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The Problem with Buying Short-Term Health Insurance

By Christy Bieber – Updated Dec 4, 2019 at 3:51AM

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It has a low premium, but is it a good alternative to a regular policy?

Buying health insurance is really important to protect against financial loss. But when you start to shop for policies, you may be overwhelmed by the options.

One of these may be a short-term health insurance policy. Short-term health policies were originally intended only to fill a gap, such as if you're changing jobs or retire before becoming eligible for Medicare and need coverage only for a few months. Now, however, some people may consider buying them as an alternative to regular insurance. 

A short-term policy may seem like a good idea because it could be quite a bit cheaper than traditional coverage and, thanks to new rules by the Trump administration, short-term policies could provide coverage for up to 364 days and could be renewed to provide up to 36 months of total coverage (although some states have stricter limits on the time these policies can cover you). 

But while it may be tempting to buy short-term coverage due to the cheaper price tag and long coverage period, there are a number of serious problems with short-term coverage. 

Doctor talking to older patient.

Image source: Getty Images.

It's might not be compliant with Obamacare rules

While short-term policies seem like a good deal at first glance, these policies unfortunately do not have to comply with mandates put in place by Obamacare that are designed to make sure insurance actually covers you if you get sick. 

Because short-term policies don't have to be Affordable Care Act (ACA) compliant, these policies often:

  • Won't provide coverage for pre-existing conditions.
  • Can refuse coverage to people with pre-existing conditions.
  • Don't cover any of the 10 essential benefits Obamacare policies have to cover, such as maternity care or mental health services.
  • Won't renew if you get sick while you have coverage.
  • Have lifetime limits so they won't pay for very expensive treatments.

If you buy a short-term policy, in other words, you could still find yourself bankrupted by a serious medical problem or stuck paying expensive bills out of pocket if you have a baby or want preventive care. 

And because the termination of a short-term insurance plan does not count as a qualifying life event that entitles you to buy insurance during a special enrollment period, you'd have to wait until open enrollment to get covered by a different insurance policy if you need one.

Open enrollment happens only once a year. For Obamacare-compliant policies sold on the individual market, it occurs at the end of the year, and coverage takes effect on Jan. 1. So if your short-term plan ends in February and isn't renewed, you could end up going almost a whole year with no coverage at all. 

Should you buy short-term health insurance anyway?

Short-term plans aren't a great solution even if you are trying to fill a coverage gap, because these policies leave you largely unprotected if you actually need medical services. Instead, consider maintaining employer-provided coverage if you can afford to do so. Under COBRA, you're entitled to keep your employer plan in place for 18 months (or up to 36 months under certain circumstances), although you have to cover the full costs of premiums if your employer no longer subsidizes your coverage. 

If you're looking for coverage over the long term, you should definitely look into alternatives. You'd be better off buying traditional Obamacare-compliant insurance so you can benefit from the protections the ACA put into place. Subsidies can help you to afford these policies if you qualify for them based on income. You can also look into whether you might be eligible for Medicaid if the ACA policies are still too expensive for you. 

If you truly cannot afford Obamacare-compliant coverage but make too much to qualify for Medicaid, buying short-term insurance coverage may be better than having no coverage at all. Just be sure to understand exactly what you're getting for the premiums you're paying and be aware that the protection your insurance provides will likely be very limited. 

How to find insurance that's right for you

Whenever you buy insurance, you'll need to realize low premiums often come with limited coverage, while better policies have higher prices. So while short-term policies seem affordable, they could cost you much more if you need care. 

To find the right coverage, be sure to understand what your policy includes and excludes, and look for coverage well suited to your needs. Our guide on how to shop for health insurance can hopefully help you to weigh your options and find the coverage that's right for you. 

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