What You Need to Know Before You Buy Short-Term Health Insurance

Short-term insurance is available year-round, but read the fine print

Short-term health insurance is available year-round in most states
If you didn't get health insurance during open enrollment, short-term plans are available in most states. But it's important to read the fine print. Hero Images/Creative RF/Getty Images

Outside of open enrollment, the opportunity to purchase new individual coverage or switch from one plan to another is limited. Most people need a qualifying event in order to enroll, although Native Americans can enroll year-round in a plan through the exchange, and anyone eligible for Medicaid or CHIP can enroll at any time during the year.

Limited enrollment opportunities in the individual market apply both on and off the exchange.

But there are still some types of coverage that are available year-round. Plans that aren't regulated by the ACA can be purchased at any time, and are often quite inexpensive when compared with ACA-compliant major medical coverage. But it's important to be aware of the fine print when considering a non-ACA-compliant plan.

What Are Non-ACA-Compliant Plans?

Non-compliant plans include critical illness plans (ie, a plan that provides benefits if you're diagnosed with specific illnesses), some limited benefit indemnity plans, accident supplements (ie, plans that pay a limited amount if you're injured in an accident), dental/vision plans (pediatric dental coverage is regulated by the ACA, but adult dental coverage is not), and short-term health insurance.

Most of these coverage options were never designed to serve as stand-alone coverage—they were meant to be supplemental to a major medical health insurance plan.

So a person with a high deductible might choose to also have an accident supplement that will cover her deductible in the event of an injury—but an accident supplement on its own would be wholly unsuitable if purchased as a person's only coverage.

The Definition of "Short-Term" Has Changed, and Will Likely Change Again 

Short-term insurance is designed to serve as stand-alone coverage, albeit only for a short time.

Prior to 2017, short-term insurance was defined by the federal government as a policy with a duration of up to 364 days, although some states limited it to six months, and the majority of plans available throughout the country were sold with a maximum of six months duration.

But in 2017, short-term plans are only available for a duration of up to three months. This is due to regulations that HHS finalized in late 2016, with enforcement starting in April 2017 (short-term plans that became effective prior to April 2017 were allowed to last until the end of 2017, or an earlier date set by the insurer).

However, the rules are likely to change again under the Trump Administration. In October 2017, President Trump signed an executive order that directs various federal agencies to "consider proposing regulations or revising guidance, consistent with law, to expand the availability of" short-term health insurance. The expectation is that the agencies will propose regulations to return to the former definition of short-term insurance, allowing the plans to have durations of up to 364 days.

It will take some time for this to happen, however, as the agencies will have to go through the normal process of drafting the regulations and allowing a public comment period on them.

And states will still have the final say in terms of what's allowed in each state. A few states prohibit short-term plans altogether, and will likely continue to do so. And the states that previously limited short-term plans to no more than six months in duration are also likely to keep that rule in place if and when the federal government returns to its previous definition of short-term insurance.

What Do I Need to Know About Short-Term Plans?

Because of its numerous limitations (described below), short-term health insurance is much less expensive than traditional major medical health insurance.

And although short-term insurance is not available in all states, it is available for purchase year-round, without a specific open enrollment period, in most states.

But short-term insurance is not regulated by the ACA. As a result, there are several things to be aware of it you're considering purchasing a short-term plan:

  • Short-term plans don't have to cover the ACA's ten essential health benefits. Many short-term plans do not cover maternity care, behavioral health, or preventive care.
  • Short-term plans still have benefit maximums, even for services that are deemed essential health benefits under the ACA.
  • Short-term plans still use medical underwriting, and don't cover pre-existing conditions. The application still asks about medical history in order to determine eligibility for coverage. And although the list of medical questions on a short-term insurance application is much shorter than the list of questions that used to be on a standard major-medical insurance application prior to 2014, short-term policies come with a blanket exclusion on all pre-existing conditions.
  • Short-term plans are not considered minimum essential coverage, which means people who rely on them are subject to the ACA's penalty for being uninsured, unless they're otherwise exempt from the penalty (and note that the penalty is much higher now than it was in 2014 and 2015).
  • Because they are not considered minimum essential coverage, the termination of a short-term plan is not a qualifying event. So if your short-term plan ends mid-year and you're not eligible to purchase another short-term plan (which would be the case if you developed a serious pre-existing condition while covered under the first short-term plan), you won't have an opportunity to enroll in a regular health insurance plan until open enrollment begins again. 
  • You can only have a short-term plan for a limited duration. And while you'll typically have the opportunity to purchase another short-term plan when the first expires, it's important to understand that you're starting over with a new policy, rather than continuing the one you had before. That means you'll be subject to medical underwriting again when you enroll in the second plan, and any pre-existing conditions that cropped up while you were insured on the first plan will not be covered under the second plan.

That said, there are some situations where a short-term plan makes sense. And the fact that they can be purchased at any point in the year is certainly beneficial for some applicants:

  • If you only need coverage for one or two months, and you know that you've got new coverage lined up at the end of that time, a short-term plan could be a good solution. The ACA penalty for being uninsured does not apply to one short gap in coverage during the year, as long as it's less than three months long (a three-month gap is subject to the penalty, however). If your gap in coverage will extend three months or more, a short-term plan might still be a good choice (assuming short-term plans are once again allowed to have durations of more than three months), but you'll need to factor in the cost of the penalty in addition to the cost of the short-term plan.
  • If you're exempt from the ACA's penalty due to the fact that there are no affordable health plans in the exchange (for 2018, affordable is defined as being a plan that costs less than 8.05 percent of your household income, after any applicable premium subsidies are applied), a short-term plan might be a good temporary solution. In states where health insurance is very expensive, people who don't qualify for premium subsidies sometimes find that an ACA-compliant health plan eats us a significant chunk of their annual income. If you're in this situation and simply cannot afford to purchase health insurance and would otherwise end up uninsured (albeit without a penalty, assuming there are no exchange plans available that would cost less than 8.05% of your income in 2018), a short-term plan is better than being uninsured, despite the fact that it's a temporary solution.
  • If you're healthy, a short-term plan's medical underwriting and pre-existing condition exclusions won't be a problem. But keep in mind that your eligibility to purchase a second short-term plan when the first expires is contingent upon remaining healthy.

Sources:

Department of Labor, Department of the Treasury, Department of Health and Human Services. Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited Duration Insurance. October 2016.

Internal Revenue Service. Revenue Procedure 2017-36.

WhiteHouse.gov. Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States. October 12, 2017.

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