Alternative Health Plans Pt. 2: Short-Term Plans

As you’re probably aware by now, there are major, life changing modifications pending for the ACA and its associated insurance marketplaces. These massive changes are a result of the Trump Administration’s new bill bearing the insultingly casual name of “Big Beautiful Bill”. Despite promises to save taxpayers money and “make America healthy again”, this bill is actually putting more barriers in the way of access to care while ensuring premium increases on families of every tax level with coverage purchased through the Health Insurance Marketplace®.

Scam or Bargain? Proceed with Caution

The result of these unprecedented sweeping changes will certainly be the loss of insurance coverage for millions of individuals and families. In the wake of this, one can expect shady business people to attempt to take advantage of consumers’ vulnerability by offering big savings through “alternative health plans” or “alternatives to health insurance.” Not all of the options are scams or fiction. Some can offer savings for certain people with certain circumstances but as a whole, remember that these plans and programs:

are NOT health insurance
do NOT offer the same protections as health insurance
should NOT be considered a replacement for health insurance

My most recent post gave a quick overview of some of the popular options available and just a glimpse at some of their positive and negative attributes. Now it’s time to really dig in and examine them one by one as we determine if they’re A SCAM OR A BARGAIN!

We’re kicking it off by taking a closer look at SHORT-TERM HEALTH INSURANCE PLANS aka Limited Benefit Plans.

AT A GLANCE: Quick Facts to Remember

Short term health insurance plan features:

Lower premiums: Affordable but comes with higher financial risk due to limited coverage.
Excludes pre-existing conditions: These plans do not cover pre-existing conditions or many essential health benefits.
Not ACA-compliant: They lack protections such as guaranteed issue and may deny coverage based on health history.
Restricted renewability: Recent regulations limit short-term health plans to a maximum duration of four months in many states, with some states imposing stricter rules.

Definition of Short-Term Health Insurance

Short-term health insurance (STHI) or short-term, limited benefit, or limited-duration insurance (STLDI) refers to health insurance plans with a limited duration, typically several months to a year. These plans were initially geared toward people who need temporary medical insurance to bridge the gap between longer-term plans. For instance, people who are switching employers, starting graduate school, or young adults who have become ineligible for coverage under their parents' plans and are searching for their own insurance might use a short-term insurance plan until obtaining a more permanent solution.

Short-term, limited-duration health care plans are not available for purchase on HealthCare.gov or health insurance marketplaces in most states. They are not eligible for federal financial aid but the monthly healthcare premiums may be less expensive. At the end of the limited time coverage, a new short term plan must be purchased if a permanent solution has not been found. Some consumers will have difficulty at this point due to the ability of short-term plans to deny or limit coverage based on pre-existing conditions.

Short-Term Health Insurance vs. ACA Coverage

Golden balance scale against a vibrant, swirling colorful background. ACA health insurance offers full, comprehensive coverage with protections for pre-existing conditions, whereas short-term health insurance provides a temporary option, sometimes at a lower cost but with limited benefits.

Put simply, ACA plans suit people who need long term care and possibly financial assistance, while short-term coverage can be an appealing option for healthy individuals who find themselves needing coverage to bridge a gap while they’re in between jobs or enrollment periods.

As with everything else, what’s right for one person may not be right for another. Take a good look at your circumstances, clearly define your health needs, your financial situation, and coverage priorities and use this to evaluate the fit of different options you encounter when shopping around.

Give yourself as much time as possible when browsing coverage choices so you don’t feel pressed to make snap decisions but instead have time to closely examine all aspects of the options you’re leaning toward.

Pros of short-term health plans

Very rarely is a plan 100% good or 100% bad, especially since that label depends so heavily on a person’s specific needs and expectations. Like I said before, some plans can offer savings to certain consumers under certain circumstances and are sometimes a better fit than traditional health insurance. Let’s look at who the short-term plans appeal to and what they like about them!

➡️ Lower premiums

Short-term health plans generally have lower premiums than traditional ACA-compliant health plans. This can make them a more affordable option for those with budget constraints or those seeking temporary coverage.

➡️ Flexibility and availability

Some other features that often appeal to consumers are:

The option to enroll year round, not just during an open enrollment period
A quick start of coverage (sometimes within 24 hours of applying), offering immediate coverage for unexpected needs
Customizable duration with the length of coverage chosen by the consumer. This allows the plans to be tailored to the individual’s specific needs like a gap between jobs, etc.
No long-term commitment, providing the consumer with the option to drop coverage when they want without facing any penalties

➡️ Good for temporary gaps in coverage

The short duration of these plans can be a big advantage to those facing a temporary gap in coverage stemming from one of many different situations including:

Transitioning between jobs or waiting for employer-sponsored coverage to start
Having recently graduated or turned 26 and losing eligibility for coverage under their parents’ plan
Facing a waiting period before new traditional health insurance plans become active

➡️ Potentially fewer provider restrictions

Some short-term plans offer more choices and freedom in choosing healthcare providers, potentially allowing the consumer to see any doctor or receive treatment in any hospital.

Cons of short-term health plans

It’s clear that short-term plans are working for someone or there wouldn’t be so many and they wouldn’t have been such a common option for as long as they have. So what are the drawbacks and who feels them the most? Let’s get into the cons of short-term health plans!

➡️ Invasive and complex applications

Because they are able to deny coverage or charge more for people with pre-existing conditions, the companies that offer short-term plans want to know about those things before letting you know how much you’re going to have to pay, which leads to a lot of questions, many of them getting very personal. Gathering information about the applicant to assess their risk level is part of the underwriting process and, in addition to being off putting to some people because of the personal nature of the questioning, this also means policies can take longer to receive a decision on whether or not the person is considered insurable at all and if they are, how much they’ll need to pay.

The insurance company wants to know about health status, lifestyle choices, illnesses (currently and in the past), prior medical treatments/surgeries, test results, and other topics so they can assess how much of a “risk” this person is or how likely they’ll be to need services in the future.

For example, the application from one insurer (as submitted to the North Dakota insurance regulators) asks more than a dozen health-related questions, such as if the applicant received medical tests or advice related to cancer, stroke, diabetes, or alcohol abuse within the past 5 YEARS; whether they weigh more than 300 lbs. (if male) or 250 lbs. (if female); and if the applicant is currently WAITING ON TEST RESULTS or has been advised to get treatment or testing for any of the listed health conditions.

Another application (submitted to Arkansas regulators) asks applicants to grant access for TWO AND A HALF YEARS of medical records related to matters such as alcohol or drug treatment, mental health diagnosis, HIV testing, pharmacy prescriptions, lab data, and genetic testing.

➡️ Higher premiums based on personal characteristics such as gender and age

If you’re old enough to remember life before the ACA, this all probably sounds very familiar because this was how pretty much all insurance companies operated before ACA consumer protections went into effect. One of the goals of the ACA from the very beginning was to reduce barriers to care (such as these factors of gender, age, and health status) so that affordable care was within reach of more people than ever before. While the Trump administration advances its “Big Beautiful Bill” ever closer to becoming law while systematically ADDING barriers to care, it’s hard to grasp how the new regulations proposed for the ACA are doing anything at all to help it achieve those initial goals but I digress.

Unlike ACA plans, short-term health plans CAN and DO charge more to people based on their gender and charge far higher premiums to older consumers than the ACA allows, based solely on their age at the time they apply. For example, one insurance company offers a short term plan with a $5,000 deductible that would cost $109/mo for a 40-year-old woman, compared to $90/mo for a 40-year-old man (according to their submission to Wisconsin insurance regulators). The SAME PLAN would cost a 60-year-old man $297/mo while charging a 60-year-old woman $270/mo.

➡️ Denials of coverage for pre-existing conditions

Insurance companies want to provide coverage for people that they find are less likely to need care and services because that means the insurance company gets to collect money from them every month without necessarily having to pay anything out for benefits. It’s really that simple. It’s pretty much the basis of their evaluation of risk. Short-term insurers use various tactics to avoid paying out large amounts for consumers’ pre-existing conditions.

In addition to simply denying coverage to those who report having a health condition, their contracts usually include a broad exclusion for any care related to a pre-existing condition. This way, if a person has a condition the application didn’t ask about (or that the enrollee DIDN’T KNOW ABOUT), care related to that condition will probably not be covered.

Further, after a short-term plan enrollee receives medical care, the issuer may investigate their medical history for any evidence that the care they just received is related to a pre-existing condition (a process called “post-claims underwriting”). There is no shortage of stories like the one of the Georgia woman who was diagnosed with breast cancer AFTER she bought a short-term plan and then was left with $400,000 in bills after the insurer said the disease pre-dated the coverage.

➡️ High out-of-pocket (OOP) costs for people who need care

Short-term plans often fail to cover ACA essential health benefits and they’re not required to cover them. Studies from years past have found that up to 43% of plans didn’t cover mental health services, 62% didn't cover substance use disorder treatment, 71% didn't cover outpatient prescription drugs, and NONE covered maternity care.

Some of these benefit gaps can be well hidden or disguised in the policy’s fine print. Some (but certainly not all) exclusions used by insurers include such events as:

Illnesses or injuries related to being intoxicated or under the influence of illegal drugs
Charges incurred as a result of “intentionally self-inflicted bodily harm (whether the person is sane or insane)”
Injuries related to professional or intercollegiate sports, hang-gliding, SCUBA diving, riding a motorcycle, riding a horse, rock climbing, and skiing
Some even include odd restrictions like barring coverage for costs of room and board and nursing care if someone starts a hospital stay on a Friday or Saturday.

Short-term plans also charge high deductibles and cost-sharing for the benefits they DO cover (i.e., a $5,000 deductible for a policy that only lasts three or six months), leaving patients responsible for the rest. Or, the plans include dollar limits on how much they will pay out for a given service or in total for benefits over the life of the policy, or during the life of the insured.

Reviews have shown that even when short-term insureds experience unanticipated illnesses, unrelated to a pre-existing condition, the coverage available under short-term health plans is so sparse that enrollees would face large out-of-pocket charges. For example, the policy that limits coverage of hospitalization to no more than $1,000/day, much less than the US average cost of MORE THAN $5,000 PER DAY or the company that limits benefits for an appendectomy to $2,500 while the average cost of the procedure is $14,000.

➡️ High premiums compared to the value of the benefits provided

Even with seemingly low premiums, enrollees in short-term plans may still pay too much for the coverage these plans offer. Much of the money that consumers pay to insurers offering short-term plans actually goes toward plan administration, marketing, and profits, and little toward enrollees’ health care. For example, the top three companies selling short-term health plans (based on premiums earned) paid 43 percent, 34 percent, and 52 percent of the premiums they collected from short-term plan enrollees for medical claims (known as the loss ratio), according to data from the National Association of Insurance Commissioners (NAIC).

The ACA requires individual-market insurance plans to pay at least 80 percent of premiums on medical claims or health quality improvement. The requirement is meant to ensure that consumers receive decent value for the money they spend on health insurance, but it doesn’t apply to short-term plans.

Key Flaws of Short-Term Health Plans Pose Risks to Consumers | Center on Budget and Policy Priorities

Conclusion/final notes

I’m going to let these quotes wrap up for me because they cover precisely what I wanted to make sure to remember to mention, probably much more succinctly than I would be able to say. (Sources linked below)

“Short-term health plans raise risks for the consumers who enroll in them and raise premiums for comprehensive coverage in the traditional ACA market. While some states have banned or limited these plans to protect consumers, in most states, consumers who buy their own health insurance are likely to face a proliferation of substandard, short-term health plans.”

“Short-term plans are likely to offer some healthier people lower premiums (because the plans include reduced benefits and cover less costly populations), and thus will lure healthy enrollees away from the individual and small-group markets and leave a costlier group behind. This dynamic, known as adverse selection, raises premiums for traditional, more comprehensive health coverage and undermines ACA protections for people with pre-existing conditions. Meanwhile, healthy people who enroll in these plans may find themselves facing gaps in coverage and exposed to catastrophic costs if they get sick and need care.”

“Still, regardless of the up-front costs, keep in mind that not having any insurance isn’t such a good idea either. Whether you choose a robust ACA health plan or a portable and flexible short-term plan, both are better options than leaving yourself vulnerable to medical expenses without help from insurance.

If you do need a temporary solution to an insurance gap, then despite its limitations, a short-term health insurance plan may be worth a look.”

So what's the verdict? Are short-term health plans a SCAM or a BARGAIN?

Potentially both, depending on who's using it and their needs/expectations. To someone with chronic illness who requires regular treatment and/or evaluation, a short-term plan could certainly feel like a scam when they find themselves faced with a mountain of OOP costs for appointments. To a young, healthy individual who just needs coverage to get over a gap, this could feel like an incredible bargain and could serve their needs perfectly.

What do you think? Let me know! Use the comment form below or head over to my Contact Me page for all of the different ways to get in touch with me. Thank you for your interest! I hope you'll bookmark my blog and check back for the next post in this series.

Why buying a short-term health insurance plan could be right for you

Key Flaws of Short-Term Health Plans Pose Risks to Consumers | Center on Budget and Policy Priorities

📌Keep your eye on the blog for the next installment in this series where we will explore Health Sharing Ministries (aka HealthShares)! You don’t want to miss it!

Links to more information

Short-term health insurance - Wikipedia Colorful chains painted with thick, textured strokes in teal, yellow, dark blue, and red.

What is Short Term Health Insurance? | Cigna Healthcare