While short term medical insurance is useful for many people in a wide variety of temporary situations, it is not a substitute for ACA health insurance.
Before considering short term medical insurance plans, you should carefully consider their limitations and thoroughly understand the plan you are purchasing.
Not ACA Compliant
Short term health insurance plans do not meet the minimum essential coverage (MEC) requirements under the Affordable Care Act (ACA), colloquially known as Obamacare.
Having short term medical insurance does not count as having ACA compliant health insurance. Therefore, you may be subject to a tax penalty for not carrying adequate health insurance throughout the year, unless you are exempt for an official reason.
While deciding whether you should purchase gap health insurance, consider the cost of this penalty in addition to temporary health insurance premiums.
Even after considering the tax penalty, short term medical insurance may be more affordable because its premiums are significantly lower than ACA health insurance plans.
Short term medical insurance plans don’t cover pre-existing conditions.
The actual definition of pre-existing conditions varies by the plan.
Generally, if you were diagnosed or treated for a condition within the past five years, that would be considered a pre-existing condition. Also, if your condition would have caused a reasonably prudent person to seek diagnosis or treatment in the past five years, that would be considered a pre-existing condition, even if it was not treated or diagnosed before the effective date of the gap medical insurance.
Post Claim Underwriting
If you make a claim under short term medical insurance, the insurance company may review your health history to determine whether the condition existed prior to the effective date of the policy. If it did, the claim would be denied. This practice is called post claim underwriting.
Not a Guaranteed Issue
Unlike ACA plans, you will be asked a series of medical questions before receiving coverage. Depending on the answers, you may be declined for coverage.
Under such circumstances, some insurance companies offer a guaranteed issue version of their short term health insurance, which will not cover the medical conditions for which you were declined standard coverage. Additionally, the guaranteed issue plan costs more, provides a lower policy maximum, and has a higher out-of-pocket maximum. For some people, because some coverage is better than no coverage, the guaranteed issue plan is their only option.
Even though the spouse and dependent children can apply with the primary applicant in the same application, each family member must be eligible for the short term plan and qualify separately with the series of medical questions.
Short term health insurance plans provide coverage for a brief period and are not renewable. Eventually, you will have to purchase a new insurance plan if your state allows. But, if you ran into any medical issues in the previous policy, they would be considered pre-existing conditions and would be excluded from the new policy. Moreover, depending upon the condition, you may not be eligible for a new short term medical plan.
If you get sick or injured while on short term medical insurance and need extended treatment beyond the term of the policy, you may be out of luck. This incident would no longer be covered, and there would be no benefit period.
Even if you develop a medical condition that prevents you from applying for another short term health insurance plan, you can still apply for ACA health insurance during open enrollment or, if you qualify, special enrollment.
Expiration Not a Qualifying Event
The expiration of your short term medical insurance plan does not create a qualifying event for special enrollment into ACA health insurance. You can purchase another short term health insurance plan if you are still eligible and if your state allows. Otherwise, you will have to go without health insurance until the next open enrollment period.
Loss of minimum essential coverage is a qualifying event that allows a special enrollment. However, short-term insurance plans are not considered minimum essential coverage.
Unlike ACA compliant medical insurance plans, short term medical insurance plans are not available at government exchanges. They must be purchased from a broker and insured with a private company.
In short, temporary health insurance plans are stopgap plans just in case you were to contract a completely new medical condition or get into an accident. If you are uninsured due to ACA ineligibility, however, temporary medical insurance still provides reasonably good medical coverage at affordable premiums.
In some states, such as New York, New Jersey, Massachusetts, Rhode Island and Vermont, short term health insurance plans are unavailable.
Even though short term medical insurance plans have numerous limitations, they also have many advantages that you should review carefully before choosing a plan.