Freelancing is a great way to balance work with a healthy lifestyle. An estimated 59 million Americans did freelance work in 2020, and 36% of independent workers freelance full-time.
Although there are many advantages to being a freelancer, one drawback is the lack of access to an employer-sponsored health plan. If you are a freelance worker or self-employed person, there are several health insurance options to consider. One option to consider is a short-term health insurance plan.
Here's what you need to know to decide if this is a good choice for you or not.
How Does Short Term Health Insurance Work?
Short-term health insurance, also called “limited-duration” insurance, is a form of coverage meant to insure people for limited periods. It is a temporary and basic medical insurance policy intended for medical emergencies and not everyday medical care or prevention. Short-term health insurance plans are not ACA-compliant, meaning that they do not provide the minimum essential health coverage provided by health insurance plans under the Affordable Care Act.
If you're thinking about buying short-term health insurance to cover you as you quit your full-time job to begin freelancing, make sure you know how long your employer-sponsored health plan covers you.
Why Freelancers Choose Short-Term Health Over Other Plans
Below are a few reasons why freelancers opt for short-term healthcare over other options:
- They make too much money to qualify for Medicaid but can’t afford to spend a lot of money on health insurance, and short-term health insurance is a less expensive health insurance option and better than going uninsured.
- They want health insurance but missed the open-enrollment period and have not had a qualifying life event allowing them to purchase out of the open-enrollment period.
- They want a cheaper alternative to the ACA insurance options. Although freelancers can qualify for health insurance through the Marketplace, the cost of the ACA-compliant insurance is often more expensive. As of 2019, there are no longer federal penalties for choosing non-ACA-compliant health plans (e.g., short-term health insurance) or for being uninsured.
Some states have fees for non-ACA-compliant health plans. Be sure to check with your tax provider or state to see whether they are one of them.
Average Price of a Short-Term Health Plan
The Kaiser Family Foundation (KFF) estimates that the cost of coverage for short-term health insurance plans is at least 20% less than the lowest-cost Bronze coverage offered by the ACA, with some plans being 20% to 33% of the cost. For example, in a KFF report, the average cost of health insurance on an ACA Marketplace plan (Bronze plan, unsubsidized) ranged from $264 to $469 per month, compared to the cost for a short-term health plan, starting as low as $25 to $141 a month, depending on the state you live in.
The price difference depends on whether or not you qualify for a subsidy with an ACA-compliant plan. For instance, if your income is between 100% to 400% above the Federal Poverty Level, you could be eligible for the Advance Premium Tax Credit subsidy and Cost-Sharing Reductions.
Age also plays a role in the premiums for short-term health plans. For example, eHealth reported that 18– to 24-year-olds paid an average of $63 a month, while 45–54-year-olds paid $170.
Short-Term Health Insurance Basics
Unlike ACA Marketplace health insurance plans that must cover 10 essential health benefits, short-term health insurance plans do not provide minimal coverage. Short-term health plans are not available in all states, and where offered, most do not provide coverage for:
- Prescription drugs and Immunizations
- Pre-existing conditions
- Preventative care
- Mental health and substance abuse
- Pregnancy or prenatal and maternity care
Short-Term Health Insurance vs. Marketplace Coverage
In addition to reduced coverage, there are other things to consider before you choose a plan:
- You may have to go through a medical exam if your existing plan expires. You may be denied coverage for any medical issues that show up as a result.
- These plans may have higher deductibles and out-of-pocket costs for you to pay.
- If you have a plan that lasts less than a year, the deductible can reset each time you extend or change your plan. This is a disadvantage over an annual Marketplace plan.
- Short-term plans have annual or lifetime policy limits and caps on coverage.
One advantage of short-term health coverage is the price. These savings are only possible if you do not run into unexpected medical situations or are generally healthy and do not use prescriptions regularly. Medical debt is a major problem and cause of bankruptcy, so be sure and choose your health coverage carefully.
How to Find the Best Short-Term Health Insurance Policy
Saving money as a freelancer is important, but making sure you understand what you are paying for will help you make the right choice. Aside from comparing coverages offered, here are some tips to help you find the best short-term health policy:
- Get quotes from several short-term health plan providers so you can compare various options. When possible, speak to a licensed insurance representative or assistant who can offer you some insight into the options you are getting.
- Ask if there is an application fee.
- Find out how extensions work or any penalty for canceling before the end of a term.
- Is there a waiting period before coverage kicks in?
- Ask about the lifetime and/or policy maximum, deductibles, copays, coinsurance, and out-of-pocket dollar limits.
- Ask about the conditions for access to service. Do you have to use their network? Where can you get service?
- Check the financial stability rating of the insurance company.
How Long Can You Be Insured on a Short-Term Health Insurance Policy?
You may purchase a short-term health insurance plan that lasts up to 12 months. You may also be offered the option to extend the plan for up to three years. Different insurers will offer different options; check locally to understand the details and conditions for your plan.