Plans offer options for millions caught in the coverage gap, with incomes too high for subsidies, or who missed open enrollment

Short-term health insurance: Key takeaways

As we near the 10th anniversary of the implementation of the Affordable Care Act, its advocates are celebrating the law for its delivery of affordable comprehensive health insurance to millions of Americans. But while provisions of the law have indeed lowered coverage costs for many, there remain large segments of the individual health insurance market that – for a variety of reasons – continue to face unaffordable premiums.

Americans still struggle with plan affordability

There are currently about 2.3 million people caught in the coverage gap in 14 states that have refused to expand Medicaid. Their household incomes are under the federal poverty level, so paying full price for health insurance is probably a non-starter.

Millions of Americans also have incomes above 400 percent of the poverty level, but not dramatically so. And thanks to the subsidy cliff, they can be facing premiums that are 25 percent – or more – of their income, depending on where they live.

Others are caught by the family glitch, and although their coverage is technically considered “affordable,” that may not actually be the case.

If you’re among these consumers – and you’ve looked at all the on- and off-exchange options for regular health insurance and simply cannot afford them – it’s worth at least weighing the pros and cons of short-term coverage.

What is short-term health insurance?

Designed for healthy individuals and families, short-term policies provide an affordable safety net while switching from one life event to another without a comprehensive health plan. Short-term plans use very basic medical underwriting to determine an applicant’s eligibility for coverage and also have blanket exclusions on pre-existing conditions, which means they won’t cover any medical conditions that policyholders had before the plan took effect.

A brief history of short-term health insurance

Prior to 2017, short-term health insurance was defined by the federal government as a plan with a duration of less than one year. The federal rules changed in 2017, when short-term policy durations were limited to less than three months. (Short-term plans with longer durations were still available for sale through the end of March 2017, as long as they were scheduled to terminate on or before December 31, 2017. As of April 1, 2017, no short-term plans could be sold with durations of three months or longer.)

The Obama Administration had sought to ensure that short-term plans would only be used for their original intent: as a stop-gap measure before another plan kicks in. The Trump Administration, however, issued new regulations to roll back the restrictions on short-term plans. And as of October 2, 2018, federal rules allow short-term plans to have initial terms of up to 364 days and also allow those plans to renew as long as the total duration of a single plan doesn’t exceed 36 months.

States where you can’t buy short-term health plans
California
Colorado
Hawaii
Massachusetts
New York
New Jersey
Rhode Island
Vermont
Connecticut
New Mexico

Can I buy short-term insurance in my state?

Though short-term plans are available in most states, there are 11 states where short-term plans aren’t available at all. In New York, New Jersey, Maine, Massachusetts, Rhode IslandVermontCalifornia, Colorado, Hawaii, Connecticut, and New Mexico, there are no short-term plans for sale in 2020. In some cases, this is because state regulations ban them outright, while in other cases it’s because state regulations are strict enough that insurers have opted not to sell short-term plans. (In Washington, short-term plans with January effective dates cannot be purchased between November 1 and December 15, but are otherwise available.)

Short-term plans are available in the remaining states, but regulations and availability vary considerably from state to state. (Click on this map to see how short-term plans are regulated within the state.)

What are the advantages of short-term health plans?

Short-term health insurance plans are considered by many to be affordable – offering lower premiums and a wide range of deductibles – but also offering many buyers immediate enrollment, and a degree of flexibility when it comes to providers, services and plan duration.

The big draw: Lower premiums

A lower monthly premium is the primary draw for short-term plans. Consider a family of four, living in southwestern Wyoming and earning a household income (there’s an ACA-specific calculation for household income) of $105,000/year, which is just over the upper limit for premium subsidy eligibility in 2019. The parents are around age 45, with two young children. For 2020, the cheapest Bronze plan they can get in the exchange would cost more than $2,000 per month in premiums. And that particular plan has a family deductible of $9,000 and a maximum out-of-pocket exposure of $13,500 for the family.

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But there are numerous short-term plans available to them, with premiums that range from a little more than $200/month to more than $1,400/month. Some have maximum terms of six months, while others allow up to 364 days of coverage. There are several plan designs available, and although none of them are as comprehensive as ACA-compliant plans, the trade-off is that they have much lower premiums.

(It should be noted that if this family had a household income of $100,000, instead of $105,000, they would be eligible for a premium subsidy of more than $2,200 per month, which would allow them to choose from several free plans in the Wyoming exchange, and several others with premiums under $500/month. Contributions to pre-tax retirement accounts and/or a health savings account – if they selected an HSA-compliant health plan – would potentially allow them to get their household income into this subsidy-eligible range. In that case, they would obviously be better off with an ACA-compliant plan instead of a short-term health plan.)

Additional short-term health insurance advantages

If short-term coverage is available in your state, there are some features with obvious appeal for consumers who are in dire straits.

  • Immediacy. With short-term policies, healthy applicants can secure immediate individual and family coverage, with plans that can kick in as early as the next day. If you already know the number of days you will need to be covered, your insurer may allow you to make a single payment for the whole coverage period.
  • Costs. Short-term plans are typically offered with a selection of premiums, deductibles, and benefit maximums. The policies are considerably less expensive than ACA-compliant major medical plans, so you may find that you can afford to purchase a plan with a low deductible and a high benefit maximum.
  • Flexibility. The policies also cover a range of physician services, surgery, outpatient and inpatient care. In addition, policyholders can sometimes choose their own doctor and hospital without restrictions, though there may be financial incentives for using in-network providers.
  • Enrollment / eligibility. The enrollment process is quick and easy, with just a handful of yes/no questions regarding major health concerns (even if your health conditions are not included, bear in mind that virtually all short-term plans have blanket exclusions that apply to any pre-existing condition, regardless of whether it’s one of the conditions that determine eligibility for coverage).
  • Increased durations. In states that allow it and where insurers offer the option, an applicant can buy a short-term policy and keep it for up to three years. The insurer may offer the option to lock in guaranteed renewability, without additional medical underwriting, when the policy is purchased, meaning that the applicant would only have to apply once and could be covered for up to three years. (Note that in most states, short-term health insurers are not required to offer renewability; check the plan details carefully before purchasing coverage, to make sure you understand what you’re buying.)

What are possible pitfalls of short-term plans?

Critics of short-term plans note that short-term coverage isn’t comprehensive and doesn’t cover pre-existing conditions. Critics also caution that policyholders could find themselves subject to balance billing, and to post-claims underwriting, in which the insurer goes back through the person’s medical history after they have a claim, to determine whether any pre-existing conditions are involved.

What are some of the factors that might make consumers reluctant to buy short-term coverage?

  • No coverage for pre-existing conditions. Even if you’re eligible for coverage based on the short list of questions asked on the application, you will generally not have coverage for any pre-existing medical conditions while you’re enrolled in the plan. Short-term plans exist solely to provide coverage for medical conditions that have not yet arisen – and will not be any help at all in terms of medical conditions you already have. Be sure to check the list of exclusions on any policy. Short-term plans also tend to use post-claims underwriting, which means they will generally take your word for you health status when you enroll, but can then go back through your medical history if and when you have a claim, making sure that you were truthful on your application and verifying any pre-existing conditions.
  • It’s not comprehensive coverage. These plans weren’t designed to cover everything, and they do not provide coverage for all of the ACA’s essential benefits. They typically won’t cover your routine office visits, maternity, mental health or preventative care, and most plans don’t cover prescription drugs unless you’re hospitalized. Again, be sure to check the list of exclusions on any policy.
  • You may be subject to balance billing. Some short-term plans tout the fact that you can see any doctor or go to any hospital you want. While that might sound good, it’s also a red flag for potential balance billing. If the plan doesn’t have a provider network, that means the doctors and hospitals that members end up using have not agreed to accept the insurer’s reimbursement rates as payment in full.
    In that case, whatever amount the insurer pays them (a “reasonable and customary” amount, a percentage of Medicare rates, etc.) is likely to be less than what they billed. And since they do not have a contract with the short-term insurer, they are free to send a bill to the patient for whatever amount the insurance plan doesn’t pay. So even if the plan has a maximum out-of-pocket limit, enrollees should keep in mind that balance billing could potentially result in much higher out-of-pocket costs if the plan doesn’t limit care to a specific network of providers.
  • You could still end up facing a gap in coverage. When your short-term plan ends, you will not be eligible to purchase a regular plan in the individual market if it’s outside of open enrollment. Loss of minimum essential coverage is a qualifying event that triggers a special enrollment period, but a short-term plan is not considered minimum essential coverage. But if you’re buying short-term coverage to get you through to the end of the year, you’ll be able to purchase an ACA-compliant plan during open enrollment that will take effect the first of the coming year. And if you’re going to be starting a new job that offers health insurance, you’ll be able to enroll in your new employer’s plan as soon as you’re eligible.
    (It’s worth noting that the termination of a short-term plan does trigger a special enrollment period for group health coverage. (See page 51 of the final rule for short-term plans). So if you have access to your employer’s plan but hadn’t enrolled (and had enrolled in a short-term plan instead), the termination of your short-term plan would allow you a special enrollment period during which you could enroll in your employer’s plan.)

Even now that the new rules have taken effect in many states, that last point is still important to keep in mind. If you purchase a 364-day plan in July and then suffer a serious illness or injury the following April, you could find yourself in a predicament if the plan you purchased was not guaranteed-renewable. (Under the new rules, insurers have the option to offer guaranteed renewability, but are not required to do so).

Depending on your medical situation, you may not be able to purchase another short-term plan when yours expires in June. And you wouldn’t be eligible for a special enrollment period to buy an ACA-compliant plan, since the termination of a short-term plan is not a qualifying event. More than likely, you’d have to wait for open enrollment in order to sign up for a new plan, which would take effect January 1.

So you could find yourself uninsured for several months (in this case, July through December), and it might be at a time when you have ongoing medical needs related to the illness or injury that made you uninsurable for a second short-term plan. This is complicated, and certainly requires more than a passing glance when you’re considering what coverage option to purchase.

A destabilizing effect on the ACA-compliant market?

The Trump Administration ostensibly rolled back the regulations on short-term plans in order to allow more consumer choice, but this action has been widely criticized as having a destabilizing effect on the individual health insurance market — where about 15.1 million Americans had coverage as of 2019. (That was down from 17.6 million as of 2017; the expansion of short-term plans is one of the factors contributing to the decline in individual market enrollment.)

This is especially true when you consider the fact that the ACA’s individual mandate penalty no longer applies, as a result of the GOP tax bill that was enacted in 2017. This makes it easier for healthy people to opt for a medically underwritten short-term plan instead of ACA-compliant coverage (some states have implemented their own versions of the individual mandate, but this is not widespread).

Now that short-term plans can again be purchased for up to 364 days in some states, it will help healthy people avoid the ACA-compliant market in favor of a cheaper option. The coverage is less robust in the short-term market, but some healthy people see it as a valid trade-off for lower premiums.

The problem is that those healthy people are the ones who are needed in the ACA-compliant market in order to keep the market stable. The final rule estimated that 600,000 people would newly enroll in short-term plans in 2019 as a result of the new rules; 200,000 of them from the existing on-exchange individual market, 300,000 from the off-exchange market, and 100,000 who were uninsured as of 2018. So the majority of the people expected to enroll in short-term plans as a result of the new rules were expected to be transitioning away from the ACA-compliant individual market (both on- and off-exchange major medical plans are ACA-compliant).

And the exodus of people from the individual market to the short-term market is likely to be comprised mostly of people who are relatively young and healthy, leaving sicker, older people in the ACA-compliant market. This will result in higher premiums in the ACA-compliant market, which will, in turn, result in larger premium subsidies.

This point was reiterated time and again in the 2019 rate proposals that insurers filed for ACA-compliant plans, with insurers in many states noting that they expect increased morbidity (ie, overall poorer health) in their risk pools in 2019 because healthy people would have access to medically underwritten short-term health plans.

For people who get premium subsidies, higher premiums in the ACA-compliant market are offset by larger subsidies. But for people who pay full price because they aren’t eligible for subsidies, the additional premiums necessary to cover an increasingly old and sick risk pool will be borne by the policy-holder alone.

Keep your ACA-compliant coverage if you can

Obamacare has made it easier for much of the previously uninsured population – including those who are temporarily uninsured – to obtain high-quality individual health insurance. The law has done a great job of providing considerable financial assistance in the form of cost-sharing subsidies and premium subsidies.

But there are still situations when a short-term policy makes a lot of sense. If you’re choosing between a short-term plan versus being uninsured, and those are your only two options, a short-term plan is absolutely better than being without coverage altogether.


Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.