Evaluating the Pros and Cons of Individual Medical vs. STM Coverage
Updated: Dec 3, 2020
When looking for different types of health care plans, you will start to notice that there is a dichotomy between two different types of individual medical coverage. That separation is between short-term medical coverage (“STM”) and major medical coverage.
Each of these types of medical coverage serves different purposes and needs. Like anything, they have their pros and cons. Because of this, it is worth taking the time to explore the advantages and disadvantages of both STM and major medical coverage. In doing so, you will be in a much better place to select medical coverage that suits your wants, needs, and budget.
To start, let’s take a look at the advantages of both STM and major medical coverage.
With STM coverage, you’ll immediately discover that it is often cheaper than major medical coverage. That said, it is often cheaper if you don’t qualify for tax credits. If you are eligible for tax credits, you may find that a major medical coverage plan is cheaper.
Along with costs, STM coverage provides catastrophic coverage. This catastrophic coverage can act as a hedge to protect your home, business, and lifestyle from the risk of a major medical event. They can be an affordable way to protect yourself from some of the worst-case scenarios that can occur in your life.
Finally, STM coverage can offer PPO network access. As you can guess, this will expand your network of doctors that you can visit. This is especially valuable if there are one or two health care providers that you absolutely want to continue visiting in the future.
Now, let’s discuss some of the advantages of major medical coverage. As referenced above, there is a cost benefit if you are eligible for tax credits. That cost benefit can result in lower premiums. Lower premiums are always welcome—especially if they are part of comprehensive medical coverage.
Notably, there are no pre-existing condition exclusions in major medical coverage. No insurance plan can charge you more, reject you outright, or refuse to pay for essential health benefits due to a pre-existing condition. This can be a huge deal if you have a pre-existing condition and are shopping for coverage.
Next, major medical coverage covers 10 essential health benefits. You can see a full list here. They include things like emergency services, ambulatory patient services, prescription drugs, and laboratory services. Clearly, these are essential health benefits, so being assured that these benefits will be covered in major medical coverage is a significant pro.
Finally, major medical coverage can offer free preventative care. This can include things like free shots and screening tests. Not only can this type of preventative care keep you healthy, but it can save you some significant costs if you were to get sick without this type of preventative care.
As you can see, there are plenty of benefits to both STM and major medical coverage. That said, let’s now talk about some of the disadvantages.
We’ll start again with STM coverage. Here, you’ll find that these plans are not comprehensive. They are slimmer plans than you would find under major medical coverage. While this may be ideal if you are young and don’t get sick often, it is less than ideal if you foresee yourself needing extensive medical care.
Importantly, STM coverage also does not cover pre-existing conditions. This can be a dealbreaker if you have a pre-existing condition and are looking for health care coverage. STM coverage also does not offer free preventative care. So while you will certainly be able to get shots and screening tests, they will not be complementary. If you are facing cash flow issues, this disadvantage may be difficult to swallow.
STM coverage also tends to have lower standards than major medical coverage. By “lower standards,” we mean that you may receive varying degrees of care. Because STM coverage isn’t mandated by the federal government (unlike major medical coverage), you’ll find that plans vary in terms of covered services.
Finally, a simple reality of STM coverage is that there are some bad players. Through no fault of your own, you may hire a broker who does not have your best interests at heart. He or she may direct you to STM coverage that is a poor fit—all because he or she is searching for a hefty commission. While you can rely on word-of-mouth to find a broker, this is an unavoidable risk when getting STM coverage.
With those disadvantages in mind, let’s talk about the cons of major medical coverage. Most of the cons of major medical coverage focus on price.
Ultimately, major medical coverage may be cost-prohibitive if you don’t receive an annual premium tax credit. The sticker price is high because you are getting more coverage compared to STM coverage. For some patients who are seeking more extensive coverage, that sticker price without a tax credit may be too much to bear.
That isn’t the only pricing disadvantage with major medical coverage. Even if you can afford your monthly premiums, you’ll find that major medical coverage often has a high deductible for affordable plans. Even though you are receiving more extensive coverage than you would under STM coverage, a high deductible means that you may have significant out-of-pocket expenses when getting care.
Finally, even if you are eligible for an annual premium tax credit, there is the risk that you miscalculate your annual premium tax credit. If this occurs, you may be on the hook for hundreds (or even thousands) of dollars. This may be difficult to pay if you are facing cash flow issues.
Who Should Go Where?
These pros and cons are important to consider as you decide between STM and major medical coverage. That being said, there are some additional guidelines that you should consider before making your choice.
STM coverage can be a great option for people who are in good health and are not planning on having more children. It is also a more attractive option if you are at least 400% above the federal poverty level. To determine whether you are at, below, or above the federal poverty level, click here. You’ll need to multiply those numbers by four to determine the precise income limits. In the end, STM coverage can be a financially attractive option if the cost of your premium plus the amount you pay out-of-pocket for preventative services is less than major medical coverage.
As for major medical coverage, it can be a more attractive option for those who are under 400% of the federal poverty level. It is also an ideal option if you are pregnant or have any recurring or serious health conditions. This is because major medical coverage, among other things, covers pre-existing conditions.
Making Your Choice
Ultimately, we encourage you to consider all of these facts when you are making your choice. While it may seem intimidating on the surface, we hope that we have demystified this choice between STM and major medical coverage. By completing your due diligence, considering your health history and needs, and analyzing at your budget, you’ll be able to make the correct decision.