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.

364-Day Durations Allowed Again as of October 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 (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 changing 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 take effect 60 days after they were published in the Federal Register (the publication date was August 3). 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 not regulated by the ACA and may not cover various medical needs that the person could have.

But state regulators and lawmakers will still have the final say in terms of what's allowed in each state. The Trump Administration's regulations are clear in noting that states will be allowed to set stricter regulations (but not more lenient regulations) than the federal rules. So states that prohibit short-term plans and states that limit them to six months or three months in duration will all be able to continue to do so.

Some states have added regulations in 2018 to limit short-term plans in order to prevent the looser federal guidelines from taking effect in the state, and other states are expected to join them in the 2019 legislative session.

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. The penalty will be eliminated in 2019, but it still applies in 2018, and penalties will be assessed in early 2019 for people who were uninsured in 2018 and not exempt from the penalty.
  • 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 (once short-term plans are 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 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.
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