Short-term insurance plans are designed to bridge gaps between coverage when you are not eligible to enroll in an ACA-approved plan (one that meets the minimum essential coverage requirements (see below for the actual requirements) as set forth by the ACA. But, they typically only cover catastrophic situations. That means that if you want to go see the doctor for a routine physical, you’ll be paying out of pocket, as short-term plans don’t cover routine and preventative care.
Here are some other facts to know about short-term plans:
- Short-term plan premiums are less expensive compared with regular plans, but out-of-pocket costs are higher. Since monthly premiums are typically lower with short-term plans than traditional plans, you’ll see bigger savings with this type of plan. But, keep in mind that short-term plans come with a high deductible, so be prepared to pay expensive out-of-pocket costs.
- You can buy coverage for only a month, and up to a year. As its name indicates, short-term insurance can last from as little as 30 days and as long as one year, making it a good option if you only need emergency coverage for a short period of time. Here’s a scenario. You’ve had health insurance all year, but in November you get laid off or dropped from your parents’ plan (you can only stay on until age 26!). Unless you have a condition that requires ongoing medical treatment, you’ll save money by enrolling in a short-term plan for a month or so until Open Enrollment starts up and you enroll in a plan starting January 1st. Because of the 90-day grace period where you can be without coverage, you’ll still be exempt from paying the tax penalty.
- Having a short-term plan does not exempt you from the tax penalty. Every American must have a health plan that meets the Ten Essential Health Benefits under the Affordable Care Act to avoid the tax penalty. Short-term plans unfortunately don’t fit the bill. You can be without ACA-minimum coverage for up to 90 days during the year, but after that, you’ll have to pay the tax penalty.
- If you are subsidy-eligible, or qualify for government discounts, you can’t apply it to a short-term plan. Because short-term plans don’t meet minimum ACA requirements, you won’t get benefits – like tax credits – if you purchase a short-term plan. So, if you are eligible for government assistance, be sure to take that amount into consideration when you calculate your costs for both types of plans. You can only apply subsidies to plans that meet those ACA minimum essential coverage requirements, so your costs for a traditional plan might be lower in the long-run than with a short-term plan.