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Considering Short Term Health Insurance to Save Money

Posted on Nov 3, 2014 by Paul White

Recently I heard about a little loop hole in the whole Obama Care thing.  Its called Short Term Health Insurance.  Since Short Term Health Insurance is less than 12 months of coverage none of the Obama Care Rules apply to it.  This makes it ideal for people who are healthy, and just need something to cover emergencies.  After I got a letter from Cigna ( my current health insurnace provider ) saying our rates were going up 12%.  I am seriously thinking about cancelling my plan with Cigna and just getting a Short Term Plan.

My Current Health Insurance Provider

Currently my family is with Cigna.  Its an annual plan that auto renews each year.  It provides coverage for Me, my Wife and Son.  Cigna sent us a letter today informing us that our rates are going from $587 / month up to $659 / month.  We have a $5000 Deductible, and in the last year we have had no claims, other than a couple visits for colds.  It provides coverage for everything ( pregnancy, disease, illness, ect... )  We are both healthy, eat right, and workout.  I am fixed, so pregnancy is not a worry for us.

What kind of people is Short Term Health Insurance for.

Its intended to be a stop gap for people between jobs, but there is nothing that prevents people from renewing their policy every year.  It can last up to 12 months, but not longer.  Typically plans last for 1 Month, 6 Months, or 11 Months.  Unlike Obama Care Plans,  You can be rejected, and everything Obama Care says must be provided for you, is not provided in Short Term Plans.  This means its not meant for people with a history of health problems or people who want to have a baby.  If you are healthy, done with kids, and just want something to cover emergencies, then Short Term Plans seem like a good option.

What are the Negatives of Short Term Health Insurance?

After more research today, I found that since Short Term Health Insurance plans don't meet the standards set by the Affordable Care Act ( Obama Care ), at the end of the year when doing your taxes you will have the pay the penalty.  The penalty varies depending on your household's income.  But even after paying the penalty I find that I still am saving a ton over getting an Obama Care Approved Healthcare package.

How much is the penalty for not having Health Insurnace that meets the Affordable Care Act?

The penalty is cheap right now, but each year its going up until it settles in 2016, after which it will automatically adjuster to keep up with inflation.

The Penalty for not having coverage in 2014

  • 1% of your household income above $10,000  or $95 per adult / $47.50 per child under 18
  • Maximum penalty is the national average premium for a bronze plan

The Penalty for not having coverage in 2015

  • 2% of your household income above $10,000  or $325 per adult / $162.50 per child under 18
  • Maximum penalty is the national average premium for a bronze plan

The Penalty for not having coverage in 2016

  • 2.5% of your household income above $10,000  or $695 per adult / $347.50 per child under 18
  • Maximum penalty is the national average premium for a bronze plan

To put this into perspective, lets take a household making $60k / year, and has 2 adults and 2 kids. Health Insurance through a repuable carrier will cost you about $900 / month.  Or at $10,800 for the year.  If you were to cancel your plan and get a short term plan your cost would be as little as $250 / month, or $3000  for the year.  Now lets calculate the penalties for the years.

Penalty for 2014,  1% ($600) or $285, so $600 as its higher

Penalty for 2015,  2% ($1200) or $975, so $1200 as its higher

Penalty for 2016,  2.5% ($1800) or $2085, so $2085 as its higher

So even after the penalties, its still cheaper to get a short term plan and pay the penalty. A 4 person family would actually save $7200 the first year, $6600 the second year, and $5715 the third year.  

Savings from Short Term Health Insurance

The Savings were huge.  A 6 month plan with a $10K deductible and 20% coinsurance only costs $176.50 / month.  Drop the Deductible to $2500 which is better than my current Cigna plan and the cost is only $223.37 / month.  This provides coverage for my Family of 3.  I am about to pay 3x that much if I stay with Cigna.  

Considering the Switch

Later this week my wife and I will do some more research on this.  I am truely considering this change.  

Update 11/6/2014

Today my wife called our current provider, and they said that we wouldn't qualify for short term insurance (not sure if they are telling the truth or not), and that we were locked into our current plan until renewal.  Seems the only time you can switch plans is January at the beginning of the year.  I thought that maybe health insurance was more like car insurance allowing you to switch carriers at anytime.. You know like in a competitive market place.  Taking your business to the best company.  Thankfully the GOP now controls both the House and the Senate, now its just a matter of them coming up with a solution that is better than Obama care.  Unfortunately Ideas and Solutions are not exactly something the GOP is known for.  Their best solution will most likely be to repeal Obamacare, and thats not something that will be saved from Obama's VETO stamp.

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