Affordable Care Act (ACA) vs. Short-Term Health Insurance

Most people who do not get health insurance through their job usually get stuck with choosing between ACA and Short-Term options. This is a quick write-up to provide a general comparison of the two, to help you out.

ACA has a lot more features than the Short-Term plan, but the Short-Term plans seems to be the most misunderstood. So let’s go over the main points of the Short-Term first:

SHORT TERM HEALTH INSURANCE

Short Term plans are ideally designed to be used more like an Emergency-Only insurance for healthy adults who rarely need to see a doctor, except for maybe an annual physical.

Short-Term coverage can be a good or even a great solution for some people, who are:

  • Healthy and under 65 years old and want to save money.
  • Self-employed and healthy
  • Waiting for the ACA coverage to start
  • Between jobs and insurance benefits
  • Waiting for the Medicare to start

Coverage and Features:

  • Fast signup process, with coverage usually available the day after submitting the application
  • Premiums are usually lower than the ACA plans
  • NOT CREDITABLE COVERAGE – which means that the prescription portion of the coverage does not meet ACA requirements. (read more about Creditable vs. Non-Creditable coverage here)
  • Multiple levels of available deductible and supplemental coverage for emergencies (see PRO TIP below)
  • You can drop coverage early without penalty
  • Coverage up to 1 year (short-term).  You have to re-apply for coverage at the end of your term and accept the prices of that moment.
  • Not a Guaranteed issue type of insurance – meaning that pre-existing conditions are not covered and the medical questionnaire you fill out during the application can lead to the denial of coverage.
  • Unlike the ACA plans (see below), Short-Term plans do not have coverage requirements. Each plans can offer drastically different options – so make sure that your trusted agent knows and can explain all these intricacies to you.

PRO TIP:

Short Term insurance plans are known for the notoriously high deductibles, which in return gets the consumer the lower monthly premium. The higher the deductible, the lower the cost. But there is a FIX: If you talk to your trusted insurance agent, they should be able to dig up a supplemental or indemnity coverage, which would cover this deductible in case of an emergency.  So, if you have, let’s say, a $10,000 deductible – if an emergency occurred, you shouldn’t have to fork over anything out-of-pocket.  Everything will be covered by these types of policies.

KEY POINT:

Do not confuse Major Medical Coverage (Short-Term, ACA or any other) with Supplemental Indemnity coverage.  The main word here is SUPPLEMENTAL, because it supplements the Major Plan’s deficiencies – which for most people is the high deductible.  So, for the best coverage using a Short-Term plan, you should pair it with a Supplemental Indemnity plan.

Make sure to read the example of transition between Short-Term vs. ACA plans at the bottom of this article. 

 

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AFFORDABLE CARE ACT (ACA)

HEALTH INSURANCE

The primary goal of the Patient Protection and Affordable Care Act (ACA) is to broaden access to health insurance coverage. 

 

The Affordable Care Act makes health care more accessible to certain people by:

  • Creating the Health Insurance Marketplace through which qualified individuals may compare and purchase plans.
  • Eligible individuals who do not have access to government-sponsored coverage or affordable employer-sponsored coverage can receive financial assistance
  • Providing qualified individuals with Marketplace financial assistance, in the form of:
    • advance payments of the premium tax credit
    • cost-sharing reductions
  • Expanding Medicaid in states that took this opportunity to cover individuals whose household incomes are at or below 138% of the federal poverty level

KEY-TERM: Pre-existing condition is any health condition or illness that was present before the coverage effective date, regardless of whether medical advice or treatment was actually received or recommended.

KEY-TERM: Qualified Health Plan (QHP) – all Marketplace plans are QHP. QHP = ACA Compliant plan

 

ACA Coverage and Features:

  • No Pre-Existing conditions exclusions
  • Offers coverage for children of the insured up to the age 26.
  • Guaranteed issue – coverage cannot be denied due to pre-existing conditions.
  • Guaranteed Renewability – insurer cannot refuse to renew the coverage
  • You cannot be prohibited from participating in a clinical trial
  • There is no dollar limit coverage for Essential Health Benefits (see the list below)
  • You cannot be charged a higher premium based health status or gender
  • Premium rates can only be based on geographical area, family composition, age, and tobacco use
  • Health insurance issuers ae not allowed to charge an older adult more than three times the rate of a 21-year old

KEY-POINT: The top distinguishing feature of ACA is the guaranteed coverage requirement

ACA – 10 Essential Health Benefits (EHB):

EHB  is a comprehensive package of 10 benefit categories that all non-grandfathered individual and small group health plans must offer

ACA Eligibility:

  • Must be a U.S. Citizen or be lawfully present in the United States.
  • Must live in the United States.
  • Cannot be currently incarcerated.
  • Cannot have current coverage by Medicare, Medicaid, or other government health programs, like TRICARE. All of them already constitute essential coverage.

Coverage for young adults (under age 26). These young adults can join or remain on a parent’s plan even if they:

  • Are married (coverage requirement does not extend to a married child’s spouse)
  • Are not living with a parent
  • Are not attending school
  • Are not financially dependent on a parent
  • Are eligible to enroll in their own employer’s plan
  • Have or adopt a child

ACA Plan Categories

Non-grandfathered coverage in the individual and small group markets must present plans in certain categories: Platinum, Gold, Silver, Bronze.  The level is determined by the amount of coverage of benefits (or Actuarial Value – in insurance terms). The higher the AV,  the more the insured pays in monthly premiums and the less they could pay in out-of-pocket costs. If you plan to use your health insurance a lot, you should choose a higher plan.

Platinum health insurance plan pays approximately 90% of the average cost of all Essential Health Benefit

Gold health insurance plan pays approximately 80% of the average cost of all EHB

Silver health insurance plan pays approximately 70% of the average cost of all EHB

Bronze health insurance plan pays approximately 60% of the average cost of all EHB

Health insurance issuers do not have to offer plans within all plan categories and there are some limitations on a qualified individual changing plan categories – so consumers should be aware of the restrictions of each coverage option.

ACA Out-of-Pocket Cost Limits

All non-grandfathered health plans must limit cost sharing and out-of-pocket costs for insured individuals:

  • Deductibles, coinsurance, and copayments cannot be applied to certain recommended preventive services.
  • Annual cost-sharing limits cannot exceed specified amounts.

(In 2021: the maximum annual limitation on cost-sharing is $8,550 for an individual and $17,100 for families enrolled in individual or group market plans.)

ACA Rating System

ACA Age Rating Standards (State vs. Federal)

Health insurers selling non-grandfathered coverage in the individual and small group markets generally are not allowed to charge an older adult more than three times the rate of a 21-year-old based on age.

States can establish their own age curve or default to the Federal age Bands:

    • 0-14
    • One-year bands between ages 15-63
    • 64 and older

ACA Family Rating Standards

Family premiums are based on the premiums for each family member, including each family member’s age and tobacco use.  The total family premium includes premiums for up to three dependent children under the age of 21 and per-member rates for adults. In the case of enrollment groups with more than three children, only the oldest three children are rated. However, under certain circumstances, states may require the use of uniform family tiers and multipliers.

ACA Geographic Rating Standards

Premiums are based on geographic rating areas, which are set by the state. For the individual market, the rating area is based on the primary policyholder’s address. For the small group market, rating area is based on:

    • The group policyholder’s principal business address; or
    • In some circumstances, the business address within the plan’s service area where the largest number of employees work as of the beginning of the plan year; or
    • If there is no such business address, the rating area where the greatest number of employees within the plan’s service area live or reside as of the beginning of the plan year.

 

ACA Tobacco Rating Standards

  • Health insurance companies in the individual and small group markets generally cannot charge an individual who legally uses tobacco products more than 1.5 times the non-tobacco user’s rate based on tobacco use.
  • For employer insurance plans, insurers may impose the tobacco rating factor only if a tobacco-related wellness program (such as a tobacco cessation program) that complies with federal rules regarding nondiscriminatory wellness programs is also offered. Enrollees are able to avoid the tobacco surcharge by participating in such a wellness program.

 

ACA Marketplace

Let’s take as look at the ACA marketplace. What is it’s function?

 

All ACA marketplace offered plans for both individual and small-employers are Qualified Health Plans (QHP).

To become certified, a QHP insurer must meet a minimum set of criteria, including:

  • Coverage, at a minimum, of a comprehensive package of benefits, known as essential health benefits (EHB)
  • Benefit design standards, including non-discrimination requirements and limits on cost sharing
  • Network adequacy standards
    • Offer a network that is sufficient in number and types of provider
    • Make a good faith effort to provide written notice of discontinuation of a provider 30 days prior to the effective date of the change
    • Include a sufficient number of essential community providers,  to ensure reasonable and timely access to a broad range of such providers for low-income and medically underserved populations in the QHP’s service area

Small employers (generally those with 1-50 employees) may be able to enroll in SHOP plans through an insurance company or with the assistance of a SHOP-registered agent or broker. Healthcare.gov has a list of certified and licensed agents, searchable by zip code. Or you can let us know that you need insurance help.

Functions of the ACA Marketplace: 

  • QHP Certification: Certifying health plans to participate in the Marketplace as Qualified Health Plans
  • QHP Enrollment: Facilitating individuals’ enrollment in a Qualified Health Plan
  • Medicaid/CHIP Eligibility: Determining or assessing individuals’ eligibility for enrollment in Medicaid or the Children’s Health Insurance Program
  • Monitoring Issuers: Carrying out certain plan oversight functions, including monitoring QHP issuers for continuing compliance with certification requirements
  • Eligibility: Determining individuals’ eligibility for enrollment in a Qualified Health Plan through the Marketplace
  • Financial Assistance: Determining individuals’ eligibility for advance payments of the premium tax credit and cost-sharing reductions

ACA marketplace also offers other types of plans:

CO-OP Health Plans:

The Affordable Care Act established the Consumer Operated and Oriented Plan (CO-OP) program, which created a new type of private, nonprofit, member-run health insurer. CO-OP health plans:

  • are governed by their members,
  • must operate with a strong consumer focus,
  • must reinvest any profits into lowering premiums, improving benefits, or otherwise improving the quality of health care delivered to their members.

CO-OPs offer health plans in some states through the Individual Marketplace and SHOP, but may also offer health plans outside of the Marketplace.

Stand-alone Dental Plans:

Since the adult dental coverage is not part of the Essential Health Benefits, it is not required to be included in the package of benefits offered by a health plan in the individual or small group market, including through the Marketplace. However, consumers can purchase a stand-alone dental plan through the FFM if they qualify for and enroll in a QHP.

Pediatric dental care is an EHB that health insurance companies must offer as part of a QHP if it is not otherwise available in the Marketplace through a Marketplace-certified stand-alone dental plan.

 

 

Getting Help with Purchasing ACA Marketplace Health Plan

When you are trying to shop on a marketplace website, you have an option to purchase the plans on your own or you can seek assistance, to help you with navigating the system and provide advice.  You have 2 types of options:

Licensed insurance professionals – who can explain the differences between plans:

  1. Health insurance agent (this can be an agent, broker, or web-broker)

Assisters – who cannot make recommendations of specific plans:

  1. Navigator – certified navigators who assist consumers in applying for and enrolling in health coverage through the Marketplace.  An insurance company representative cannot be a navigator. Navigators are usually associated  with non-profit organizations.
  2. Certified application counselors (CAC) – staff members and volunteers of organizations approved by the Marketplace, such as community health centers, health care providers, and certain social service agencies.

KEY-POINT: Navigators and CACs are different from Agents because agents get paid commission on sales from the insurance companies, while Navigators and CACs are not allowed to receive compensation from any health insurance company for helping with the navigation process.

Assisters in the Marketplace cannot make specific plan recommendations to consumers. If an assister is asked by a consumer to recommend a specific plan, the assister must remind the consumer that he or she is prohibited from making plan recommendations because federal standards require assisters to remain fair and impartial.

Once the customer asks an assister for a recommendation, the assister should refer the customer to the listings of the Marketplace-registered health insurance agents. Again, assisters must stay impartial and cannot recommend any specific agent or insurance company.

Assisters may facilitate enrollment in a Qualified Health Plan by:

  • providing detailed information about the benefits and features of a plan;
  • clarifying the similarities and difference between plans; and
  • assisting consumers with making informed decisions in the plan selection process according to their needs.

Agent

All agents, brokers, and web-brokers who participate in the Marketplace must comply with the standards of conduct to protect against conduct that is harmful to consumers or prevents the efficient operation of the Marketplace.

When you contact an insurance professional to help you with selecting a marketplace plan, they are legally required to:

  • Show a Privacy Policy Statement  to each consumer prior to collecting his or her Personally Identifiable Information (PII)
  • Get your consent to act as your assistant in navigating the marketplace

KEY-POINT: Your disclosures and consents will be stored by the agents for at least 10 years , or the life of the record – whichever is longer. 

At a minimum, in this consent you acknowledge that the agent has informed you  (the prospective buyer) of the functions and responsibilities that apply to the agent’s role in the Marketplace. In addition, the consent may include permission for the agent, broker, or web-broker to:

1) conduct an online person search,

2) assist with completing an eligibility application,

3) assist with plan selection and enrollment, and

4) assist with ongoing account/enrollment maintenance.

Marketplace insurance consent form should include:

  • The individual’s, employer’s, or employee’s name;
  • The date the consent was given; and
  • The name of the agent(s), broker(s), or web-broker(s) to whom the consent was given.

Here are a few Resources for Agents and Brokers in the Health Insurance Marketplaces

Navigator

Navigators in the marketplace are required to disclose to consumers:

  • certain relationships they may have with health insurance and stop loss insurance issuers.

CAC

CAC are required to disclose to consumers:

  • any potential conflicts of interest, including any relationships with issuers of QHPs or insurance affordability programs.

Marketplace-registered Agents and Assistors can be found on the Find Local Help page, searching by city and state or zip code.

Another option is to use Help on Demand service. Here the consumer sends out the request for help and the system pings the closest marketplace-certified agent according to the agent’s advertised work hours. Some agents work late, so they could respond to your sudden urge to shop for insurance at 2am. The agent has 15 minutes to confirm that they are able to help. If they don’t confirm, the system contacts the next agent on the list.  It’s kind of like Uber, but instead of the driver accepting you as a client, its an insurance agent.

Interesting point: Unlike most of the insurance industry, where the agent always pays for leads to new customers – if the consumer uses the Help on Demand search, the agent gets this client for free.

How are agents paid for helping consumers with Marketplace health plan purchase?

The Marketplace does not set compensation levels.

Licensed insurance professionals who participate in the Marketplace are paid according to:

  • their agreements with the Qualified Health Plan providers and
  • according to any applicable state-specific requirements

When an agent wants to be listed on the Marketplace help website, they must get connected to all the insurance companies that they want to represent.  If there is no appointment , the agent cannot sell their product. During the signup process, the agent finds out how commission is calculated. In some cases, the agent does not get paid at all. It is all up to the insurance companies.

KEY-POINT: On average, the standard Marketplace plan commission pays the agent 6-8% of the premium, and then 1-2% annual commission whenever the customer renews the plan. This number can vary drastically between states.

 

What are the penalties for agents who break marketplace rules?

  • Agent’s marketplace account may be suspended up to 90 days
  • Agent’s marketplace account may be terminated
  • Denial of future listing on the marketplace
  • Fine of up to $28,906* per application, for failure to provide correct information
  • Maximum fine of up to $289,906* for each application, for willingly providing false information in the application
  • Maximum fine of up to $28,906 for willful disclosure of Personally Identifiable Information

*stats as of 2019

 

 

 

ACA Health Insurance is normally the best choice for those who have pending medical conditions that needs to be taken care.

For example, if you need to have a surgery, or if you know that you will be need to see a doctor often, then ACA is a wise choice.

 

ACA Appeals Rights Process (if the claim is denied):

Step 1: INTERNAL

  1. Filed at no cost within 180 days of claim denial.
  2. Insurer reviews within 30 days for pre-service claim, 60 days if insured has received service.
  3. Insurer provides written final internal adverse benefit determination if claim is still denied.
  4. Insured gets info on requesting External

Step 2: EXTERNAL

  1. Filed within 60 days of written final Internal adverse benefit determination (time may vary state-to-state).
  2. May be filed concurrently with internal appeal if person’s health is at stake.
  3. Expedited reviews may be verbal but written must follow within 48 hours.
  4. External appeal is considered FINAL.

We hope that this writeup made your selection process easier.

Here’s an example of

Short-Term vs. ACA:

Andy, a healthy, married small business owner has a low-cost short-term policy. He visits his doctor once a year for an annual physical, which is covered through his short-term insurance. He also has supplemental indemnity hospital coverage, which helps covering the high deductible costs in case of an emergency. So, if he has a heart attack or breaks his leg, he is covered.

During one of his annual physicals he discovers that he has cancer and will need a series of treatments, with an unknown duration and price tag at the end.

If it was a sudden emergency, like an appendicitis, the short-term + indemnity combo works great. Indemnity covers the initial costs and then the short-term kicks in for the rest.  But with cancer, this will be an ongoing process of treatments.

Short-term plans last up to 12 months. At the end you must re-apply for coverage. So, if Andy reapplies for a short-term plan – he will be denied, because short term plans do not accept pre-existing conditions. Since this will be a new term of coverage, anything that happened before the start of the new coverage is considered pre-existing. So, now because of the cancer diagnosis Andy doesn’t have health coverage at the moment he needs it the most.

The only way to get coverage for pre-existing conditions is to get ACA-compliant insurance. Andy now must decide what to do. The most obvious choice for him is to get the Individual coverage from the Health Marketplace. Andy goes to the website and runs the quotes. There a bunch of options and they range from around $400 to over $1,000. This is when Andy decides to do his diligence and reaches out to his friend Ted, who is a knowledgeable health insurance agent for advice.

Ted hears Andy out and immediately suggests to try a Group Plan coverage instead.  Ted knows that Andy is married to Jill and that he uses a payroll company to pay himself salary every month. That allows Andy and Jill to qualify for a Small Group coverage and possibly save on premium cost versus buying individual plans.

Under the small group plan, just like on the individual ACA plan, Andy’s pre-existing cancer is now being covered, and the plan will automatically renew, without having to reapply at the end of each term.

… Hopefully you get the idea. Different plans serve different purposes.

 

KEY POINT:

As long as there are guaranteed issue employer plans or ACA individual plans available for consumer at the of the short-term – there is no downside to having short-term insurance.

 

 

If you discovered something new and beneficial, make sure to reach out to your trusted health insurance agent for more info.