The Shortcomings of Short-Term Health Insurance

Understanding the Drawbacks of Short-Term Health Insurance

Make sure you understand the drawbacks of short-term health insurance before you buy a policy. Image © Tomazi/Getty Images

Short-term health insurance can be a good option in certain situations. In fact, there are some good things about short-term health insurance that more traditional major-medical plans are lacking. However, if you’re considering buying a short-term health insurance policy, you need to be aware of its drawbacks. You may find a short-term policy is right for you even with its shortcomings; but, you owe it to yourself to go in with your eyes wide open and understand exactly what you’re getting for the money you’re paying in premiums.

Short-Term Health Insurance—What to Beware Of

Since short-term health insurance doesn’t have to comply with all of the Affordable Care Act rules, short-term policy holders don’t have as many benefits and protections as those who have an ACA-compliant major-medical plan. This becomes obvious when you apply for a policy and your application is put through the underwriting process.

Underwriting & Pre-Existing Conditions

During the underwriting process, the insurer will evaluate the risk you present and set your premium price based on that risk. Low risk applicants will have lower premiums than higher-risk applicants. Since short-term health insurance isn’t guaranteed issue, the highest risk applicants can potentially be refused a policy altogether.

Applicants with pre-existing medical conditions may find that health care related to their pre-existing condition is excluded from coverage. This doesn’t only mean that the medicine used to lower your chronically high cholesterol readings might not be covered.

It can also mean that new conditions developing as a result of your pre-existing condition aren’t covered either. For example, if your policy excludes coverage of your pre-existing high cholesterol condition, it might also exclude coverage of a heart attack deemed to be a result of chronically elevated cholesterol, even though you had never had a heart attack before.

If the insurer decides that your heart attack is a direct result of your pre-existing high cholesterol problem, you heart attack might be excluded from coverage.

A Cap on Benefit Pay-Outs

A short-term health insurance policy can place limits on how much it will pay in benefits. For example, it may cap your benefits at $250,000. While it may not seem like you’re likely to need $250,000 in medical care in the next six months, the whole point of health insurance is to limit your financial risk when health disasters strike. If you’re unlucky enough to be diagnosed with multiple myeloma and require a $400,000 bone marrow transplant while you’re covered by a short-term policy with a maximum benefit of $250,000, you’ll have to come up with the $150,000 difference yourself.

Not So Comprehensive After All

In addition to placing financial limits on benefits, short term health policies may restrict the types of benefits covered. They don’t have to offer coverage for all of the Affordable Care Act’s 10 essential health benefits.

The most common of the essential health benefits excluded from short-term policies are preventive care, maternity benefits, and mental health benefits. So, if you want your yearly screening mammogram or annual physical exam, be ready to pay for them out-of-pocket even though you have a short-term policy.

No Help Paying

While short-term health insurance can cost less than comprehensive major-medical policies, you won’t be able to get a health insurance subsidy to help pay the premiums. Many of the health insurance policies bought through the ACA’s health insurance exchanges are subsidized by the federal government in the form of a tax credit. However, these subsidies are only available through your state’s health insurance exchange and only if you buy a policy sold on the exchange. Short-term health insurance isn’t sold on ACA exchanges.

You'll Face the Tax Penalty for Being Uninsured

In addition to missing out on any health insurance subsidy you may be eligible for, when you choose a short-term health insurance policy instead of an ACA-compliant major-medical policy, you may be required to pay a tax penalty for not having health insurance. If you’re a legal resident of the United States, you’ll face the Shared Responsibility Tax Penalty if you’re uninsured for three months or more and don’t have an exemption. Since short-term health insurance policies don’t comply with the ACA, having a short-term policy doesn’t count as “real” health insurance when it comes to the penalty.

Learn more about the tax penalty for being uninsured:

Confusing Deductibles

When choosing a short-term health insurance policy, make sure you understand exactly how the deductible works. Since short-term policies won’t cover you for the entire year, some don’t use the annual-deductible system you may be used to with more traditional health insurance. Some use an episodic deductible, meaning you’re responsible for paying a deductible for each individual episode of care, similar to how a copayment works in more traditional health insurance. Others use a system in which you pay a single deductible which satisfies your deductible requirement for the rest of the term of the policy.


Although you may be used to renewing your job-based or exchange-based health insurance every year, your short-term health insurance won’t be renewable. When the policy-term ends, your coverage is finished. In some states, you’ll be allowed to purchase a new short-term policy when your existing policy expires, but in others, you won’t.

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