Designed for healthy individuals and families, short-term policies provide an affordable safety net while switching from one life event to another without a health plan. Lose your job, recent college graduate, divorced, or retired and not quite eligible for Medicare? Then consider short-term insurance (but remember that most of those scenarios are qualifying events, which means you’d be eligible to purchase an ACA-compliant plan instead – so check those options too.)
Short-term plans are not regulated by the Affordable Care Act (Obamacare), so they are still available year-round. For people who missed open enrollment and do not have a qualifying event that allows them to purchase an ACA-compliant plan, a short-term policy can be a good solution to bridge a short gap until general open enrollment begins again, or until an expected qualifying event.
Three-month limit on short-term plans: Repealed as of October 2018
Short-term plans are available in nearly every state, with regulations that vary by state. The Obama Administration enacted regulations (which were enforced as of April 2017) that limited short-term plans to no more than three months (90 days), in an effort to ensure that people wouldn’t use short-term health insurance as a relatively long-term substitute for ACA-compliant coverage.
Prior to the Obama Administration rule, the federal definition of “short-term” was a plan that lasted no more than 364 days, although some states capped them at six months, some didn’t allow them at all, and insurers often only offered six-month terms for short-term coverage, even in states that used the 364-day federal limit.
Under the Trump Administration, HHS has finalized a rule change that will revert to the pre-2017 definition of “short-term.” The new rules will take effect in October 2018 (60 days after being published in the Federal Register), and will allow insurers to once again offer short-term plans with initial terms of up to 364 days. The federal regulations will also allow those plans to be renewed, as long as a single policy isn’t in effect for more than 36 months. The availability of these longer-term plans will still be limited by state regulations and insurers’ willingness to offer them.
Still a mandate penalty if you rely on short-term plans in 2018
It’s important to know that short-term plans are not considered minimum essential coverage under the ACA, so people with short-term insurance are still subject to the ACA’s individual mandate penalty unless they’re otherwise exempt from it. The individual mandate allows a gap in coverage of less than three months time, so you could have a short-term policy for two months in between other minimum essential coverage and would not be subject to a penalty. But relying on short-term coverage for three months or longer would result in a penalty being assessed. The penalty was repealed in the GOP tax bill that was enacted in 2017, but the repeal doesn’t take effect until 2019. People who do not have minimum essential coverage in 2018 are still subject to the individual mandate penalty. And although longer short-term plans will become available in some states as early as October 2018, people who rely on those plans in 2018 could be subject to a penalty if they’re not exempt from the penalty.
Buying a short-term plan? Pay attention to the details
Emergency events are nearly always covered under short-term plans, as is hospital care, but in general, coverage is limited, so study your policy carefully. Short-term plans don’t cover pre-existing conditions, and they typically do not cover maternity, mental health or preventive care. (They are not required to cover the ACA’s essential health benefits). Although their sale is not limited to open enrollment windows, short-term plans do use very basic medical underwriting to determine an applicant’s eligibility for coverage. Short-term plans also have blanket exclusions on pre-existing conditions, which means they won’t cover any medical conditions that you had before the plan took effect.
Although premium subsidies are not available for short-term policies, the plans are considerably less expensive than ACA-compliant major medical plans. And you can get coverage as early as the next day once you answer just a few simple questions about your health.
Bottom line: Temporary health insurance is a low-cost option to protect yourself temporarily from unforeseen and emergency medical expenses. But it’s not a substitute for ACA-compliant coverage, and it doesn’t include the myriad consumer protections provided under the law.