What Exactly Are Short-Term Health Insurance Plans?

The open enrollment period for insurance plans under the Affordable Care Act (ACA) closed in December. If people find themselves without insurance before the next open enrollment period in November 2019, they may have to consider a short-term plan. These plans, however, are safety nets with gaping holes.

Short-term insurance plans are supposed to cover people who are between regular coverage and last typically three to up to 12 months. If you lose your health insurance before open enrollment for an ACA plan, you could enroll in a short-term plan to hold you over. It also works if you’re waiting for your coverage to kick in from a non-ACA plan (like one through your job) that doesn’t begin for a few months. Short-term plans cover you starting the day after you enroll.

Short-term plans are also cheaper than long-term plans. Premiums are lower, meaning the monthly cost for coverage isn’t as expensive. The caveat is short-term plans cover very little. Some of these short-term limits can “blindside” consumers, according to The Washington Post. 

Unlike full insurance plans, short-term ones do not cover people with pre-existing conditions. Preventative health care, prescriptions, maternity care and mental health treatments don’t have to be covered either. An insurance company can deny coverages for hospitalizations on Fridays or Saturdays if you have a short-term plan. Care for injuries from sports or exercise may not be covered either. 

What your short-term plan covers will vary by plan and insurance company. In general, these plans will cover outpatient treatment for unexpected illnesses or injuries (sometimes with caveats). There could be coverage for ER visits, surgeries, hospital admissions and some diagnostic tests like X-rays. In order to know what a specific plan covers, you have to read the fine print, but it’s a good idea to prepare for unexpected costs since these plans only sparsely cover a wide range of medical needs.

Under the ACA, former President Barrack Obama’s administration restricted short-term plans to three months or less to ensure they were only temporary. But recently, President Donald Trump’s administration reversed these limits and reverted back to a 364-day model, with an option to renew a short-term plan up to three years. Proponents of longer short-term plans said premiums in the marketplace for longer-term health insurance were too high.

Depending on economic status — having a yearly income less than 400 percent of the poverty level — you can receive subsidies to lower your premiums. That means a single person making over $49,960 a year would not receive a discounted rate that’s figured into taxes. They would pay an average premium of $440 a month (based on 2018’s average monthly costs) for a long-term ACA health plan. This health insurance price tag isn’t affordable for many people, which is why short-term plans seemed like a viable option.

While people may opt for short-term plans because of price, they may end up paying more if they become sick. Long-term plans include a cap so that once you pay a certain amount yourself — $7,900 for an individual and $15,800 for a family in 2019 for an ACA plan — your insurance company pays 100 percent of the rest.

With a short-term plan, you’re on the hook for all out of pocket expenses during the term of your policy. According to the Center on Health Insurance Reforms, out-of-pocket maximums can get as high as $7,000 to $20,000 on a short-term plan. You’ll also likely have a cap on much money the insurance company is willing to cover over the term of the policy, so your out-of-pocket costs can quickly add up.

Though federal guidelines are in place, states still have the ability to restrict short-term plans how they see fit. Some will follow the new federal parameters, while other states will keep tighter restrictions and time limits. Short-term plans are not available in New York, New Jersey, Massachusetts, Rhode Island, Vermont, Washington and Hawaii. Insurers have opted to not offer them because it wouldn’t be profitable under those states’ mandates and regulations. California has prohibited short-term plans altogether.

Health insurance is a personal choice, but there’s also a bigger impact of the popularity of short-term plans. People without pre-existing conditions or other serious health conditions will find these cheaper plans more attractive. Those who have pre-existing conditions or need more comprehensive care will likely look for a long-term ACA plan that provides better coverage.

This can raise the cost of ACA plans across the board, because the system was designed to have a mix of people who use their health plans a lot and a little to control costs. To balance out the cost of more consumers using ACA insurance for expensive medications, procedures and hospitalizations, people with more significant health needs are forced to pay more for care. 

Short-term plans do not cover as much as a normal plan because they’re not made to replace long-term health insurance. They’re supposed to catch anyone who has to wait for a long-term plan to take effect. When these plans are used for a more permanent health insurance solution, many find themselves without adequate coverage when they need it, and those who don’t qualify for short-term plans and rely on ACA insurance are left reeling from higher costs.