How to spot a junk health insurance plan

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Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a senior reporter and certified personal finance counselor at Policygenius, where he covers insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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Updated Sept. 14, 2018: Ahead of Open Enrollment for 2019, the Trump administration has moved to widen health insurance options outside of Officials have finalized rules in recent months that expand short-term health plans to last from three months to potentially three years and allow small employers to band together to offer association health plans.

Neither option would have to provide as much coverage as individual health insurance (though the new association health plans can't charge higher premiums, deny people based on pre-existing conditions or drop workers who get sick.)

That's why critics have called such plans "junk health insurance." On the other hand, for people who don't get subsidies to help pay for plans that follow the rules of former President Barack Obama's health care law, these plans are much cheaper than even the least expensive plans on the federal marketplace.

In places where there are few affordable Obamacare options, short-term health insurance might be an attractive option. But here's what you should know before signing up.

What to look for in a short-term health plan

I'm going to focus more on short-term health plans than association health plans because they're widely available (association health plans are offered through work). The same limitations apply to both, however.

Under Obamacare, health insurance plans have to cover "essential health benefits," including pregnancy care, mental health treatment and pre-existing conditions. These plans don't.

Dania Palanker studies short-term health insurance plans as an assistant research professor for the Center for on Health Insurance Reforms at the Georgetown Health Policy Institute. Every short-term plan she's seen excludes coverage for pre-existing conditions. Consumers with pre-existing conditions like diabetes either can't sign up or, if they can sign up, can't get coverage for their condition.

So if you have a thyroid condition when you sign up for a short-term plan, the insurer may not pay for medicine since it's a pre-existing condition. Some plans also exclude anyone who has recently received mental health services, Palanker said.

"You might be able to get your plan because you had mental health treatment six years ago, however if you needed mental health services, there's a chance it would be considered a pre-existing condition," Palanker said.

Even if you get sick and a short-term plan pays for treatment, that sickness could be considered a pre-existing condition when you try to get a new short-term policy, Palanker said. Many people don't realize you can't simply renew short-term health coverage when it ends. You have to start the application process all over again. And while losing health insurance can qualify you for a special enrollment period for an Obamacare plan, the end of a short-term plan doesn't.

How to vet short term health insurance

It's also important to read all the limitations and exclusions in a short-term plan. Don't buy a plan without seeing a policy in writing, Palanker said. Some short-term plans have exclusions for activities like horseback riding or skiing. So if you break your leg skiing, you'll pay for medical care on your own.

Some short-term plans also limit services to specific dollar amounts, Palanker said. She's seen plans that limit coverage to $2,000 a day for a hospital stay. Anything more the hospital charges, you're responsible for paying.

"Understand what your plan covers and what it doesn't," said Kristine Grow, a spokeswoman for America's Health Insurance Plans, an industry group for health insurers.

Agile Health Insurance, a Policygenius partner, sells short-term health insurance online. Shaun Greene, senior vice president and general manager, said anyone considering a short-term health plan should estimate their health care spending for the coming year. If it's low, a short-term plan could work.

If not, or if you're uncertain, an Obamacare plan might be better despite its higher cost, Greene said.

Make sure the insurance company is reputable, he said. Look at customer reviews. (Agile can help you compare the costs of short-term health insurance plans across companies here.)

How much are short-term plans?

Greene's son recently aged out of Greene's health coverage.

"I looked at the market, and for him, the cheapest Obamacare bronze plan would be about $200," said Greene, who lives in Utah.

The Obamacare plan also had a $6,000 deductible. In contrast, a short-term plan from National General cost about $50 a month. The Obamcare plan covers the 10 essential health benefits. While the short-term plan covers doctor visits, hospital care, and emergencies, it does not cover for maternity care, preventive care or prescriptions. It covers his son in case of accident, injury or sickness.

"It's a good plan for people that are healthy," he said.

Short-term plans often cost half or even a quarter as much as Obamacare plans, Greene said. However, if you're eligible for a tax credit, an Obamacare plan may be cheaper. Bronze plans were going for $0 after premiums subsidies on some state exchanges last year.

Palanker said anyone shopping for health insurance, even outside of open enrollment, should contact their state or federal exchange to see if they are eligible for special enrollment and a a tax credit. When it comes to short-term plans, you often get what you pay for, she said.

"They cost a lot less because they cover a lot less," she said.

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