Thursday, April 19, 2012

Old Dog, New Trick

Regarding the recent VEBA post, I did want to mention something else I learned in that class: Short Term Medical plan alternatives.

As Bob noted a while back, Short Term Medical (STM) plans are a convenient and relatively inexpensive way to bridge the gap between coverage (eg new job waiting period) but do have some definite drawbacks.

Thing is, folks are drawn to STM for (primarily) price and simplicity. Most folks can't imagine actually needing to use it (to be fair, most folks don't anticipate "using" their car or home insurance, either); it's mostly "peace of mind" coverage.

For me (and, I suspect Bob), the two major problems with STM plans are that they don't cover pre-existing conditions (especially relevant when one plan expires and a new one begins), and coverage expires when the policy does (with some very specific and rare exceptions).

Still, convenience and price are powerful motivators, and so most of us continue to offer these plans to our clients and prospects.

So what, you may be thinking, does this have to do with that CE class I keep bringing up?

Just this:

The instructor was also very concerned about the pitfalls of STM, and suggested using [her company's low-cost, no-frills] plan. The downside to this method is that underwriting can take longer for this than a STM, but using the electronic application process can significantly shorten the processing time. The pricing on this plan is (ostensibly) comparable to the STM, but this method offers two distinct advantages:

Since it's major medical, you keep the plan as long as you want to (3 months or 30). And if you end up not lasting through the new employer's waiting period, you're all set with insurance while you keep looking.

But there's another, more serious but generally less well known issue: the "active at work" clause. No, it doesn't mean that you're setting new production records. Rather, it means that group insurance plans require you to be actively at work on the first work day of eligibility. This seems innocuous, until you consider what might happen if that first day is the Monday following the weekend during which you totaled your car, and you're still in the ICU: your STM ended Sunday night, and your new group plan isn't in place (you're not "actively at work," are you?).

Creek. Paddle. Some assembly required.

Using the (inexpensive) no-frills major medical plan, however, obviates all of this. Whether or not you're at work on Monday is irrelevant, and you don't have to worry that the plan ends at midnight.

Two caveats: first, a given person might qualify for the STM but not the "regular" medical plan. And second, these "no frills" plans will cease to exist come 2014 (Thanks, ObamneyCare©!).

[Hat Tip: Beverly D]

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