What Financial Advisers Should Know About Short Term Health Insurance
Financial advisers are expected to know about a lot of financial topics; short term health insurance is one of those relatively obscure financial topics where even a faint familiarity can be viewed as a lifesaver in specific situations. It can save a client tens of thousands or even hundreds of thousands of dollars for an investment of only about five minutes time and a cost of about $100.
We recognize that the cost of medical care is among the greatest financial concerns of many of our clients and the public overall. Our economic and political climate dictate that these public concerns will grow worse before they get better. This article is meant to provide a brief summary of the topic for the benefit of financial advisers who may field an occasional question on this topic.
ADVANTAGES AND DISADVANTAGES
The primary advantages of short term health insurance are: 1) liberal coverage for treatment with any doctor or hospital, 2) significantly lower cost than regular coverage, 3) fast electronic enrollment, 4) automatic approval, 5) immediate coverage, 6) automated delivery of policies and ID cards, 7) preservation of HIPPA continuity of coverage under the next employer health plan.
The main disadvantages are: 1) no coverage is available for pre-existing medical conditions, 2) those with serious medical conditions are excluded, and 3) pregnant women and their male partners are excluded.
Young health people often need inexpensive coverage for catastrophic medical conditions but may not take the initiative to buy this insurance. Our older clients, for example, know that a medical problem of their 20-something child starting a career will ultimately fall back into their lap to become their own financial burden. It makes more sense to provide an inexpensive short term health insurance that to expose the extended family to the risk of today's high medical costs.
Older affluent clients have different concerns about their own coverage. Advisers should know that the most important thing for a client who has a gap in employer-provided coverage is that federal HIPAA law guarantees continuity of coverage for pre-existing medical conditions only if there is not a gap in insurance of more than two months. That gap should be filled by either COBRA or short term health insurance. Short term health insurance is a smart alternative to COBRA for about 80% of those who lose employer-provided coverage. If the client has serious ongoing medical problems then short term health insurance is not an option and COBRA should be utilized.
Despite the name, some short term medical insurance policies may extend for up to three years. The average lifespan of all health insurance policies purchased by individuals is about twelve months. A typical short term health insurance policy lasts 3 to 4 months. Some people, especially students and young working people without employer-provided coverage, extend this coverage for extra years by stacking the policies back-to-back.
AVAILABILITY AND PORTABILITY
Short term health insurance is meant to be portable and is therefore ideal for job hunters, students and those making career changes. Coverage is available in 46 states plus the District of Columbia. Insurance laws in New York, New Jersey, Massachusetts and Vermont do not allow the sale of these policies within their borders. It is common for residents of these few states to purchase coverage while traveling. For example, a New Jersey resident may purchase insurance while vacationing in Pennsylvania and may keep this same policy for a year after returning home to New Jersey. Once a policy is issued, the coverage is valid with all doctors and hospitals in all 50 states.
Do not be overly concerned about choice of product. All policies provide basically the same protection. The biggest different between different brands of coverage is often price and there is no way to predict which carrier offers a better deal without pricing a few different options. Fortunately all of the better quality plans are listed side by side on Web sites like MedSave.com. It only takes a few minutes to price and compare all available options. The highest quality plans are offered by Standard Security Life under the brand name "Secure STM". The only carrier to avoid is Time Insurance marketed by Assurant Health, State Farm and USAA that has suffered from a number of distribution-related problems and an increase in consumer complaints in recent years. The average monthly premium of a short term health insurance policy is about $126. A typical policy has a $1000 deductible and $1000 co-insurance. Coverage options like prescription drugs, dental and eye care are available but are not necessarily recommended or necessary.
Most policies are issued online. Advisers who are licensed insurance agents may issue this coverage manually but the time required for this manual service is usually not worthwhile for either the client or the adviser. Web sites like MedSave.com specialize in issuing this unique type of coverage and issue tens of thousands of these policies each year. Since MedSave's launch in 1995, we have addressed more than 55,000 questions from consumers, employee benefit professionals and financial advisers on every imaginable aspect of short term health insurance. These questions range from "Does this insurance cover...?" to "How much does it cost?" and "Does my doctor take this insurance?". In response to these questions, I published many self-help articles on the Web site that address many special situations.