Transitional health insurance can be a critical benefit for individuals in the midst of financial uncertainty or major life changes.
Transitional health insurance, otherwise known as a short-term health plan, is a temporary insurance policy intended to provide stop-gap coverage when an individual is in between ACA compliant policies.
The National Association of Insurance Commissioners estimates that more than 160,000 people enrolled in transitional policies during 2016. Transitional health insurance is a unique fixture in the US’s insurance industry. While these plans operate independently from the ACA, they can provide certain advantages to individuals.
What is transitional health insurance?
Healthcare.gov defines transitional health insurance as any small group employer-sponsored health plan established before March 23, 2013, when the ACA’s insurance marketplaces opened
Many of these plans were grandfathered in to the ACA environment, allowing beneficiaries to retain coverage despite new rules governing consumer protections and plan status.
Job-based plans can still enroll individuals as long as they maintain their grandfathered status. Individual grandfathered plans can’t enroll new beneficiaries, but may continue to provide coverage to previously enrolled health plan members.
Grandfathered plans may lose their status if they significantly reduce the benefits they offer and/pr raise cost-sharing amounts for coinsurance, copayments, deductibles, and premiums. A short-term, grandfathered policy also cannot significantly increase lifetime benefit limits.
Beneficiaries are expected to switch to a new ACA-compliant plan after a maximum of three months from initial enrollment, hence the term “transitional” health plan. However, short-term health plan members may be able to keep their transitional insurance for 12 months if a proposed rule from CMS is finalized.
Enrolling in a transitional health plan adds a tax penalty for a beneficiary, which is removed once the beneficiary enrolls in an ACA-compliant plan. However, federal repeal of the ACA’s individual mandate will make this provision null and void.
A short-term health plan is similar to an association health plan (AHP) where individuals, contractors, and related professionals can organize their own health plan.
The difference between an AHP and a short-term health plan is that a short-term plan is sponsored by a commercial payer with separate rules and more structured administrative functions.
For example, payers aren’t allowed to offer AHPs, and can only support an AHP in a limited capacity as a consultant. A commercial payer can operate, manage, and sponsor a short-term plan.
What are the benefits of transitional health insurance?
Transitional health insurance is designed to help individuals maintain coverage while they look for other health plans. Beneficiaries that enroll in transitional insurance benefits can choose how long the plan needs to last and can immediately cancel their coverage.
The Kaiser Family Foundation found that short-term health plans usually offer much lower premiums than ACA-compliant plans, but with weakened health benefits. Short-term health plans aren’t required to cover pre-existing conditions, provide prescription drug benefits, or provide preventive care to beneficiaries.
Short-term health plans can have premiums as low as $25 a month, but usually have cost-sharing requirements between $250 and $30,000 for a plan’s duration. In some cases, short-term health plans can have policy caps at $250,000 to $2 million. Short-term health plans are useful when individuals experience a major life event that impedes their access to a regular health plan.
Transitional insurance is an ideal coverage option for when an adult reaches the age of 26 and can no longer remain on a family plan, misses the ACA’s open enrollment period, transitions to a new job while waiting for their new employer plan to activate, or when an adult is waiting to enroll in a public payer program. Short-term health plans are ideal for younger beneficiaries with lower expected utilization rates, but could be problematic for older members or those with chronic diseases and complex needs.
AARP explains that many older adults may not even be able to enroll in a transitional plan since 40 percent adults between 50 and 64 have a pre-existing condition. The group also suggests that older adults may be charged higher premiums because short-term plans are not subject to the ACA’s age-based anti-discrimination policies.
How does transitional health insurance impact in the nation’s health plan market?
Policy changes from both the Obama and Trump Administrations have extended the length of how long individuals can keep transitional health insurance.
In 2017, CMS extended the length of transitional policies, allowing individuals to keep grandfathered plans for the entirety of 2018. Since 2014, CMS has continued to allow short-term health insurance to continue coverage for each subsequent year.
In April 2018, CMS announced that transitional health policies can cover small groups and individuals through the year 2019. The bulletin explains that CMS is trying to eventually move these health plans into the ACA market.
Maintaining or expanding the short-term insurance market may complicate an already challenging insurance landscape, especially as the ACA continues to come under pressure from federal authorities.
Researchers from the Commonwealth Fund found that short-term health plans on their own don’t play a major role in the health of the individual health plan market. However, the expansion of short-term health plans, in combination with federal changes such as the repeal of the individual mandate and cost-sharing reductions, could drive up the cost of individual health plans.
Shifting healthier beneficiaries into short-term insurance plans or AHPs could unbalance the ACA risk pools, driving up premiums for beneficiaries with higher utilization needs. Combined with other changes around the ACA, premiums could increase by up to 3.6 percent in 2019.
Healthcare payers that provide grandfathered plans to beneficiaries should ensure that members are using transitional insurance to eventually secure a permanent health plan that offers high-value benefits and appropriate health protections.
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