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 a type of lightly-regulated temporary medical coverage available in most states. This article will explain how these plans work, how they're regulated, and what consumers need to understand before purchasing a short-term health plan.

Outside of open enrollment, the opportunity to enroll in health insurance coverage or switch from one plan to another is limited. Most people need a qualifying event in order to enroll in an individual or employer-sponsored plan outside of open enrollment, 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.

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Limited enrollment opportunities in the individual market apply both inside and outside the exchange. But there are still some types of coverage that are available year-round.

Plans that aren't regulated by the Affordable Care Act (ACA) can be purchased at any time, and are often quite inexpensive when compared with ACA-compliant major medical coverage (but only if you aren't eligible for an ACA subsidy; if you are, you're likely to find that the coverage available in the exchange is less expensive and much better quality). 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.

364-Day Durations Allowed Again as of Late 2018 

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 starting in 2017, short-term plans could only be sold with durations of up to three months. This was due to regulations that HHS finalized in late 2016, with enforcement starting in April 2017.

However, the rules changed again under the Trump administration. In October 2017, President Trump signed an executive order that directed various federal agencies to "consider proposing regulations or revising guidance, consistent with law, to expand the availability of" short-term health insurance."

In February 2018, in response to that executive order, the Departments of Labor, Treasury, and Health & Human Services issued proposed regulations for short-term plans, including a return to the previous definition of "short-term" as a plan with a term of no more than 364 days.

The Administration finalized the new rules in early August 2018, and they took effect in October 2018. The new rule does three things:

  • Permits short-term plans to have initial terms of up to 364 days.
  • Permits renewal of short-term plans, but the total duration of the plan (including the initial term and any renewals) cannot exceed 36 months.
  • Requires insurers selling short-term plans to include a disclosure on the plan information clarifying that the coverage is not regulated by the ACA and may not cover various medical needs that the person could have.

But state regulators and lawmakers still have the final say in terms of what's allowed in each state. The Trump administration's regulations were clear in noting that states would be allowed to set stricter regulations (but not more lenient regulations) than the federal rules.

So states that prohibited short-term plans and states that limit them to six months or three months in duration were able to continue to do so.

And several states have tightened their regulations for short-term plans since the Trump administration relaxed the rules. On the other end of the spectrum, a few others have relaxed their rules in order to align them with the new federal rules.

Before the Obama administration introduced new rules for short-term plans, there were five states where there were no short-term plans available due to state regulations. But as of 2021, there are 11 states where short-term plans cannot be purchased—either because they're banned or because state rules are strict enough that short-term insurers have chosen not to do business in those states.

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. But again, that only applies to full-price premiums. Most people who buy their own major medical coverage through the exchange/marketplace are eligible for subsidies (premium tax credits) that offset the majority of the premium.

Four out of five people shopping in the exchange for 2022 coverage can find at least one plan that costs less than $10/month after subsidies are applied. There are no subsidies for short-term health insurance. So although the full-price cost of short-term coverage is lower than the full-price cost of ACA-compliant major medical coverage, the actual price that most people pay will tend to be lower for the ACA-compliant plan.

Although short-term insurance is not available in all states, it is available for purchase year-round in most states (as opposed to regular major medical coverage, which can only be purchased during open enrollment or a special enrollment period triggered by a qualifying event).

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 generally come with a blanket exclusion on all pre-existing conditions.
  • Short-term insurers also routinely use post-claims underwriting, which means they wait until after you have a claim to conduct an extensive review of your medical history. If that review indicates that your current claim is related to a condition you had prior to enrolling in the short-term plan, they can deny the claim altogether.
  • Short-term plans are not considered minimum essential coverage, so the termination of a short-term plan is not a qualifying event in the individual market. 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, or if you're in a state that limits the purchase of back-to-back short-term plans), you won't have an opportunity to enroll in a regular health insurance plan until open enrollment begins again (note, however, that the termination of a short-term plan is a qualifying event that will allow you to enroll in your employer's plan, if that coverage is available to you). 
  • 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. (If you're in a state that allows short-term plans to renew and the policy you've purchased is renewable, you'll be able to renew it instead of buying a new plan. But this option is not available indefinitely—total duration of a plan cannot exceed 36 months. And many short-term insurers either don't offer renewal at all, or limit it to well under 36 months. So you'll want to carefully check the terms and conditions of any plan you're considering.)

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:

  • You've got new coverage lined up with an imminent starting date—eg., from an employer, Medicare, or an ACA-compliant plan that takes effect at the start of the year—but you need a plan to cover the gap before it takes effect. In this situation, a short-term plan could be a good solution.
  • You can't afford an ACA-compliant plan. Maybe because you're stuck in the Medicaid coverage gap in one of the 11 states that have refused to expand Medicaid, or priced out of coverage due to the family glitch. For most people, however, premium subsidies are available to make coverage in the exchange/marketplace affordable, and that's especially true with the American Rescue Plan in place (the Build Back Better Act would continue those subsidy enhancements through 2025).
  • You're healthy (so a short-term plan's medical underwriting and pre-existing condition exclusions won't be a problem) and don't care about the services that aren't covered by short-term plans. But keep in mind that your eligibility to purchase a second short-term plan when the first expires is contingent upon remaining healthy. And make sure you really understand the limitations of the plan... not having prescription drug coverage might seem like no big deal when you're not taking any medications, but what would you do if you were diagnosed with a disease that can only be treated with extremely expensive medication?

Summary

Short-term health insurance is available in most states on a year-round basis. But these plans are not regulated by the ACA and do not provide the same level of coverage that ACA-compliant plans provide. Before purchasing a short-term plan, you'll want to double-check your eligibility for financial assistance with an ACA-compliant plan, as it might end up being much more affordable than you expected.

If you do buy a short-term plan, be sure to read the fine print. Understand that these plans are temporary, use medical underwriting (including post-claims medical underwriting), and generally do not cover any pre-existing conditions. They can also exclude various categories of coverage, such as mental health care, maternity care, and prescription drugs.

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15 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
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