Short-Term Health Insurance: Advantages and Disadvantages

In December of 2017, Congress eliminated the individual mandate that made it obligatory for everyone to purchase the Affordable Care Act (ACA), also known as Obamacare, health insurance or pay a tax penalty. The mandate repeal became effective January 1, 2019. Because short-term medical plans were viewed as potential competition to the ACA prior to the repeal of the mandate, legislation was introduced to limit short-term plan terms to a maximum of six months.

Since the repeal, the Department of Insurance in many states has revised the regulations to making short-term plans available for longer terms, though each state has different regulations. Some states now permit those plans to provide coverage for up to three years of coverage with one single application, which other states still regulate the coverage to a maximum of six months.

Short-term medical plans are available from different private insurance companies and are similar to major medical coverage. Like the ACA plans, short-term plans provide the option for a low, medium, or high deductible, enabling the balance of premium cost and risk exposure. However, compared to the ACA, short-term plans usually have a much lower monthly premium cost.

Estimated Premium Cost ACA versus Short-Term Medical
($2,500 to $3,000 deductible, ZIP code 45202)

Plan Type Single Male Age 35 Married Couple Age 35 Single Female Age 60 Married Age 60
ACA Premium Cost (no subsidy) $379.70 $759.40 $867.44 $1,734.88
$2 million short-term medical $183.97 $338.93 $360.69 $938.50

Cost may vary by insuring company and geographic location rates for non-tobacco annual policy.

Health insurance premium cost is partially age sensitive. Clients between the ages of 60 and 65 who are considering early retirement may want to look at the cost difference between COBRA, and/or ACA compared to the short-term medical option. In some cases where employer group coverage provides a very low cost for the employee but the rates soar for spouse or family coverage, short-term can help keep the cost more affordable. In other cases where someone is transitioning between jobs, short-term can be a solution and can be set up for a specific number of months and canceled if other coverage becomes available. Unlike ACA HMO plans, most short-term plans have national provider network so the option for health care is not isolated to a local or regional network. This makes short-term health insurance a particularly attractive alternative for a student living away at college.

One fundamental difference between ACA plans and short-term plans has to do with “guaranteed issue”. ACA is considered guaranteed issue, which means coverage is offered to eligible applicants regardless of health status, making it an ideal choice for individuals with pre-existing medical conditions. Short-term plans, on the other hand, are medically underwritten and favor those in good health who do not have pre-existing medical conditions. There are some limitations and exclusions with this type of policy, including the maximum coverage limit, which can range from $600,000 up to $5,000,000 per policy term, depending on the plan offerings of the issuing insurance company. Furthermore, short-term medical plans are limited to the original policy term and are not renewable. If a covered individual’s policy comes to term, they can reapply for coverage.

Another consideration to keep in mind is that short-term medical does not have a “preventative care” component that is included with ACA plans. Generally, the preventative care in ACA plans provides zero-cost annual wellness visits with a primary care doctor, as well as other age- and gender-related tests and screenings that are not included with short-term coverage. Short-term plans also exclude prescription drug coverage. However, most short-term plans will include or offer a small prescription discount card to offset the cost of listed medications.

In summary, when you compare the cost of ACA plan to the cost short-term medical plans, you can save a significant amount in premium cost. If you use the health system infrequently throughout the year you will save enough in premium dollars to pay out-of-pocket for a few doctor visits and a few low cost medications and still save on your annual cost of health care.

Insurance doesn’t have to be complicated. The licensed sales agents at ARC Benefit Solutions are equipped with the knowledge and expertise you need to make an informed decision about your health insurance at no cost to you. We will walk you through all the options that make sense for you and your family. Contact us today to get started.