Maybe you just lost your job. Maybe you missed open enrollment. Maybe you just need a health plan to cover a short lapse of coverage.
Whatever your situation, a short-term health plan can be a good option if you don't qualify for a Special Enrollment Period or don't want to pay a higher premium.
- What is short-term health insurance?
- What does underwriting mean for short-term plans?
- What laws and regulations govern short-term health insurance?
- What are the pros and cons of short-term health insurance?
- How do I get short-term health insurance?
What is short-term health insurance?
"Short-term health insurance was designed for people who had a gap in coverage. For example, say you accepted a new job but had to wait 60 or 90 days for benefits to kick in. That's when it was a great fit," says Chris Castanes, insurance agent, speaker, and author.
These plans typically cover:
- Doctor’s office visits
- Some emergency services
- Some surgery
Short-term health plans have many exclusions, which makes them a riskier type of health insurance.
“These policies don't cover usually much in the way of preventive care — like wellness visits and annual checkups with your primary care doctor or OBGYN. They also only might provide discounts for some prescriptions, but they won't cover more expensive Tier 3–5 type pharmaceuticals,” says Adam Hyers, Hyers and Associates, Inc. insurance agent.
Exclusions also include pre-existing conditions. For example, if you need emergency services for a pre-existing condition, the plan usually won’t cover your care.
John Barnes of My Family Life Insurance identifies an even bigger problem:
"Generally speaking, if you are diagnosed with a health condition during your coverage, the plan will pay. However, when your benefit term is up and you need re-enroll, chances are the carrier will not cover you or your condition going forward. What will you do then? You have to wait for the ACA open enrollment, which could be months away. You'll potentially be exposed to significant health care costs."
Short-term insurance plans usually have cheaper premiums because there are so many exclusions. However, with all the exclusions, short-term health insurance isn't a good fit for everyone.
"I usually don't recommend these plans to consumers because of these omissions. However, short-term health plans may be valuable to a pocket of consumers including, but not limited, to:
1. students at colleges/universities
2. people on early retirement and waiting for enrollment to Medicare
3. immigrants here in the United States who are legally in the process of obtaining green card/permanent residency
While it is true that consumers can save money on premiums compared to a similar ACA health insurance plan, consumers need to read the fine print on these plans and be aware of limitations," says Barnes.
Even though the coverage is very limited, having some health insurance is usually better than having none at all.
“With the coronavirus having a foothold in the United States, these policies might be a good way for the uninsured to find affordable coverage for unknown issues that could result from something like that,” says Hyers.
Keep in mind that short-term health plans do not have to offer coronavirus coverage like comprehensive plans. As awareness and concern develops, coronavirus care may be excluded from these policies. Be sure to read your policy carefully to understand the terms before buying coverage.
Some states have opened special enrollment periods to allow people to buy comprehensive coverage that will offer coverage for coronavirus treatment.
What does underwriting mean for short-term plans?
Underwriting is how insurers determine whether or not they’ll insure someone and at what cost. Plans that follow the Affordable Care Act guidelines have rules that make insurers ignore pre-existing conditions when determining premium costs and require that care is covered even if there are pre-existing conditions.
Short-term health plans are not considered acceptable health coverage under the ACA because they do not meet these guidelines. short-term plans are underwritten, which affects your plan in two big ways:
- You may not be accepted. “There are some drawbacks to these plans. First and foremost — not everyone will qualify. short-term health plans are medically underwritten — so some will not be accepted," says Hyers.
- Pre-existing conditions are excluded. “Unfortunately, most people don't realize that it's underwritten, so pre-existing health conditions can be excluded,” says Castanes.
What laws and regulations govern short-term health insurance?
Federal rules allow you to have a short-term health plan for up to 364 days with the ability to renew three times.
While these federal guidelines are fairly lax, some states have stricter rules around short-term health plans. Most states allow you to have short-term health insurance for more than two months. Some states cap at almost three months. Others allow people to have these plans longer.
Eleven states, however, have more restrictions on these kinds of plans — either not allowing them or having such strict rules that insurers do not want to bother with these plans.
According to HealthInsurance.org, short-term health insurance is not available in California, Colorado, Connecticut, Hawaii, Maine, New York, New Jersey, New Mexico, Massachusetts, Rhode Island, and Vermont. If you’re in one of these states, a short-term health plan is not an option for you.
What are the pros and cons of short-term health insurance?
Short-term health plans have several pros and cons. How these trade-offs affect your purchase decision depends on your health and financial situation and what your health coverage options currently are.
Cheaper premiums vs. limitations and exclusions
One of the biggest draws of short-term health insurance is that the premiums are much lower than health plans that offer comprehensive coverage.
“Lower premiums are one of the biggest advantages to short-term health insurance plans. They can cost half as less than ACA plans if you don't qualify for a tax credit, says Hyers.
Short-term health plans also have more limitations and exclusions when it comes to coverage, which is what makes these plans so inexpensive.
No enrollment period vs. potential coverage denial
Another great advantage of a short-term health plan is that you can buy one at any point in the year, there are no enrollment periods to limit when you can enroll. However, this flexibility doesn’t help you if you are denied coverage through the underwriting process.
Quick start date vs. coverage for a set period
Short-term health plans can have a fast effective date. Sometimes, you can be covered the day following your enrollment. This quick turnaround is a nice feature of these plans.
You can also buy multiple plans at once to have longer coverage.
“Plans can be purchased in some states for up to three years at a time with no need for additional medical underwriting. Other states, the limit is six months, however. So, you need to be thinking about what you'll do when the term is up,” advises Hyers.
Like Hyers notes, the downside is that these plans only cover care for a limited amount of time. Understand what your state’s rules are about short-term health plans when you enroll so that you can prepare for your next step.
You also need to realize that these plans are temporary. When you buy a new one, you're resetting the whole process.
Not only does this affect coverage for pre-existing conditions, it also affects your out-of-pocket costs. Barnes gives a good example:
"One confusing part I see consumers have is with the benefit period. If you choose a six-month benefit period. That is your term. Deductibles start over again if you reapply at the end of the term. Let's say you have a six-month short-term health insurance plan with a $1,000 deductible. You have surgery. The provider makes the claim with the carrier, and you pay the $1,000 deductible. Your term ends, and you reapply for a new term without problems. Three months later, you are in a new benefit term, and you need another surgery. You will have to pay that deductible all over again."
Customizable plans vs. maximum benefit from insurance
Most short-term health plans are customizable. You can choose the coverage length, deductible, and in some cases the coinsurance. Choices on the deductible and coinsurance will affect premium rates.
Short-term plans usually also have a maximum benefit amount. The maximum benefit is a cap on what the insurance company will pay towards eligible bills. Any additional costs fall on you.
These maximum benefits are usually fairly high, like $250,000 or $2,000,000. In addition to how much the maximum benefit is, you should also pay attention to what kind of maximum benefit it is. Is it a lifetime benefit or is it for each plan’s term? If the benefit renews with each plan’s term, that’s ideal. If the plan has a lifetime benefit, once it’s used up the insurer may not pay more even if you renew the plan.
How do I get short-term health insurance?
If short-term health insurance is a good fit for you, you just need to find companies that offer short-term plans. Compare your options from several companies and thoroughly investigate the exclusions. Then, work with the insurance company to enroll in the plan.
You can also work with an independent insurance agent to help you through the research and comparison process. If you work with an agent, they can help you enroll in a plan.
However you choose to enroll in a short-term plan, be sure to do your research and thoroughly understand the terms, limitations, and exclusions.
To learn more about what top companies offer, read part two of this series “Short-term health insurance: What top companies offer.”