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Short-Term Health Insurance Plans: A Good Temporary Solution

Aug 10, 2021 3 min read Zina Kumok

Key takeaways

  • Short-term health insurance plans, also called temporary health insurance or term health insurance, are available in most states.
  • They are often a practical choice for reasonably healthy people who need a temporary solution to help fill gaps in coverage.
  • Short-term plans are exempt from many health insurance regulations, so buyers need to carefully consider what these plans offer.

 

It's a pretty common scenario: You lose your job and find yourself without health insurance. Without a reliable income, you can't afford to buy a new plan on the marketplace. So, what can you do to be covered while you search for a new job?

While you’re unemployed, you may want to consider buying short-term health insurance. Here’s what you need to know about this option.

 

 

What is short-term health insurance?

Short-term health insurance plans only offer a limited range of benefits and are limited in duration (usually for a period of up to 364 days). They cover unexpected accidents and illnesses. Short-term health plans are exempt from the Affordable Care Act (ACA) and, as such, they aren't required to provide the essential health benefits that ACA-regulated plans must cover.

What’s covered? Most short-term plans offer some coverage for the following:

  • Inpatient and emergency care
  • Surgery
  • Labs and imaging
  • A limited number of outpatient office visits

Short-term plans often do NOT cover the following:

  • Maternity care
  • Mental health care
  • Outpatient prescription drugs
  • Pre-existing conditions (generally)

Short-term health policies can be sold with deductibles and out-of-pocket limits well above the ACA's mandated amounts. Also, under short-term plans, the total dollar amount of benefits is capped. The trade-off for lesser coverage is that these plans often carry lower premiums.

These plans are designed to bridge the gap between traditional insurance plans, not to be a substitute for coverage that complies with the Affordable Care Act.

 

How to get short-term health insurance

Being uninsured for a significant length of time is risky, and having health insurance is a key part of a smart overall financial strategy. But getting coverage under an ACA-compliant plan may be more coverage than you want and more expensive than you can afford. There are a variety of scenarios in which short-term plans may make sense, including:

 

You missed open enrollment

Open enrollment for individual medical plans runs from November 1 to December 15 in most states. Employer-sponsored health plans also have annual open enrollment periods. If you missed open enrollment and don't have a qualifying event that grants you a special enrollment period, you won't be able to enroll until the following year.

But short-term health plans are available year-round. You can apply anytime, with a coverage effective date as soon as the day after you apply — and the application process is fairly quick and simple. Just keep in mind that medical underwriting applies, meaning pre-existing conditions generally aren't covered. The insurer can reject your application if you have certain medical conditions that aren't compatible with their underwriting rules.

You're covering a gap before your regular health insurance becomes effective or you have a gap between your employer provided health insurance and when you are eligible for Medicare.

 

You have to pay the full cost of your own coverage

Most Americans get significant assistance in paying for their health coverage. Medicare and Medicaid are both heavily subsidized by the government.

But what if you're among the group of people without access to any sort of financial assistance in purchasing health insurance? Depending on how much you earn, buying your own individual ACA-compliant health plan might be too costly for your budget. This could be the case if you earn just a little more than four times the poverty level, which is the upper limit for premium subsidy eligibility. It could also be the case if you're caught in the ACA's "family glitch" — if your employer-sponsored plan is affordable individually but not for family members, yet it prevents your family from qualifying for premium subsidies in the individual market.

In these situations, selecting the best short-term health insurance plan in your area might be a practical option. A short-term plan, even with a fairly low deductible, will generally be much less expensive than a full-price ACA-compliant health plan. It's important to understand that this is because the coverage is more limited and the plan uses medical underwriting; enrollees tend to be fairly healthy, and even when they do have pre-existing conditions, the insurer doesn't cover treatment for those conditions. This helps keep the premium costs of the short-term health plans down. Because these short term health plans offer only limited coverage it is important to carefully consider the details and understand what you're purchasing before buying a short-term plan.

 

Shopping for a short-term medical insurance plan? Here's what you need to know

When evaluating short-term plans or comparing them with options from your employer or the regular individual market, keep these tips in mind:

  • Check if the plans are offered in your state: In some states, short-term plans are not allowed or offered.
  • Compare total costs: Look at the plans side by side, including coverage, exclusions, premiums, deductibles and out-of-pocket limits — and familiarize yourself with health insurance terminology before you start comparing plans. Pay attention to how the short-term plan counts out-of-pocket costs. Be sure you also understand any benefit caps that apply.
  • Carefully read the exclusions: Pay attention to the details of any short-term plans you're considering. Does the plan say prescription drugs are covered but only for inpatient situations? Does the plan not cover maternity care, or limit office visit coverage to just one or two visits?
  • Plan ahead for the termination of your short-term policy: Depending on where you live, you might be able to buy a short-term plan that's renewable for a total duration of up to three years. In many areas, short-term plans only offer coverage for up to three or six months, and you'd have to reapply for a new policy after the first one ends, with new medical underwriting.
  • Disadvantages of short-term health insurance: Since benefits are limited, short-term health insurance likely won’t cover prescription drugs or maternity care. Plans are also non-renewable, so if you extend your coverage after it expires, you’ll need to complete the application process all over again.

One way or another, your financial plan should include continuous health coverage and possibly life insurance. While a short-term plan can be a good way to avoid being uninsured for short stretches of time, you should ultimately have a long-term solution in mind.

 

What you can do next

If you think a short-term health plan might be a good temporary solution to your health insurance needs, you'll want to find out what options are available where you live. Before you enroll, make sure you have a good understanding of what the plan covers and what it doesn't, and a clear plan for obtaining more permanent coverage after your short-term plan ends.

Footnotes

Zina Kumok is a freelance writer specializing in personal finance. She has written for the Associated Press, Indianapolis Monthly and more. She also writes a blog about how she paid off her student loans in three years.

 

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