How Short Term Medical Insurance Fills the Coverage Gap

Kelli Vorndran
How Short Term Medical Insurance Fills the Coverage Gap

Living without health insurance is risky. Should an accident occur when you're without coverage, the financial ramifications could be life-altering.

To combat chances of consumers being hit with large bills, the Affordable Care Act (ACA) dictates that all people must have some form of insurance or pay an annual penalty. In 2014, the penalty is up to $95, or 1 percent of annual income. By 2016, however, the penalty jumps up to $695, or 2.5 percent of annual income.

The current enrollment date for coverage for most individuals to avoid paying a penalty is March 31, 2014.

In some situations, such as when people are going through job transitions, temporary solutions are necessary. One option is short-term medical (STM) insurance. Short-term medical policies have commonly been used by people looking to bridge gaps in their health coverage during job loss or change. But you can also buy an STM policy for other reasons, including:

  • If you're a retiree in need of coverage before enrolling in Medicare
  • If you're a student transitioning from a parent's plan
  • If unexpected changes force you to wait for new insurance to begin

It's worth noting that STM doesn't meet the ten essential requirements for ACA Marketplace plans, which means in 2014 you must still pay up to the $95 penalty.

STM is appealing because of its cost and the ease of obtaining a policy; you can often secure coverage within 24 hours by completing a simple online form.

While STM isn't meant to be permanent — you can't renew your policy after it expires and it likely has limitations, including restrictions on the coverage of pre-existing conditions — it does provide a cost-effective way to ensure coverage. By understanding the value of STM and the situations in which a policy is ideal, you can successfully choose the health insurance that best meets your needs.

Are you or someone you know trying to decide how to proceed in today's health insurance climate? Figuring out the right solution for your coverage needs requires research, as well as the time to weigh the benefits and disadvantages of the option that best meets your life status.

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