Coverages in Short Term Health Insurance Policies Are Skinny Leading Buyers With Mounds of Debt

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The Affordable Care Act, or Obamacare, generally requires insurers to provide full healthcare coverage, regardless of health status or gender, and to renew policies so long as premiums are paid. 

However, the ACA created an exception for short-term limited duration insurance—known as STLDI.  A short-term, limited duration insurance policy is a low-cost, stop-gap health insurance option --before another plan kicks in -- for those between jobs and not covered by employer-sponsored group health plans or aging off a parent’s plan. As defined under the ACA, short-term coverage lasts only three months and is not renewable.  When coverage ends after 3 months, Obamacare made subsidies available that would make full coverage affordable for low-income consumers who did not receive employer-provided health insurance. The plans were never intended to replace regular long-term health insurance. 

Coverage limitations of STLDI

The STLDI products were seen as an attractive option to the more expensive and expansive coverages under the ACA plan, the immediate consumer draw being a low price point.

There is a “but” to these plans. They sidestep many of the protections and requirements of coverage under the ACA. To lower costs, the health insurers trim benefits. For example: the short-term products marketed by insurers are not required to cover all the defined essential services that the ACA insurance plans had to cover.  In other words, they were not compliant with the basic covered benefits and protections of the ACA. Most STLDI policies do not cover prescription drugs, mental health or preventative care services, or substance abuse treatment.  (Even if covered, there were limitations and exclusions applicable that would not be permitted under ACA-compliant plans, in a study by Kaiser Family Foundation, a non-profit organization focusing on national health issues.) 

Polices rarely cover maternity care and typically won’t cover routine doctor visits.  Some even exclude sports injuries. 

Equally problematic, some plans have deductibles, higher than ACA-complaint major medical health insurance policies as well as impose annual and lifetime coverage limits. Short-term health plans could charge higher premiums (or deny coverage) to people based on their gender and age, a practice prohibited by the ACA. Some plans also place caps on the benefits the policy will pay. For example, one plan paid less than $12,000 of a $212,000 heart surgery bill. 

Unlike ACA plans, short-term health insurance policies could exclude coverage of a consumer’s pre-existing medical condition. Coverage can be denied (and is sometimes denied “retroactively” after premiums are paid) to buyers who have certain disqualifying health conditions, leaving the buyer with a crushing medical debt.

Unscrupulous health insurance companies are jumping in and deceptively marketing its short-term product, with some encouraging consumers to believe that they were purchasing all the coverage that Obamacare required.

Deceived buyers are now learning that the relatively lower monthly premium—the primary draw for short-term plans-- is costly and coverage is skimpy.  

State response

States have the power to decide and regulate what insurance products are marketed and sold within its borders. Therefore, some, but not all states, have regulated the marketing and sale of short-term policies or imposed stricter requirements (i.e., shorter duration, prohibition on renewals) than the federal law. A handful of states have banned the sale of these products entirely, such as California and New York.

Trump Administration changes

As previously stated, short-term health insurance plans, by definition, are products providing coverage for a short, limited period of time-- three months.  Polices were not renewable if the renewal would extend the policy term beyond three months.

To create flexibility and competition in the health insurance marketplace, the Trump administration in 2018 removed the 3-month contract term, allowing insurers to sell renewable STLDIs with terms of up to one year.  Furthermore, companies could renew a policy for as long as 3 years.

The fallout from this extension is that policies became deceptively and aggressively marketed to consumers by unscrupulous health insurance companies.  Consumers were under the impression they were purchasing all the coverage and benefits that Obamacare requires, but at much lower premiums than the standard plans.  The insurers were successful as consumer flocked to the cheaper plans.  Problems arose when the covered consumer fell sick or injured and found out that she or he would be paying the full sticker price -- out of pocket. 

What to do if You Were Mislead by the Insurer and Purchased Short-Term Health Insurance

Consumers who have purchased short-term plans under the mistaken belief that they were ACA complaint and later had their claim for payment of hospital and doctor bills denied are looking to the courts for remedy. Consumer protection lawyers have filed lawsuits against companies and brokers that deceptively market short-term health insurance.

Lawsuits have been based on the federal Racketeer Influenced and Corrupt Organizations Act, state laws that prohibit unfair and deceptive trade practices, and breach of the contractual duty of fair dealing. The lawsuits seek remedies from short-term insurers, the brokers who market their policies, and the third-party administrators that deny claims. In many cases, all of those parties work together to cheat consumers who purchase STDLI policies.

If you have purchased short-term health insurance plans, medical discount plans, or other products in the belief that you were paying for comprehensive healthcare coverage, speak to a lawyer who handles consumer fraud lawsuits. Remedies may be available that will help consumers who are struggling with unpaid medical debt because their insurance claims were denied or their policies were retroactively cancelled.

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