option.

For the out-of-work or anyone else who is mulling short-term health insurance, it's clearly important to understand what's involved and to weigh all the alternatives. Sebesta wishes she had known more herself.

[Read about doctors who take flat fees and don't bother with insurance.]