For many young adults, college graduation signals the end of dependence on their parents. With independence, however, comes responsibility. One of those responsibilities is securing health insurance coverage.
When a child graduates from college, that child is generally no longer covered under the parents’ health plan.
Fortunately, college graduates can turn to short-term medical insurance as an economic stop-gap to more costly individual health insurance plans or COBRA.
STM insurance is a major-medical insurance product available in most states, excluding Massachusetts, New Jersey, New York and Vermont. It comes with a deductible and co-insurance charges, just as traditional major medical plans do, but it typically costs 30% to 35% less than individual health coverage does and does not typically impose requirements that insureds use in-network providers.
STM policies offer a rate advantage, in part, because of their limited length of coverage. Many states allow only 12 months of coverage, while others allow just 6 months of coverage under one policy.
College graduates may find STM insurance beneficial, even if they have a job lined up right after graduation. Many employers impose a waiting period of a few months to several months before health benefits begin, so an STM policy can be used to bridge this gap in coverage.
It is those and similar gaps in coverage that are the focus of this article. STM insurance is a viable, but often overlooked, option for many people, not just recent college graduates.
The following also are prime candidates for STM: Individuals who are between jobs; seasonal or part-time workers; independent contractors and temporary workers; individuals recently discharged from the military; and recently divorced individuals who no longer get coverage through a spouse.
The case for STM
For illustrative purposes, let’s look at “Roberta,” one of the millions of unemployed Americans.
Roberta is a 52-year-old woman living in Phoenix who has been an executive at the same company for 10 years. She has also been the benefit provider to her family, which consists of her husband and two children, ages 6 and 8. Unfortunately, the company Roberta was employed with was recently acquired and her position was eliminated. She estimates it will take 8 months to secure a similar job with comparable benefits. What are her options for health insurance in the meantime?
Option 1 is to continue her current benefits by enrolling in COBRA continuation coverage. If she chooses this option, Roberta must bear the full brunt of the cost of benefits, plus the 2% fee typically charged for COBRA administration.
The estimated cost, based on Roberta’s $1,000 deductible and 80% co-insurance plan, is $1,122 per month.
What if Roberta and her family decide, instead, to apply for individual health insurance on their own?
Option 2 is to buy individual health insurance for the family. This would cost approximately $840 per month based on the same deductible and co-insurance amounts described above.
Option 3 is to secure a 12-month STM insurance policy. Roberta is confident she can land a similar job in 8 months. If she bridges the gap in employer coverage by opting for an STM policy, the estimated cost is approximately $417 a month–significantly less than COBRA or individual major medical!
Why the significant cost difference?
While the base benefits are similar in nature, STM is major medical at its most basic. Since it is intended only to cover short-term health insurance needs, STM does not cover more comprehensive expenses, such as maternity benefits, nor does it cover treatment for pre-existing health conditions.
For this reason, COBRA or individual major medical coverage is typically more appropriate for individuals who have pre-existing health conditions or other health issues.
A second and equally important benefit of choosing STM during a gap in coverage is that it qualifies as “creditable coverage” under Health Insurance Portability and Accountability Act guidelines.
Under federal and state law, if an individual has a break in health insurance coverage of 63 or more consecutive days and then becomes eligible under a new individual health insurance or group health insurance plan, the new carrier can exclude from coverage pre-existing health conditions.
Because STM qualifies as creditable coverage, when an individual moves from an STM policy to a new group health plan or individual health plan, the new carrier cannot exclude coverage for the pre-existing conditions because there has been no break or gap in coverage.
STM has evolved
To cope with market forces, short-term medical insurance carriers are becoming more creative than ever in their delivery and product offerings. The advent of limited medical plans and HIPAA’s creditable coverage mandates have forced STM insurance carriers to do things that were unheard of 10 years ago.
Let’s consider obtaining coverage. The Internet has made the ability to research plan options, obtain rates, apply, and secure STM coverage a 10-minute process. For many insurance companies, an online presence gives agents and brokers the ability to create their own storefront and advertising for pennies in comparison to more traditional marketing avenues. It has also created a 24/7 window for selling products.
In addition to making it easier to write and administer business, some carriers have tackled pre-existing conditions in a unique way through the development of creative STM options. As mentioned earlier, most STM coverage is available for a 12-month period. At the end of that time, a person may still need insurance and opt to purchase another 12-month policy. Typically, the treatment of pre-existing conditions would remain the same–they are not covered.
One of the most innovative plan designs in the marketplace today provides the option for up to 3 separate 12-month coverage periods, where any condition covered during a prior 12-month coverage period is covered in the ensuing periods, even though it would then be considered a pre-existing condition.
For healthy individuals with short-term health insurance needs, STM is emerging as a smart, affordable solution to fill the health insurance gap for many people. The high cost of health care and the risk of being uninsured make STM a very attractive alternative–one all agents and brokers need to take notice of to serve their clients’ changing health insurance needs.
Jim Kenneally is senior vice president and chief sales and marketing officer at Health Plan Administrators Inc. He can be reached at firstname.lastname@example.org