What is short-term health insurance?
Short-term health insurance plans only offer a limited range of benefits and are limited in duration. 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. In terms of benefits, most short-term plans offer some coverage for inpatient and emergency care, surgery, labs, imaging, and a limited number of outpatient office visits. Short-term plans often do not cover maternity care, mental health care, or outpatient prescription drugs. They generally don't cover pre-existing conditions and your application for such a plan can be denied based on your medical history.
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.
Fixed indemnity plans are often confused with short-term health plans, but there is a key difference between the two. While short-term health plans are intended to provide stand-alone coverage for a short period of time, fixed indemnity plans are generally meant to serve as supplemental coverage; they're designed to reimburse a set amount of money when a policyholder has various covered expenses. For example, such a fixed indemnity plan might pay $1,500 when the insured spends a night in the hospital, or $1,200 if they have surgery, regardless of what the actual bill is.
When are short-term health plans a good option?
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 major 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.
Although short-term health plans can take effect as soon as the day after you enroll, that's not the case with regular major medical coverage. With regular insurance, effective date rules vary depending on the type of coverage and whether you're enrolling during open enrollment or a special enrollment period, but there's generally a gap between when you enroll and when the coverage takes effect.
For example, if you sign up for an ACA-compliant individual market plan on November 1 — the first day of open enrollment in nearly every state — you'll have to wait a full two months until your coverage takes effect on January 1. A short-term plan can be a perfect solution to bridge that gap.
Similarly, you can enroll in Medicare up to three months before you turn 65, but the coverage won't take effect until the month you turn 65. Some people opt for short-term coverage in the months leading up to Medicare, knowing they'll be able to transition to Medicare once they're 65.