The Dark Side Of Short-Term Insurance: Uncovering The Hidden Pitfalls

Short-term insurance is a good option for people who are in between coverage options, exempt from the mandate to buy insurance, or want catastrophic health coverage outside of open enrollment. However, there are several downsides to short-term insurance. Firstly, it does not cover pre-existing conditions and only covers new health problems that develop during the policy period. Secondly, short-term insurance does not count as minimum essential coverage, so individuals may still owe a fee for not having insurance. Thirdly, short-term plans do not provide essential health benefits such as maternity care, mental health services, and prescription drugs. Additionally, short-term insurance has limited renewals and is not available in all states or from all insurance providers. Finally, short-term insurance can result in high out-of-pocket costs due to limited coverage and high deductibles. Therefore, while short-term insurance can be a good option for those in need of temporary coverage, it is important to carefully consider the limitations and potential costs associated with these plans.

Limited coverage

Short-term insurance plans are designed to cover individuals for a limited period. They are often used by people who are between jobs or waiting for their employer-sponsored health insurance to begin.

Short-term insurance plans rarely cover pre-existing conditions. They are intended to provide coverage for new health problems that develop while you have the policy. Most plans do not cover pre-existing conditions, and some even exclude conditions that have not yet been diagnosed at the time of purchasing the policy. If you develop a chronic health problem while on a short-term plan, it will likely be considered a pre-existing condition when renewing the plan, and you may be unable to renew the plan or receive coverage for your new "pre-existing" condition.

Limited Routine Care Coverage

Short-term plans typically do not cover routine care, including office visits, preventive care, or maternity care. While there are some exceptions, with a limited number of doctor or hospital visits covered, short-term plans generally do not include routine medical care in their coverage.

Limited Mental Health Coverage

Short-term health insurance plans rarely include coverage for mental health issues such as depression and anxiety. Mental health services are often excluded from short-term plans, leaving individuals to pay out-of-pocket for therapy, medication, and other treatments.

Limited Prescription Drug Coverage

Most short-term health plans only cover prescription drugs received during a hospital stay. They usually do not cover prescriptions filled outside of the hospital, even if they are for the same medication. Some short-term plans offer prescription discount cards, but patients are still responsible for the entire discounted price without insurance reimbursement.

Limited Provider Networks

Short-term plans often have higher out-of-pocket costs because they do not have contracts with providers. The insurers have not negotiated rates with the providers, so if they pay less than the provider's full fee, the patient will be billed for the remaining amount. This can result in unexpected and significant out-of-pocket expenses for individuals.

No protection for pre-existing conditions

Short-term health insurance is not governed by the rules of the Affordable Care Act (ACA). This means that insurers are not required to cover the "essential health benefits" that ACA-compliant plans must cover by law. As a result, short-term plans can deny you coverage based on your health or pre-existing conditions.

Pre-existing conditions are health problems you have before your new health insurance coverage begins. Examples include cancer, asthma, diabetes, and even pregnancy.

Short-term health insurance plans are medically underwritten, meaning the insurance provider looks into your health history. You will need to meet the medical requirements of the plan to get covered. If you have a pre-existing condition, you may be denied coverage altogether. Alternatively, you might find that you're required to pay more for your plan due to pre-existing conditions or that costs related to your pre-existing conditions are not covered.

In addition, if you have a short-term plan and you receive care for a pre-existing condition, your plan may not cover that care. If you develop a chronic health problem while on a short-term plan, this problem will be considered a pre-existing condition when it comes time to renew the plan. You might be unable to renew the plan at all, and even if you can, it will no longer cover your new "pre-existing" condition.

In the United States, only California, Hawaii, Massachusetts, New Jersey, New York, and Oregon prohibit the sale of short-term health insurance policies that refuse coverage for those with pre-existing conditions.

Higher out-of-pocket costs

Short-term health insurance plans are low-cost, low-coverage plans. While they are cheaper than ACA-compliant plans, they provide less coverage, which can lead to higher out-of-pocket costs when you need certain types of medical care.

• Limited Coverage: Short-term health insurance plans typically have restricted benefits. They often do not cover pre-existing conditions, routine medical care, maternity care, mental health services, prescription drugs, or other essential health benefits. As a result, you may need to pay out of pocket for these types of care, which can be expensive.
• Higher Deductibles: Short-term health plans often come with high deductibles, which is the amount you must pay out of pocket before your insurance coverage kicks in. Some plans may have deductibles of $10,000 or more, which can be a significant financial burden.
• Out-of-Pocket Maximums: While ACA-compliant plans have out-of-pocket maximums to protect individuals from excessive costs, some short-term health plans do not have these limits. This means that in addition to high deductibles, you could also be responsible for high coinsurance payments with no cap on your annual expenses.
• Lack of Subsidies: Short-term health insurance plans are not eligible for subsidies or tax credits that are available with ACA-compliant plans. This means you will be responsible for the full cost of the premiums and any out-of-pocket expenses, which can add up quickly.
• Network Restrictions: Short-term health plans may have limited provider networks, and going out of network can result in higher out-of-pocket costs. In some cases, out-of-network care may not be covered at all, leaving you fully responsible for the expenses.
• Policy Maximums: Short-term health insurance plans often have specified policy maximums, such as $250,000 or $1,000,000. If your medical expenses exceed this amount, you will be responsible for paying the remaining costs out of pocket.

While short-term health insurance can be a more affordable option in terms of premiums, it is important to carefully consider the potential for higher out-of-pocket costs. These costs can add up quickly, especially if you require ongoing medical care, prescription medications, or treatment for pre-existing conditions. Be sure to review the details of any short-term health insurance plan carefully before enrolling to understand your potential financial exposure.

Lack of essential health benefits

Short-term health insurance is not required to cover the 10 essential health benefits that ACA-compliant plans must cover by law. These include:

• Preventative and wellness services and chronic disease management
• Maternity and newborn care
• Mental health and substance use disorder services
• Rehabilitation and habilitative services and devices
• Pediatric services (including oral and vision care)

As a result, short-term health insurance plans can choose to cover whatever they want, or not want. For example, they may not cover maternity care, mental health services, prescription drugs, or substance use treatment.

Short-term health insurance plans also have coverage limits, such as a limit on covered doctor visits, or dollar limits on covered benefits. For example, a plan may only cover $1,000 per day in the hospital, with charges above that limit not covered.

Non-renewability and limited availability

Short-term insurance is non-renewable, meaning that once the coverage period ends, you will have to go through the application process again if you want to continue. If you made a claim during the coverage period, this may result in higher premiums on a new policy or that condition may be excluded under the new plan.

Short-term insurance is also limited in availability. Not all states or insurance providers across the U.S. offer short-term medical insurance. In 2024, the following states prohibited short-term health insurance:

• California
• Hawaii
• Massachusetts
• New Jersey
• New York

Other states have regulations that restrict short-term plans beyond the federal rules:

• Colorado and Illinois limit short-term plans to six months.
• Delaware, the District of Columbia, Maryland, New Mexico, Vermont, and Washington only allow short-term plans for three months with no renewals.

Additionally, some states allow short-term plans, but no companies offer them in those states. For example, Rhode Island permits short-term health insurance, but no companies currently provide plans there.

Frequently asked questions