What Is Short-Term Insurance and How Does It Work?

Short-term insurance offers a temporary solution for individuals facing gaps in their health coverage. It provides limited financial protection against unexpected medical events during transitional periods. It serves as a bridge for those who may be between jobs, waiting for new employer-sponsored benefits to begin, or outside the Affordable Care Act (ACA) open enrollment period.

Defining Short-Term Insurance

Short-term health insurance, also known as temporary health insurance or gap coverage, provides medical benefits for a limited duration. It is specifically designed to cover unforeseen medical needs rather than offering comprehensive, long-term health coverage. These plans are not considered minimum essential coverage under the Affordable Care Act (ACA) and therefore do not comply with its requirements for comprehensive benefits.

Common Coverage and Exclusions

Short-term insurance plans cover a select range of medical services. Commonly included services may involve emergency care for accidents or sudden illnesses, limited doctor visits, urgent care, and some diagnostic services like lab work or imaging. Specific services vary by plan and provider.

However, these plans are characterized by numerous exclusions. They do not cover pre-existing conditions, defined as health issues diagnosed or treated before the policy begins. Common exclusions also extend to services such as maternity care, mental health services, substance abuse treatment, and most preventive care, including routine check-ups and vaccinations. Additionally, prescription drug coverage is often limited or excluded entirely, with some plans offering only discounts or covering medications solely during hospitalization.

Typical Policy Durations

Short-term policies have a limited duration. Federal rules for short-term, limited-duration insurance (STLDI) have recently been updated to specify maximum coverage periods. For policies sold or issued on or after September 1, 2024, new plans are limited to an initial term of three months, with a maximum total duration, including renewals, of no more than four months within a 12-month period.

While plans may offer options for renewal, they are fundamentally designed as temporary solutions for coverage gaps. This regulatory framework aims to ensure that short-term plans are not used as long-term alternatives to comprehensive health insurance.

Distinguishing Features

Short-term insurance plans have several distinguishing characteristics. One significant feature is medical underwriting, a process where insurers evaluate an applicant’s health history to determine eligibility and premium rates. This means that applicants with pre-existing conditions may be denied coverage or charged higher premiums, unlike ACA-compliant plans which cannot use health status to deny coverage or adjust rates.

These plans are not mandated to cover the 10 Essential Health Benefits (EHBs) by the ACA. This allows them to offer more limited benefits, which often results in lower monthly premiums compared to ACA-compliant plans. Reduced coverage scope and medical underwriting contribute to this lower cost.

Another differentiating factor is the flexibility in enrollment. Short-term plans can be purchased at any time, outside of the ACA’s open enrollment periods. This immediate availability allows individuals to secure coverage quickly, sometimes as soon as the day after application, which is beneficial for sudden coverage gaps. However, this also means that if a short-term policy expires, an individual may not be eligible for a special enrollment period to transition to an ACA plan, potentially leaving them uninsured until the next open enrollment.