During his Major League Baseball career, Larry Burchart neverthrew a knuckleball in a game. But he certainly saw a number ofthem from the bullpen. “If I weren't a pitcher I would have feltsorry for some of those hitters,” he says. “They would get soconfused by the movement on the ball sometimes they'd walk back tothe dugout shaking their heads.”

Temporary medical insurance, often called short-term medical orSTM, likely leaves many insurance producers feeling the same way.Changes to products, carriers exiting the market, and the impact ofthe Patient Protection and Affordable Care Act have made STM achallenging environment for carriers, distributors and producers.There still is a large and growing need for STM even in light ofthe changes in the marketplace, and producers looking for revenuegrowth would be wise to consider giving STM another look.

A lead source

As part of the federal stimulus, Congress passed the AmericanRecovery and Reinvestment Act of 2009 in part to subsidize COBRAhealth insurance continuation coverage rates for workersinvoluntarily terminated prior to the end of May 2010. AARA allowedfor a 65 percent COBRA subsidy for up to 15 months, as long as theperson was not eligible under another group health plan orMedicare. As a result of ARRA, many people who may have recentlybeen candidates for STM coverage opted to use COBRA continuationcoverage under their prior employer's health plan instead.

With the ARRA subsidies fading away, those employees, theirspouses and their dependent children facing loss of coverage undertheir employer-sponsored health plan might find the cost of COBRAcontinuation prohibitive. According to the Kaiser Commission onMedicaid and the Uninsured, the average cost for COBRA is $429 permonth for single coverage, which could put it out of range for many people losing their jobs. STM policies, on the otherhand, can cost as little as $60 per month.

Producers who work with businesses of 50 or more employees mightfind STM to be a great way to build their business. Exitingemployees who've opted out of COBRA due to the cost of the benefitsmight be looking for other options. By providing an outlet forcoverage through STM you can earn a steady stream of leads forfinancial planning. These employees might have qualified money froma pension plan or 401(k) and they might need the help of aprofessional to manage that money.

It's very important to remember that most STM plans askunderwriting questions and don't offer coverage for pre-existingconditions, so not everyone will be a candidate for STM and likelywould be better served taking COBRA coverage. (COBRA continuationcoverage is a temporary extension of an individual/family's prioremployer health coverage, which counts as creditable coverage tooffset any pre-existing condition exclusion period the insureds mayneed to satisfy.) Even if an STM plan isn't right for an individualbecause of prior medical history or a family situation, he mightstill reach out to you with questions, giving you an opportunity todiscuss financial planning with him

In addition to financial planning leads, STM can help worksitemarketing agencies get more business clients. While busy decisionmakers might not take the time to listen to your worksite marketingpresentation, they might give you an opportunity to offer STM totheir exiting employees. Once you've proven your value as abusiness partner, you have the opportunity to expand your businessrelationship to worksite products, medical insurance or otherbusiness products.

Succeed in a lost market

Many producers consider a traditional source of STM sales, therecent college graduate, obsolete now due to a provision in thePPACA that allows adult children to remain on their parent's planuntil age 26. While this has increased the number of people betweenthe ages of 18 and 26 with health coverage, this is still the agegroup with the highest level of uninsured members.

There are many reasons these adult children are not coveredunder their parents' plans. Likely the most common reason remainscost. If a parent is not insuring any other children, the premiumeven with employer cost-sharing can be prohibitive. Employers oftenpay a higher percentage of the premium for employees than they dofor their dependents, so adding additional dependents can beexpensive. With unemployment levels above 8 percent, somedependents don't have access to coverage because their parents arenot working and don't have coverage themselves. Other reasons thatdependents are not on their parents' plan include children livingoutside of a provider service area or the parents not adding thechildren in a timely manner and having to wait for open enrollmentto add children onto their plan. Producers in the individual marketlooking for major medical leads might do well to look for youngadults in this situation and work to convert them into majormedical leads.

Take advantage of disruption

Major medical plans have gone through a significant period ofdisruption since President Obama signed the PPACA in March 2010.Many carriers now require effective dates of at least 30 days inthe future for applicants without current coverage, and in manymarkets, child-only coverage is difficult to find.

Using STM as a coverage option while new applicants are in theirwaiting period for major medical coverage is a good way to helplessen the risk of a financial loss due to a claim being incurredbefore the plan's effective date. Additionally, since many statesnow have open enrollment periods for children applying for coveragewithout their parents, short-term can be an effective gap-filler toprovide coverage until a permanent plan can be secured.

STM Trends

The STM market has morphed over the past 24 months to a marketdominated by limited benefit STM products. When used in the waythey were intended—to fill a temporary insurance need—these plansmay be a cost effective way to secure coverage for certainindividuals. But there still are many STM plans available withhigher policy limits, which may be more appropriate for those whoare uncomfortable with the more limited benefit policies.

The limited benefit plans often look like more comprehensiveplans, so, understanding the differences amongst plans is veryimportant. Limited plans keep prices lower than traditional STM byhaving policy period maximums as low as $250,000. These limitedplans generally have payment caps for various conditions such asaccidents and outpatient surgeries. As with any insurance productsyou represent, it is a good idea to request a certificate ofcoverage from the carrier and to thoroughly read it to minimize thechance of bad experiences at claim time.

Another trend is the return of 11-month STM policies. While theprovisions of the PPACA have for the most part eliminated 12-monthSTM policies (by making them subject to PPACA), some carriers offercoverage for up to 11 months. This type of policy can be a goodoption for children who have missed open enrollment on a state planand are waiting for the next open enrollment period.

One growing trend is the daily deductible policy. With dailydeductible plans the insured has a single deductible followed by100 percent coinsurance for covered charges. If the insured'sclaims for that day are less than the deductible, no benefits arepaid. If they exceed the deductible the excess claims are coveredat 100 percent. Daily deductible plans usually have out of pocketlimits, so if an insured person is hospitalized there is a limit tothe number of deductibles that they have to meet.

More and more carriers also are offering co-pays at thephysician's office. Because STM plans do not have to adhere to theprovisions of the PPACA, few offer coverage for preventive care.Consumers shopping for value, especially those who previously wereinsured on a group or individual major medical plan, expect to makea co-payment at the physician's office. This type of benefit can beattractive at the point of sale but can sometimes raise confusionat claim time. Many STM plans do not have a preferred providernetwork attached to them. While the client may end up making aco-payment at the physician's office, he may get balanced billed ontheir visit. If you opt to sell a plan with a co-payment, make surethat the client understands how the benefit works to prevent themfrom having a bad experience when the claim is paid.

Another rapidly growing trend is value-added features for STMpolicies. These can include prescription drug add-ons, bundledancillary plans such as accident medical insurance and criticalillness coverage, and discounted telephone medical consultations.Because not all STM plans include prescription drug coverageoutside of the hospital, having access to discount prescriptiondrug coverage or a supplementary prescription plan may be highlyvalued by the consumer. Similarly, if the plan doesn't offer aphysician office co-payment, many consumers will want to use thediscounted telephonic physician consultations to help lower theirout of pocket cost. In the past many producers have not focused onthe value added benefits because they considered them gimmicky, butfor today's value-minded purchaser, this can be the differencebetween closing a sale and losing one.

Conclusion

Short-term medical insurance isn't right for every producer orevery client. Producers should be wary of trying to make STMsomething it isn't, which is a permanent policy. Many carriersallow policy rewrites, and while many instances being able torewrite a policy makes sense, it also can be risky. For most plans,every time the policy is rewritten, a new pre-existing conditionlimitation is imposed and new underwriting applies. That beingsaid, there are a number of areas where STM is a good option forboth the consumer and the agent. If you are looking to find moreclients in 2012, having access to a good STM policy may be a homerun for you.

Rick Faucher is senior vice president of individual medicaldivision of IHC Health Solutions, a member of the IHCGroup. He can be reached at [email protected].