Understanding Short-term Health Insurance

These plans may work for some people if they stay healthy and never have an accident.

However, if they need medical care that requires a trip to the hospital, these plans can be a financial disaster.

Short-term coverage is skimpy

The plans cover much less than a traditional plan. It's also not uncommon for these plans to weave in exclusions in a way most consumers would never notice until they tried to use the insurance.

♦ Short-term plans can be much cheaper than Marketplace plans.

These plans may look like a good deal, but there's a reason they're less expensive.

♦ People who buy short-term plans to reduce their monthly premiums are taking a big risk.

Some people have few other choices, especially in states that didn't expand Medicaid. Adults with incomes below the poverty line there often earn too little for premium tax credits but still can't get Medicaid.

♦ Short-term is meant to mean a short period of time. The Affordable Care Act doesn't control short-term plans, so the limits keep changing with each administration:

• 2016 (Obama): short-term plans limited to less than 3 months.

• 2018 (Trump): plans could last up to 12 months and be renewed for a total of 36 months (3 years).

• 2024 (Biden): after calling these plans "junk" during the 2020 campaign, the Biden administration limited new plans to 3 months, plus a one-month extension (4 months total), and required clearer warnings about what they don't cover.

• 2025 (Trump): in August 2025, the administration announced it would stop enforcing the 4-month limit. Insurers in many states are again selling plans lasting up to 3 years.

♦ Check your state's rules, and watch for a formal federal rule change, which could make the longer limits official.

The short limits were meant to discourage people from relying on short-term plans for too long. Over a long period of time, the chances are high that a healthy person will develop a health condition these plans won't protect against.

• It's easy to overlook an important point: coverage under a short-term policy ends at the end of the contract term.

To continue coverage beyond that date, you have to apply for a new policy or renew the old one.

The Affordable Care Act guarantees renewability, which means an insurance company can't refuse to renew a policy even if you have a serious illness.

• There's no such guarantee for short-term health plans.

If you become seriously ill, you likely won't be able to buy a new policy. But you will be able to apply for health insurance through the Marketplace.

• Short-term plans generally aren't covered by the No Surprises Act. You may not have federal protection from surprise bills in an emergency.

Why are some people unhappy with these plans?

Many believe these plans destabilize the health insurance markets.

The sale of short-term plans is expected to result in fewer people signing up for ACA-compliant plans.

♦ Healthier people will be drawn to short-term plans, while sicker people must stay with ACA plans.

Insurance companies on the exchanges are unhappy, because when risks are spread over fewer people, their profits could suffer unless they charge higher premiums.

Higher premiums will hurt everyone who doesn't qualify for premium tax credits. It will also filter down to small business health insurance.

♦ Patient advocates worry that unsuspecting consumers will be duped into buying worthless policies that lead them to financial ruin.

What to know before you buy

When you shop for short-term health insurance, you must be very careful.

♦ Short-term health insurance is like stepping back in time to the days before the Affordable Care Act. There are very few rules controlling how insurance companies structure and run short-term plans.

You're responsible for reading all plan documents.

♦ These plans are notorious for having a lot of fine print that hides exclusions and pre-existing condition loopholes. This makes it much harder to understand what's covered and what isn't.

Fewer benefits

Short-term plans cover fewer medical services than typical comprehensive insurance. As a result, it's difficult to find coverage that protects against large healthcare costs.

♦ Short-term plans aren't required to provide Essential Health Benefits like plans sold under Obamacare. Very few short-term plans cover prenatal and maternity care, mental health care and drug treatment, or prescription drugs.

♦ Short-term plans aren't constrained by the Affordable Care Act.

→ Insurance companies can refuse to cover people with pre-existing health problems.

They can charge higher prices to people with a health issue, or even exclude a particular health condition.

Key points

• Insurance companies can refuse you coverage.
• Insurance companies can cancel short-term coverage more easily than a traditional plan.
• Older people and less healthy people may have difficulty buying a short-term plan.
• You can be charged more based on your medical history, age and gender.
• Some policies deny coverage because of a symptom of a condition you had, even if you didn't seek treatment for it.
• Your policy can be canceled if the insurer learns of a previously undisclosed condition. If you have a serious and expensive health condition, expect your application and medical records to be heavily reviewed, so be careful.
• Some plans have waiting periods when treatment isn't covered.
• Most plans have an annual dollar limit on what they'll pay. If you become ill and need expensive care, you can easily go over most limits.
• There may be a small dollar-per-day maximum for a hospital stay.
• Some plans may not cover hospitalization at all.
• Specialist office visits may be limited to a certain number per year. After that, you pay it all.
• Deductibles and other out-of-pocket costs are usually higher than with a traditional insurance plan.
• Very few plans cover prenatal and maternity care. If you're planning to have a baby, these plans aren't for you.
• Some plans provide limited coverage for mental health care.
• Only a few plans cover drug treatment.
• Prescription drug coverage is often limited or missing.
• Many plans don't cover immunizations, which should be a concern for a family with small children.
• Short-term plans are famous for exclusions for odd things, like injuries from playing sports such as football or baseball.

♦ You have to read the fine print.

Insurance agents want to sell these plans

For the most part, insurance agents and brokers have an incentive to sell short-term plans. It's called commissions.

In 2019, the average short-term plan spent less than 62 cents of every premium dollar on medical care. That compares to at least 80 cents for an Obamacare plan, which also must refund any excess premiums to enrollees.

There's no rule controlling profits from short-term plans like there is for Obamacare plans. Because of this, a short-term plan can keep nearly 40 cents of every premium dollar to cover overhead and profits.

♦ Agents can earn much higher commissions on short-term plans than on Marketplace plans.

However, the math may not always favor short-term plans. If the premium is too low, the commission from a short-term plan could end up no better than from a Marketplace or off-exchange plan. When this happens, don't expect agents to push short-term plans with much enthusiasm.

State restrictions

Federal rules don't stop states from setting stricter rules, and state rules override federal policy.

At least 10 states and DC either ban short-term plans or regulate them so strictly that few or none are sold: California, Colorado, Connecticut, Illinois, Massachusetts, Minnesota, New Mexico, New York, Rhode Island, Vermont and the District of Columbia.

Other states allow these plans but limit how long they can last, from 3 months in some states to about 6 months in others.

♦ Rules change often. Check with your state's insurance department before you buy.

♦ Red states of the deep south clapped with glee when the first Trump administration gave short-term plans the green light in 2018.

Most of these states allowed plans to be written for 364 days with as many as three renewals, effectively allowing for a 36-month maximum.

After the Biden administration's rule changes took effect in 2024, these plans were kicked to the curb.

♦ The second Trump administration then breathed life back into these short-term plans.

Minimal-restriction states like Georgia, Florida, Ohio, Indiana, Missouri, Iowa and Utah now allow longer terms.

Even among red states there are varying standards. Many require basic consumer disclosures or standard non-discriminatory practices, but broad operating freedom is common.

♦ The renewal system can be gamed. An insurer can issue a new policy instead of a renewal and get around renewal restrictions.

States that take these plans seriously are expected to put in place their own rules to prevent this.