Short-Term Health Insurance: What You Need to Know

Short-term health insurance, also called short-term limited duration (STLD), is a type of insurance policy designed for those who are experiencing a temporary gap in their primary healthcare coverage.

This type of temporary health insurance can benefit individuals who are between jobs, need insurance while waiting to be eligible for Medicare, or are waiting for Affordable Care Act (ACA) coverage to start. It can also be helpful for individuals who missed the ACA Open Enrollment Period and are not eligible for Special Enrollment, and for those who have turned 26 and are no longer able to obtain coverage under their parents’ health insurance policies. Keep in mind that the Open Enrollment Period is currently active, running from November 1st until January 15th next year.

While short-term medical insurance can be helpful in certain situations, there are some potential drawbacks to consider. The following guide provides a deeper insight into how short-term health insurance works and explores some of the pros and cons, so you can decide for yourself whether it might be a suitable solution for you.

Short-Term Health Insurance vs. Traditional Health and ACA Plans

Short-term health insurance plans, traditional health insurance, and ACA are all considered major medical coverage. This means that they are designed to provide comprehensive, robust health care coverage. However, short-term policies are different, primarily because they only provide coverage for a limited time, typically less than 1 year or up to 36 months.

Under federal rules, short-term health insurance plans are not considered individual market coverage, so they are exempt from the ACA’s regulations. This creates many differences between short-term plans and traditional and ACA plans.

While federal law requires traditional and ACA plans to renew coverage as long as the policyholder continues paying premiums, short-term insurance terminates at the end of the contract term. Individuals who want to continue coverage can apply for a new policy, but the new policy may be more expensive, or the provider may refuse to write a new policy at all. 

ACA and traditional health insurance policies are also prohibited from requiring medical underwriting and are required to cover preexisting conditions, while short-term insurance is not held to this standard. These policies can require a medical exam and deny coverage or increase premiums depending on a variety of factors. They may also exclude preexisting conditions from coverage. Short-term health insurance policies may also exclude essential health benefits, impose annual and lifetime coverage limits, and more.

State Limitations on Short-Term Health Insurance Plans 

It’s important to note that in some states, short-term insurance is highly regulated or even banned. Depending on where you live, you may not be able to get a short-term insurance policy, or your policy may have additional state regulations. For example, some states have limited the duration of short-term plans and/or added protections for policyholders with preexisting conditions.

Short-term health insurance plans are currently not for sale in the following states, either because they have been banned by the state or because the restrictions are so strict that insurers have elected not to sell policies there: 

• California
• Colorado
• Connecticut 
• Hawaii
• Maine
• Massachusetts
• New Jersey
• New Mexico
• New York
• Rhode Island
• Vermont
• Washington DC

Other states have imposed regulations, such as limiting the length of time the initial plan can be in place, restricting the number of renewals allowed, and/or prohibiting enrollment in short-term plans during the ACA open enrollment period.

How Does Short-Term Health Insurance Work?

Generally, short-term health insurance plans work in much the same way as an ACA or traditional health insurance policy. You receive a health insurance card, which you present to your provider. Many doctors accept short-term health insurance, but you may need to check your plan to see if it restricts you to using doctors that are within the plan’s network. As is the case with traditional health insurance, there are multiple types of short-term health insurance plans and providers to choose from and each plan may work a bit differently.

There are typically several cost-sharing components included in short-term health plans. This may include:

• Premiums: The premium is the amount you pay to the plan provider to purchase the coverage. This is typically paid monthly or for the entire plan period at once and is a cost you bear regardless of whether you use the insurance or not.
• Deductibles: A deductible is the amount you pay out of pocket before the insurance starts to pay.
• Coinsurance: Coinsurance is the percentage of your medical costs that you are responsible for paying, such as if your insurer covers 90% of all healthcare procedure costs leaving you to cover the remaining 10%.
• Copayments: A copay is a set dollar amount you pay each time you complete an action, such as visiting a doctor or picking up a prescription.  

In some cases, your healthcare provider submits your medical bill to the insurer, and the insurer pays them directly. However, some short-term health insurance plans don’t pay directly and require policyholders to submit bills for reimbursement. In this case, you may need to pay upfront or set up a deferred payment or payment plan with your doctor’s office.

Short-term health plans may also place a limit on the dollar amount the insurer pays for covered medical services while you’re enrolled. Sometimes this amount resets with each policy term, while other plans may have a lifetime coverage maximum.

The Advantages of Short-Term Health Insurance

Due to certain limitations and fewer regulations, short-term health insurance plans generally do not make sense as a long-term solution for health insurance needs. However, there are some potential advantages. 

• Coverage: Short-term health insurance generally covers unexpected illnesses and injuries, as well as emergency room visits and inpatient and outpatient hospital services. There are many different plan options, so you can choose one that fits your immediate needs.
• Temporary affordability: These plans can fill in gaps in coverage for individuals who are not eligible for or cannot afford traditional health insurance coverage. Short-term health insurance premiums are generally less expensive than ACA or traditional health insurance premiums.
• Timing: There’s no need to wait for an enrollment period — you can purchase short-term health insurance at any time. In addition, many short-term health plans can go into effect the day after an application is received. You can also cancel short-term health coverage whenever you like without penalties, such as if you begin a new job and qualify for a special enrollment period to enroll in your employer’s group health plan.

The Disadvantages of Short-Term Health Insurance

While they can be a suitable option for temporary healthcare coverage, short-term plans are generally not advantageous in the long run. There are several important potential drawbacks to consider, including the following. 

• Eligibility restrictions: Applicants who have medical conditions may be denied coverage and plans may charge higher premiums based on the applicant’s age, gender, health status, and other factors. In addition, preexisting conditions may be excluded from coverage. Some plans may also drop you if you’re diagnosed with a health condition during your policy period.
• Coverage limitations: Essential health benefits like prescription drugs, maternity care, preventative care, and mental health care may not be covered. In addition, short-term plans are not renewable. You may be able to apply for a new plan when the original contract period ends, but there is no guarantee of continued coverage.
• Potential expenses: There may not be cost-sharing limits. This can create financial hardship if you need expensive medical care. Your plan may also impose lifetime and/or annual coverage limits, leaving you to pay any excess costs. 
• No standardized regulations: Short-term health plans are not mandated or standard, and there is very little government oversight, so plans can vary widely. 

The Costs of Short-Term Health Insurance Plans

Generally, premiums for short-term health insurance tend to be lower than premiums for traditional or ACA health insurance coverage. The deductibles, copays, and coinsurance may vary for each type of plan, depending on the options you choose.

However, since short-term plans are less regulated, you may find that the cost-sharing elements are higher. In addition, short-term health insurance may not protect you from the financial impact of high medical bills due to coverage maximums and the potential lack of cost-sharing limits. 

What to Consider If You’re Thinking of Short-Term Coverage

If you’re thinking of getting short-term health insurance coverage, it’s important to remember that these types of policies are meant to be a temporary solution. If you have the option to get a traditional or ACA plan and you are weighing this against short-term health insurance, be sure to carefully consider your current health needs and whether you anticipate any changes in the future.

For example, if you currently have a medical issue that requires ongoing treatment, your short-term insurance provider may categorize it as a preexisting condition and not cover any related expenses. If you develop a condition while covered under short-term insurance, your provider could also drop you or refuse to renew your policy when the contract term is up. This could create a significant amount of financial risk both in the short and long term. 

Also, consider how long you think you may need short-term health coverage. The longer you go without traditional or ACA coverage, the greater the risk that you may end up with higher-than-expected out-of-pocket medical costs. However, if you don’t have the option to get traditional coverage at this time, you may find that short-term coverage is preferable to going without any health insurance coverage at all.