This isn’t a strategy for everyone. If you feel bad for the insurance companies, you can stop reading now. And if you have any significant health issues, this won’t work for you, either. But, if you:
- Have had minimum essential coverage from January 1 through October 31 of this year
- Are healthy, with no (or minimal) foreseen health expenses for the next few months
- Are willing to take a few minutes to understand the rules and exceptions around:
- Open enrollment
- Guarantee-issue health insurance
- Individual mandate to purchase minimum essential coverage
- Would prefer to pay the lowest possible health premium, without subjecting yourself to financial risk or tax penalty
…then this could be for you.
Here’s what we do:
- Pay up front for four months of short-term coverage, from 11/1/2015 to 2/29/2016
• Increased savings by paying the four months up front
• Numerous plan choices available with deductibles from $250 to $7,500 (brochure)
- Drop your current coverage
• But not until you have confirmed your new coverage (online application is instant approval/ID issuance)
• IRS allows individuals to go without minimum essential coverage for two full months of each tax year (Q&A, #6.6)
- Sign up for new, minimum essential coverage during open enrollment, for a March 1, 2016 effective date
• Applications received between January 16-31, 2016 will be assigned a March 1 effective date
- Decide how to spend the $1,000 you just saved
Example 1: A male, age 42 living in Marin County, currently pays $297/month for a basic Bronze PPO plan with a $5,000 deductible from Anthem. That plan will increase (due to cost and age) in 2016 to $322/month. Total cost from 11/1/15 – 2/29/16 = $1,238.
Short-term strategy: This individual can purchase a short-term policy with $7,500 deductible, for that same time period, including the $25 application fee, for a total of $465. We have added some additional risk on the high-end with a larger deductible, but premium savings for the next four months = $773.
Ok, that wasn’t quite $1,000 and we did promise $1,000 in savings. Well, if that same Marin county 42 year old had a spouse, their $773 savings would double to over $1,500 for the four months. Or how about this example:
Example 2: Alameda county woman, age 54. Her Kaiser Bronze plan (also $5,000 deductible) costs $457/month now and will go up to $510/month in 2016. Total cost from 11/1/15 – 2/29/16 = $1,934.
Short-term strategy: Let’s keep her short-term plan deductible at the same $5,000 as her current plan. This new short-term plan will cost her a total of $914 for the next four months, for a net savings of … $1,020.
IMPORTANT NOTES: short-term plans do not cover preventive care, pre-existing conditions, and have a benefit cap of $1mm-$2mm depending on the policy. All medical services are subject to the deductible, and the provider network will be smaller, and different than what you currently have through your carrier. If you currently have an HSA-compatible plan and are making contributions to your HSA — know that short-term plans are not considered to be compatible with an HSA. We strongly recommend consulting with your tax adviser and health insurance broker before making a final decision to employ this strategy.