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Short-Term Health Insurance

What is Short-Term Health Insurance?

Some consumers without subsidized health coverage benefits may be unable to afford the costs of full health coverage on their own. In those circumstances, temporary health insurance is one of the options that could cover the gap between being entirely uninsured and being insured under a traditional health plan.

Typically, short-term health insurance plans last from one month to a year and cannot be renewed or extended. The majority of short-term plans will not cover pre-existing conditions and may exclude preventative care like routine medical visits. Plans are designed to cover only major medical events and will not provide treatment for mental illness or substance abuse. If consumers need to purchase a second short-term plan after the first has expired, the new plan may not cover pre-existing conditions that developed during the first plan’s term.

Most short-term plans define pre-existing conditions as those for which a consumer has been treated, consulted a health-care professional or took medications for in a set period of time prior to the start of the policy. The length of time varies between states, but generally ranges from 6 to 36 months. Note that this definition may differ from the one used by long-term healthcare plans.

The Affordable Care Act (ACA), sometimes referred to as Obamacare, requires insurers to sell health insurance to virtually everyone (often called "guaranteed issue") regardless of health status. As a result, an Obamacare plan would accept insurance applications from those denied short-term medical insurance due to pre-existing conditions. ACA plans can be purchased beginning in November of 2016 and will begin coverage in January of 2017.

Short-term health insurance, otherwise known as temporary health insurance or short-term medical insurance, does not meet the coverage standards under the Affordable Care Act. Consequently, starting in 2014 if an individual has temporary health insurance he or she will be subject to a fine of $95 or 1% of adjusted gross annual income, whichever is larger. And for 2017, the penalty rises to 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, to a maximum of $2,085. For some individuals, the premium savings of short- term health insurance versus an Obamacare health plan would exceed the cost of the penalty. To learn more about the Affordable Care Act’s tax penalty for the uninsured and how the amount changes over time, see our article on the Obamacare tax penalty.

Advantages of Short-Term Health Insurance

  • Plans can bridge the gap in coverage while waiting for a complete health plan to begin
  • Premiums for short-term plans are usually more affordable than traditional coverage
  • Many plans do not have a preferred healthcare provider requirement. This means enrollees can be covered for visits to any hospital or healthcare professional in the country
  • Most plans take effect within 24 hours of the application date

Disadvantages of Short-Term Health Insurance

  • Temporary health insurance plans are exempt from HIPAA, meaning that pre-existing conditions can be used to deny or exclude coverage
  • Starting in 2014 enrollees in temporary health insurance will be subject to a tax penalty
  • Many plans refuse to sell coverage to those over 65
  • Vision, dental care, and preventive coverage are excluded by most plans
  • Plans are not guaranteed to be renewable
  • Enrollees that are eligible for COBRA may lose that eligibility if they purchase a short-term plan

What is the Difference Between Term Health Insurance & Short Term Health Insurance?

"Term Health Insurance" is sometimes used interchangeably with "short-term health insurance." Both phrases refer to limited duration medical plans, that is to say, health plans with a fixed coverage period after which an enrollee must apply for new coverage. "Term Health Insurance" is more likely to be used for plans that are around 364 days long while coverage that lasts only a month or two might be referred to more often as "short-term health insurance."

While short-term plans originally grew out of the need for temporary insurance, new products being released under the title Term Health Insurance represent some adaptations to consumer needs during the Affordable Care Act era.

Short Term Health Insurance & Maternity Coverage

A common question surrounding short term health insurance is whether it provides maternity coverage. Pregnancy is considered a pre-existing condition and since short term health plans are exempt from HIPAA, they typically won’t include maternity coverage. If you are an expecting mother, you may want to consider an Obamacare health insurance plan since those plans are required to provide essential health benefits which includes maternity and newborn care.

Can I avoid an Affordable Care Act’s tax penalty with a Short-Term Health Insurance plan?

No. Because Short Term health insurance plans do not meet the requirements set by the Affordable Care Act, you will still be responsible for paying the tax penalty called the “Shared Responsibility Tax.”

Sources:

1. http://www.ag.state.mn.us/Consumer/Publications/ShortTermHealthInsurance.asp
2. http://www.coloradoan.com/article/20130730/COLUMNISTS108/307300029/Trozan-Short-term-insurance-policy-can-save-money-run-up-reforms?nclick_check=1
3. http://health.usnews.com/health-news/managing-your-healthcare/healthcare/articles/2010/03/11/dont-get-short-changed-by-short-term-medical-insurance



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