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

Now that open enrollment has ended for 2016, the opportunity to purchase new individual coverage or switch from one plan to another is limited for the rest of the year. Most people will 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 (eg, a person with a high deductible might choose to also have an accident supplement that will cover her deductible in the even of an injury - but an accident supplement on its own would be wholly unsuitable if purchased as a person's only coverage).

What you need to know about short-term insurance

But short-term insurance is designed to serve as stand-alone coverage - albeit only for a short time. Short term plans are usually available for a duration of one to six months, although any plan with a duration of less than 12 months (up to 364 days) is considered a short-term plan.

Because of its numerous limitations (described below), short-term health insurance is much less expensive than traditional major medical health insurance. And short-term health insurance is available for purchase year-round, without a specific open enrollment period (note that some states have prohibited the sale of short-term insurance).

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 in 2016 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, 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. In most states you'll be able to purchase two short-term plans back-to-back, but you won't be able to continue to purchase additional short-term plans after that. And even the second enrollment isn't guaranteed; short-term plans are not renewable, which means that you'll be subject to medical underwriting 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, 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 2016, affordable is defined as being a plan that costs less than 8.13% of your household income), 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 8.13% of your income), a short-term plan is better than being uninsured. But be aware that this will only serve as a temporary solution - you won't be eligible to continue to enroll in short-term plans.
  • 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 continent upon remaining healthy.

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