Chronic illness

Short-term health insurance: A guide

CVC Director of Patient Services Lauren Ruiz explains the basics about short-term health insurance plans.

As a result of recent changes to federal health care law, short-term health insurance plans are more widely available in 2019. These plans may seem like a good option because the premiums tend to be much cheaper than those for marketplace plans.

Premiums are lower because laws allow short-term plans to significantly limit what they cover: They don’t have to cover everyone, they don’t have to cover specific services, and they can cap the total amount they cover for a person.

In general, only under specific circumstances where health costs are very minimal will these plans save policyholders money. So before you consider a short-term health insurance plan, be sure to understand their limitations.

Below, we explain more about:

  • What short-term health insurance is, including recent changes.
  • What to know before signing up.
  • Reasons you might consider it.
  • What prescription drug coverage might look like with these plans.

What is short-term health insurance?

Short-term health insurance—also called “term” “temporary” “gap” or “limited duration” insurance—is designed to cover a healthy person during temporary gaps in their more comprehensive health coverage. Common gaps occur between jobs or while transitioning to a new type of insurance plan. (For example, you might change from private to publicly funded health insurance).

Short-term plans are exempt from most Affordable Care Act (ACA) requirements. Among other things, this means they don’t have to cover the full array of essential health benefits required of plans sold through ACA marketplaces.

Recent changes to short-term health insurance

On Aug. 1, the Centers for Medicare & Medicaid Services finalized a new rule to amend the definition of short-term health insurance plans. It took effect Oct. 1.

A 2017 regulation limited short-term insurance plan coverage to three months or less. The new rule states:

  • Short-term health insurance plans can have a coverage period of up to 12 months.
  • Individuals can renew short-term health plans for up to three years.

To address concerns of opponents of these plans, the rule also includes consumer protections through education about the potential limitations of the plans. Consumers purchasing short-term health insurance must be informed that these policies do not comply with ACA requirements.

What to know before signing up

No one likes to be hit with unexpected or expensive health care costs. Before considering short-term health insurance plans, be sure to understand all of their rules and limitations. Short-term health insurance plans:

  • Are not required to cover people with pre-existing health conditions or services for pre-existing health conditions.  This also means insurance companies can charge an individual with a pre-existing health condition a lot more for their monthly premium, or can exclude health services that address pre-existing conditions.
  • Are allowed to impose annual coverage limits and/or lifetime coverage limits. Once the plan pays a certain amount during a coverage period, or over the lifetime of the plan, they will stop paying for any costs, leaving the consumer responsible for 100 percent.
  • Are not required to cover the ACA’s 10 essential health benefits. Therefore, short-term health plans can exclude coverage for things like: prescription drugs, maternity care, mental health and substance use treatment, and more.

Coverage for certain essential health benefits may exist under the short-term plan but likely have limitations.

When would I consider a short-term health insurance plan?

You might want to consider a short-term health insurance plan if:

  • You cannot afford the monthly premiums of an ACA-compliant plan on the health insurance marketplace. Make sure to check first if you qualify for advanced premium tax credits or premium subsidies through the federal or state exchange marketplaces—which can make the comprehensive marketplace plans cheaper than the short-term plans. (Follow link to section “What are subsidies?”)
  • You missed the annual enrollment opportunity for an ACA-compliant plan but still want to enroll in a plan. Unlike with marketplace plans, you can apply for short-term health insurance at any time.
  • You only need coverage for a short period of time during a coverage transition.
  • You don’t want to pay for the extra comprehensive services required by ACA-compliant plans because you are healthy, don’t have a pre-existing condition, and/or don’t intend to use them.

Prescription drug coverage and short-term plans

Coverage for prescription drugs is important to many people. Let’s look at some examples of short-term health insurance plan’s limitations on prescription drug coverage:

Option 1

  • No coverage for prescription drugs. Consumers can use a prescription drug discount card at their pharmacy to reduce out-of-pocket costs.

Option 2

  • A four-tier drug option where the consumer pays $20 with no deductible for Tier 1 drugs, $40 for Tier 2 drugs after a $500 deductible, $75 for Tier 3 drugs after the deductible, and 40 percent the cost of Tier 4 drugs after the deductible. This option also imposes a $3,000 maximum benefit, per term. (This means once the health plan has spent $3,000, the consumer will become responsible for 100 percent the cost of prescription drugs).

Option 3

  • The consumer pays a $500 prescription drug deductible and then 30 percent of the cost of all drugs. This option also has a $3,000 maximum benefit limit.

Other prescription limitations that may apply:

  • Drugs are only covered during an in-patient hospital stay.
  • Limits on the number of refills allowed during the term period.

The option the consumer chooses will partly determine the final monthly premium cost of the plan.

As you can see, typical short-term insurance limitations could easily result in someone with more extensive or costly prescription drug needs paying much more out-of-pocket. And, insurers can apply these sorts of limitations not just to prescription drugs but to any part of coverage offered under short-term health insurance plans.

If you are considering a short-term health insurance plan, make sure you understand all of your likely medical costs and then contact the plan to check specifically if they will be covered or whether any limitations will apply. Ask for a copy of the Plan Benefits, Exclusions, and Limitations before you enroll.

A final note

On a final note, some states have passed state laws that prohibit certain practices of short-term health insurance plans. For example, California, Hawaii, Massachusetts, New Jersey, New York, and Oregon prohibit the sale of short-term health insurance plans that do not cover individuals with pre-existing conditions. State laws may impact the cost of the monthly premium you pay and covered services. You can find more information about laws specific to your state by calling your state health insurance department or visiting their website.

CVC’s health insurance counseling program can help you understand your health benefits, including short-term plans. Don’t hesitate to contact us with any questions or for more information.

See more blogs from health insurance counselors here.

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