Most Americans can sign up for low-cost, short-term health plans. Don’t confuse them with standard health insurance plans, though.

Yes, short-term health plans provide coverage, but they fall well short of what’s considered health insurance under the Affordable Care Act (ACA).

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The ACA restricted short-term plans to young people and Americans who couldn’t afford any type of insurance. However, the federal government changed that to allow anyone to apply for a short-term plan in 2019.

Short-term health plans aren’t considered an insurance plan because of their limited protections. These temporary health insurance plans are yearlong options with a chance to extend two more years.

Ryan McCostlin, a healthcare advisor at Bernard Health, said short-term plans aren't for everyone, but some Americans may want to consider them.

“More and more Americans are saying that figuring out health insurance is more like filing taxes than buying car insurance, and the resurgence of short-term plans... is a signal that there’s just another healthcare financial planning strategy to be considered by savvy consumers,” McCostlin said.

Let’s take a look at short-term health insurance, what it covers and what it costs:

What’s a short-term health plan?

Short-term health plans are low-cost, low-coverage plans. These plans are available for most people up to one year with the option to extend the plans twice. In effect, you could have a short-term plan for three years. That’s unlike regular health insurance, which doesn’t have time limits.

A good way to think of short-term plans is that they’re temporary health insurance with lower premiums, higher out-of-pocket costs and less coverage than a standard health plan.

Not all states allow short-term plans. States that forbid the sale of short-term plans include:

  • 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.

What does a short-term health plan cover?

What short-term plans cover varies by plan. Federal regulations allow short-term plans to create their own coverage plans without any required mandates found in a regular health insurance plan.

Services often not covered by short-term health plans include:

  • Mental health
  • Substance abuse
  • Outpatient prescription drugs
  • Maternity care

“They have a lot of fine print exclusions,” cautioned Betsy Imholz, special projects director at Consumers Union. “It’s worth noting that 40% of pregnancies in the U.S. are accidental. So, women of childbearing age need to be mindful of that excluded coverage in short-term plans.”

Short-term plans with more benefits will cost more than ones that provide little protection.

There’s also the issue of being denied coverage. While ACA plans require that insurers approve everyone regardless of health status, short-term plans can reject you. Some states may require “guaranteed issue,” which means a plan must cover you. However, the federal law doesn’t demand that for short-term plans.

A short-term plan may reject you if you have a pre-existing condition or may charge you exorbitant premiums. That’s not allowed in ACA plans.

More than half of Americans who aren’t in Medicare or Medicaid have at least one pre-existing condition. A short-term plan is likely not a good choice for those Americans.

Imholz said short-term plans can also cap the amount they pay to cover you annually and limit how much it will spend on specific services, such as hospitalizations.

So, if your short-term plan covers hospitalizations, but only up to $5,000, you’ll be on the hook for any amount above $5,000. That’s one reason why it’s critical to dig into what a specific short-term plan covers before signing up.

Short-term plans can also have hefty out-of-pocket costs. Many short-term plans have lifetime limits on what they’ll cover. If you have a short-term plan and diagnosed with a costly illness, the plan may stop paying for care after a limit is reached, such as at $100,000.

Short-term plans can additionally limit what they pay for specific treatments and hospitalizations.

Short-term plans can also limit what they pay for specific treatments and hospitalizations.

8 Facts  about short term health plans

How much does a short-term health plan cost?

You can find a short-term health plan for less than $100 a month. Compare that with the average of more than $400 for unsubsidized ACA-compliant health plans.

However, Imholz said premiums are just one piece of a financial puzzle. You must also look at a plan’s deductibles, copays, coinsurance and dollar limits and exclusions of services that aren't covered in short-term plans.

You may find that a low-cost, short-term plan may actually cost you more than an individual health insurance plan in the long run.

“There are all sorts of pitfalls in these skinny plans that may not be evident at first blush and aggressive marketing emphasizing their lower premiums may make them sound tempting. But short-term plans cost less in premiums because they cover less. If you fall into one of the many gaps these plans have, it will end up costing you a lot more in the longer run,” Imholz said.

Who should get a short-term plan?

Healthy people might benefit from a short-term health plan’s low premiums as long as you don’t need health services.

These plans can provide you with some coverage but can lead to substantial out-of-pocket costs. A short-term plan is likely not a good idea if you plan to start a family.

“Short-term plans are not a panacea. They’re not a good fit for everyone, but they should be included in any serious analysis of healthcare financial planning,” McCostlin said.

Some major health insurers, such as UnitedHealthcare, offer short-term plans. Don’t confuse that coverage with regular health insurance. Just because a big-name insurer offers a short-term plan doesn’t mean that plan will provide you with full health insurance coverage. It’s not always easy to distinguish between plans, so reading the fine print is critical.

“One thing consumers can do is to ask the agent or company for a Summary of Benefits and Coverage, which is a standardized form required for ACA plans to help people compare plans. If there is not one available, that’s an indicator that it's not an ACA-protected plan,” Imholz said.

People with any illness and pre-existing conditions like asthma or diabetes should avoid short-term plans. Even if a short-term plan covers you, your pre-existing condition will likely lead to significant premiums. The plan also probably won’t provide enough coverage to make it worth your while.

However, if you’re healthy and don’t plan on using healthcare services often, a short-term plan can be a wise choice.

Of course, you can’t predict your health for the next year. Imholz gave the example of one woman who bought a short-term plan. She was healthy and thought it was a good fit. Then, she was diagnosed with diverticulitis. The plan covered that ailment, but not the infection that arose from the condition. The plan declined to cover the treatment and deemed it a pre-existing condition. That decision left her with thousands of dollars of medical bills.

“Accidents and illness often come unexpectedly, so while you may be healthy today, life can change in an instant. If you can swing a marketplace policy, it’s a much safer, better deal,” Imholz said.

Short-term plans have their drawbacks, but they’re an option if you need to bridge a gap between employer plans when you change jobs. A short-term plan is a lower-cost alternative to COBRA insurance or an individual plan. It’s also better than not having any coverage at all.

“There are many Americans who are choosing between short-term plans and no coverage at all. For these consumers, short-term plans can be a good fit to protect against emergencies and unexpected accidents,” McCostlin said.

Short-term health plan shopping tips

Thinking of buying a short-term health plan? Here are some things to keep in mind:

  • Remember that this is temporary health insurance.
  • Read the fine print of what the plan covers and what it doesn't cover.
  • See if a COBRA plan through your former employer or coverage through your spouse’s employer makes more sense for your situation.
  • Understand how much you'll pay out of pocket. How much is the deductible? What percentage of covered medical expenses do you pay after the deductible? What is the maximum amount you will have to pay out of pocket?
  • Check the dollar cap on coverage -- the lifetime benefit maximum.
  • Make sure the plan’s network includes your doctors and hospitals.
  • Understand that if you enroll in a short-term plan instead of choosing COBRA coverage, you will lose eligibility for COBRA after the short-term plan expires.