Short term health insurance has existed for over 3 decades, but the rules and regulations overlaying them have changed under the current law.
The fundamental mechanics of short term plans have remained the same, but unfortunately there’s been an abundance of misleading information about what the insurance covers and how it works.
With health insurance plans being redesigned under the Affordable Care Act, other forms of medical coverage including short term health insurance, are receiving renewed scrutiny by the press as well as consumers.
Historically, short term health insurance plans were popular with individuals who experience a gap in insurance coverage due to job loss, divorce, or other life events. However, the nature and limitations of short term health insurance are sometimes misunderstood1 by the public, partly due to the small market penetration of these plans and partly due to the lack of widely available statistics on these plans.
Short term health insurance (otherwise known as temporary health insurance or short term medical insurance) is a health insurance product considerably different than the new health plans created under the Affordable Care Act. There are 11 states where you cannot buy a short term health insurance plan. In four states you can only get a plan for three month durations. In 15 states, the maximum coverage period of this insurance is 6-months with the remaining states having coverage periods lasting slightly less than a full year.2 Applicants are asked health questions within the insurance application form and the answers decide the applicant's chances of acceptance since short term health insurance can deny coverage based on medical history, pre-existing conditions, or health status. With respect to pre-existing conditions, short term health insurance can exclude medical claims as a pre-existing condition for injuries, illnesses, or conditions where a health plan member had symptoms prior to enrolling in the plan even if he or she did not receive treatment for those symptoms.3
This right to deny coverage is in stark contrast to the Affordable Care Act health plans. Affordable Care Act plans are 'guaranteed issue' (i.e. they cannot base application acceptance on medical underwriting questions like those used for short term insurance).
The material below corrects eight common misunderstandings about the insurance and the medical coverage it provides.
1. Short term health insurance is ACA compliant.
Short term health insurance is significantly different than the kinds of health insurance offered on healthcare.gov and it has never been ACA compliant. As a result, short term plans are not required to include the 10 Essential Health Benefits as established by the Affordable Care Act.
2. Short term health insurance is a good replacement for traditional health insurance.
Short term plans should not be thought of as a replacement for traditional health insurance even though they can last up to 12 months in most places. It’s not a good fit for people with pre-existing conditions, in poor health, or who will require more comprehensive health coverage. Also, medical services such as preventive care (e.g. routine physical exams), maternity care, and the treatment of mental illness or substance abuse may be excluded from coverage under short term plans.
Additionally, short term health plans typically limit the maximum amount the insurer will pay for your medical services in a year (e.g. $1,000,000).
3. Short term health insurance only lasts a few months.
In the past there has been limits on short term health plans where they could only last up to three months in most states. Due to an executive order, which took effect in October 2018, short term plans can last up to one year with the option to renew for up to three years in many states. However it is important to note that term limitations can vary depending on the state.
4. Short term health insurance is accepted by very few doctors.
Short term insurance plans are accepted by many doctors across the U.S. depending on your specific plan’s provider network. Like other forms of health insurance, short term health insurance may rely on pre-determined healthcare provider networks. Not all services are covered under short term insurance, and medical treatment by an out-of-network healthcare provider may result in significantly higher out-of-pocket costs. Additionally, many short term health insurance plans allow you to go to any doctor although in some cases you may have to pay the bill and submit paperwork for reimbursement.
5. I can sign-up for an Affordable Care Act plan immediately after my short term health plan expires.
You can only sign up for an Affordable Care Act plan during certain times of the year. If your coverage ends after December 15th, you have to wait until the next Open Enrollment Period which begins November 1st of each year unless you qualify for a Special Enrollment Period.
Short term coverage ending does not qualify for a Special Enrollment Period. Enrollment in short term health insurance also prevents you from qualifying for COBRA insurance after the short term coverage discontinues. COBRA is a program that allows people to pay on their own for group health insurance previously received from an employer.3
6. You pay a tax penalty for having short term insurance.
As of 2019, there is no tax penalty for having short term health insurance. However if you did not have ACA compliant health insurance in 2018, you are subject to the tax penalty for 2019 taxes. The amount of the penalty depends on your yearly household income. If you could not afford ACA compliant health insurance in 2018 there are also ways to get the penalty waived.
7. Short term insurance costs the same as an Affordable Care Act plan.
Incorrect. Affordable Care Act health plans and short term health plans are very different in regards to how much they cost. ACA plans are guaranteed issue and cannot reject insurance applicants based on health status or pre-existing medical conditions. Affordable Care Act health plans offered through the government may provide premium subsidies to those whose income qualifies.
Your current health condition determines how much a short term plan will cost. Applicants first go through an underwriting process, where they are asked questions about their health. Short term health insurance can deny coverage based on your medical history, pre-existing conditions, or health status - or charge an increased premium rate. Since short term health insurance is not regulated by the Affordable Care Act, enrollees are ineligible for premium subsidies regardless of their income level. However, the plans are typically less expensive because they are not required to provide the 10 essential health benefits, and rely on underwriting of customers. These are two of the most expensive provisions of ACA plans.
8. Short term insurance plans are junk.
While they may not be a good fit for everyone, the last myth about short term insurance health plans being junk is demonstrably false, as they can be of great benefit to certain kinds of people, especially gig economy workers. Since you can only apply for an ACA plan during the Open Enrollment period, short term plans are a valuable alternative for people who missed the window to enroll. It can also help people who are experiencing a gap in coverage due to job loss, divorce, or are waiting for Medicare benefits to start.
While not all medical services are covered, short term insurance can help with medical expenses relating to illnesses, injuries, emergency room, doctor/specialists, lab testing and more depending on the parameters of your plan.
1 See Lindsay Lyon. "Don't Get Short-Changed by Short-Term Medical Insurance." US News & World Report. (March 11, 2010). http://health.usnews.com/health-news/managing-your-healthcare/healthcare/articles/2010/03/11/dont-get-short-changed-by-short-term-medical-insurance. Last accessed October 25, 2013.
2 The 15 states that have a maximum 6-month term for short-term insurance are: Colorado, Idaho, Indiana, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Montana, Nevada, New Mexico, Ohio, Oregon, and Wyoming.
3 For more detailed information on the COBRA program see http://www.dol.gov/dol/topic/health-plans/cobra.htm.
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