Short Term Major Medical Policy vs Cobra

If you are one of the many people who have recently joined the ranks of the unemployed, this may be the first time in many years you’ve had to think about what to do in regard to health insurance. My assumption if you are reading this article is that you aren’t lucky enough to be covered by another family member.

COBRA is an option that all employers who offer health plans to their employees must offer workers who leave their company. Essentially, this law states that an employer must offer the same health care coverage that the employee had while employed there, for up to 18 months if the employee will make the premium payments. In theory, the former employee would have access to quality health insurance with a very low premium. The problem with COBRA is that as health insurance costs have skyrocketed, so have COBRA premiums. When this law was enacted in 1985, health insurance premiums were a fraction of what they were today. Under provisions of the new stimulus package, premiums would be reduced but depending upon how expensive the original coverage was, even 35% of the original price may be very high. It also will not help when the coverage period runs out.

Are there any other options? Fortunately the answer is yes! When I became unemployed unexpectedly several years ago, I found out that my COBRA premiums per month would have been almost my entire unemployment check. As that was not an option, I went exploring and discovered the world of short term major medical policies.

Many major insurance companies offer these plans for anywhere from three months to as much as a year. A Google search on “short term major medical” yields over 2 million results so there is no lack of companies out there with these policies. Better yet, the rates are extremely reasonable. I was able to pick up six months of major medical coverage for six months for less than one COBRA payment.

However, there are several important things to understand about these plans before you decide if they are the right option for you. Major medical means just what it says; these plans are meant to cover you in case of a serious illness or injury. They are not meant for routine doctor visits or preventative care. If you have a chronic health condition, these plans are probably not a good fit for you. What they will do is keep a minor accident like a broken arm from causing you to declare bankruptcy.

Second, these policies are generally not refundable. If you purchase a six month policy and are lucky enough to find a job a month later with insurance that starts very quickly, you are simply double covered for awhile. So do not buy a year-long policy unless you really think you will be unemployed for that long. It is a simple matter to buy three to six months of coverage at a time and renew it.

It is also very important to read and understand the policy before you sign up for it. These plans vary widely. Many of them do not cover pre-existing conditions. A pre-existing condition is generally defined as a health issue one has before obtaining coverage. For example, a diabetic will always be a diabetic, whether they are experiencing mild or severe symptoms. An injury that is still being treated is usually also considered a pre-existing condition.

Deductibles are another important consideration. A deductible is the portion that you must pay before the insurance kicks in. The higher the deductible, the lower the premium, but make sure you have the funds to cover a higher deductible before you choose it. Also, if you are covering more than one person under this policy, be aware of family deductibles. Under some policies, a total deductible must be satisfied before the policy will begin payment. For example, if the plan has a $500 deductible, but a $1500 family deductible, the plan will not start paying after the first person reaches $500, but only after $1500 has been met by one or more people. So if you are covering four family members, and three stay perfectly healthy and one gets very ill, you may have to pay $1500 for the sick one before the plan starts making payment. Many people have been caught off guard by that provision.

Coinsurance is the percentage of the bill that you will always be responsible for even when the insurance starts to pay. For most major medical policies, that rate is set at 20% and isn’t negotiable. In other words, for every $100, the insurance company will pay $80 and you will have to pay $20. In many plans, there is a point of what is known as “disappearing coinsurance.” At that point, the insurance company will start to pick up 100% of the bills up to the maximum coverage of the policy. Disappearing coinsurance usually kicks in around $1,000, but again, read the policy thoroughly.

It is important to understand these policies almost always have a limit to their coverage, which is how they can keep the premiums low. Make sure the maximum is no less than $1 million or the policy is not worth buying. If you think that sounds like a lot of money, you haven’t seen some of the hospital bills that I have while working in the medical insurance field. A catastrophic illness or injury can eat through a $1 million with frightening speed.

Last but certainly not least, make sure you know who you’re dealing with. I looked at four or five policies before I made a decision, and bought one from our local Blue Cross, a company with a sixty year history and an outstanding reputation. I paid slightly more for it than I might have from another company over the internet, but I had every confidence that if I did have to make a claim, it would be paid in a timely fashion. Unfortunately the internet has created a whole new class of con artists who will be happy to take your money and run.

In summary, though short term major medical is not a good option for everyone, it is well worth the time to investigate, and can help to conserve precious cash when every dollar is being stretched.