Term health plans are low cost health insurance that covers doctor visits, x-rays, emergency care, lab tests, hospitalization, and other common medical services. Typically, term health insurance is accepted by a broad range of provider networks. Term health plans require the health status of applicants to be evaluated as part of the application process to determine if the applicant is accepted or rejected. Approval criteria for term health insurance plans vary among insurance providers and may vary in among states. Typically, approval criteria include conditions such as significant health problems (extreme obesity) and pre-existing medical conditions (heart disease) which would result in coverage being denied.
Term health insurance has various differences from insurance plans available under the Affordable Care Act (ACA) which excludes term health plans from being accepted under the requirements of the ACA. To help understand the differences between the two types of plans the material below gives a quick summary of the features of term health insurance. It will also help consumers decide if term health insurance is the right choice for them.
When people hear term insurance many will think of term life insurance, this section will compare the similarities and differences between term health plans and term life plans.
The word "Term" indicates that the insurance has a specific period when coverage is in effect and when it ends. At the end of the "term" enrollees in both plans can apply for a new term policy or another form of health or life insurance such as an employer health plan or Affordable Care Act health plan or a Whole Life or Universal Life policy. For both term health and term life, the new application will be evaluated to determine if there have been any negative changes in the applicants health status which could result in the application being rejected.
Both term health and term life cost less than other forms of health and life insurance. For instance, premium cost for term life insurance can be a fraction of the cost for a Whole Life insurance policy.1 Premium cost is the same for term health insurance; a term plan generally has a premium expense that can be as low as half the cost of the premium for an ACA health plan.2 For both term health and term life the premiums remain the same for the entire term as defined by the policy.
Typically term health and term life are regulated largely at the state level. This means that benefits can vary from state to state if a state mandates a coverage that is not typically a part of a term health plan. For Instance, most states limit the term for health coverage to a maximum 364 days but some states limit the maximum term to six months.
The main difference between term health and term life is the type of coverage. Term health covers illness or injuries while term life pays in the event of the insured's death. Another major difference is the length of the term. For term health the maximum term is 364 day and less in some states while term life insurance can have terms as long as thirty-five years.
The ease of getting reinsured at the end of the term also varies between the two types of term policies. For term life, if the insured becomes seriously ill or injured it could result in new coverage being denied, and he or she may be uninsurable by other life insurance products. Whereas if the insured owner of a term health insurance policy becomes seriously ill or injured and their application for term health coverage is denied they are still able to purchase health coverage through the ACA. The Affordable Care Act guarantees coverage even if a pre-existing condition exists.
Term health insurance is not for everyone, people with poor health, certain medical conditions or a serious health event in the past two years are advised to seek other forms of health insurance because pre-existing conditions are not covered by term health plans.
Profile for the ideal Term Health Applicant
Affordable Care Act (ACA) plans, often referred to as "Obamacare," are significantly different than term health plans. ACA plans typically cover more medical conditions than term health, specifically ACA plans will cover pre-existing medical conditions where term health does not. People who do not qualify for premium subsidies will pay considerably more for an ACA health plan than they would for a term health plan.
All ACA plans must have "10 Essential Health Benefits." In comparison term health plan do not have standardized benefits. The benefits available in a term health plan typically cover normal doctor visits for routine injuries or illnesses, and " major medical coverage" for healthcare costs for a major illness or injury.
The following chart illustrates some of the major benefit differences between term health plans and Affordable Care Act plans. Of important note for consumers shopping for health insurance ACA plans do not deny coverage based on health problems or existing medical conditions.
|Benefit Description||Typical Term Health Insurance||Standard Affordable Care Act Plan||Additional Commentary|
|Doctor visits & other outpatient ambulatory care||Yes||Yes|
|Prescription drug coverage||No coverage or limited coverage||Yes||
Term Health Insurance: Many Term Health
Insurance plans provide a drug discount
card but do not provide drug coverage. Some new Term Health Insurance plans
have a prescription drug coverage option for generic drugs not associated with a
pre-existing condition (brand name drugs & specialty drugs are
Affordable Care Act: Minimum of 1 drug per class must be covered but the minimum number of drugs per class is often more due to state benchmark plan choice.
|Maternity & newborn care||No||Yes||Term Health Insurance: Complications of maternity covered but not standard childbirth services. Affordable Care Act: Applicants cannot be denied based on pregnancy as a precondition.|
|Mental health services||No coverage or limited coverage||Yes||Coverage included only when mandated at state-level|
|Substance use disorder services||No coverage or limited coverage||Yes||Coverage included only when mandated at state-level|
|Rehabilitative and habilitative services and devices||No coverage or limited coverage||Yes||Coverage included only when mandated at state-level|
|Preventive care||No coverage or limited coverage||Yes||
Term Health Insurance: Some plans have selected
preventive care benefits with cost-sharing while most
plans do not cover preventive care services.
Affordable Care Act: Preventative services must be provided without cost-sharing (cf.https://www.healthcare.gov/preventive-care-benefits)
|Pediatric services - oral and dental care||No*||Yes||Coverage included only when mandated at state-level|
|Broad healthcare provider networks||Yes||No*||
Term Health Insurance: These plans typically
have broad acceptance among healthcare providers. Some Term Health Insurance
plans have a preferred network with negotiated pricing for healthcare services
with a larger non-preferred network where the plans pay 'usual and customary'
fees for covered healthcare.
Affordable Care Act: These plans have been noted in the press for a significant use of "narrow networks" to increase the ratio of enrollees to healthcare providers.
|Adult vision care||No||No|
|Adult dental care||No||No|
|Uninsured penalty for enrollees?||Yes||No||In 2015 uninsured penalty is the greater of 2% Modified Adjusted Gross Income (MAGI)/$325 per person. The maximum penalty is the national average premium for a bronze plan. In 2016, the fine increases to 2.5% of MAGI household income/$695 per person.|
|Medical underwriting for insurance applicants?||Yes||No||
Term Health Insurance: These plans evaluate
health status or pre-existing conditions within the processing of an insurance
application and this evaluation has consequences for whether an applicant
is approved or rejected for insurance coverage.
Affordable Care Act: These plans do not consider health status or pre-existing conditions within the processing of an insurance application.
Because term health plans do not conform to the requirements of the Affordable Care Act, enrollees in term health plans must pay the uninsured tax penalty. The penalty for 2016 is the greater of 2.5% of MAGI household income or $695 per person. Since the cost of term health plans is typically half the expense of an ACA plan, the combined cost an annual term health premiums and the tax penalty are often still less than the annual premium for the cheapest ACA health plan.
A pre-existing condition is defined as a medical condition that existed prior to enrolling in a term health plan. Pre-existing conditions are not covered by term health insurance, even if the pre-existing condition is not specifically listed on the enrollment application. Typically, insurance providers consider a pre-existing medical condition as a condition that was diagnosed or treated within the previous two years. Some insurance providers may use the term "prudent person" in the definition of a pre-existing condition such as "a medical condition for which symptoms were present prior to insurance enrollment and a prudent person would have sought treatment."3