What are Term Health Insurance Plans? - Learning Center

What are Term Health Insurance Plans?

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.

Term Health and Term Life Insurance

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.

Similarities

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.

Differences

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.

Who Should Choose Term Health Insurance?

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

  • A young adult who can no longer be insured through his or her parents’ health plan
  • People of any age under 65 in good overall health
  • People who need health insurance for a specific period of time (e.g. an interval in between jobs)
  • People who need health insurance outside of the Affordable Care Act’s enrollment period but who do not qualify for a Special Enrollment Period
  • Retirees in good health who no longer have employer-provided health insurance but are too young to enroll in the Medicare program

Dow Does Term Health Plans Differ from Affordable Care Act Plans?

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
Emergency services Yes Yes
Hospitalization 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 typically uncovered).
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.

Will having Term Health Insurance Require Consumers to Pay the ACA Uninsured Tax Penalty?

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.

What are Pre-Existing Conditions?

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