Pros and Cons of Short-Term Insurance Policies

Short-term insurance policies, often referred to as temporary health insurance or short-term medical insurance, are designed to provide limited-duration coverage during gaps in traditional health insurance plans. These policies are commonly used by individuals between jobs, waiting for employer benefits, or those who missed the ACA (Affordable Care Act) open enrollment period.

Unlike ACA health plans, which provide essential health benefits and guarantee coverage for pre-existing conditions, short-term health insurance plans offer more limited coverage with lower premiums but higher out-of-pocket costs. They also typically exclude coverage for conditions diagnosed before enrollment and have shorter coverage durations.

This article explores the pros and cons of short-term health insurance to help you determine if it’s the right option for your healthcare needs.

What is Short-Term Insurance?

Short-term insurance refers to temporary coverage designed to provide financial protection for a limited period. These policies are available for various types of insurance, including health insurance, auto insurance, and disability coverage. The most common form is short-term health insurance, which provides temporary health coverage for individuals experiencing gaps in coverage.

While traditional health insurance plans (such as those under the Affordable Care Act) provide comprehensive essential health benefits, short-term health insurance policies are meant to offer basic protection against unexpected medical costs at a more affordable rate.

How It Differs from Traditional Long-Term Coverage

The key differences between short-term health insurance and ACA-compliant plans lie in their coverage, cost, and eligibility requirements.

Below is a comparison between short-term health insurance and ACA health plans:

Feature	Short-Term Health Insurance	ACA Health Plans
Coverage Duration	1-4 months (with renewal limits)	Year-round, with annual renewal
Pre-Existing Condition Coverage	Not covered	Covered
Essential Health Benefits	Not required	Mandatory (includes maternity, mental health, preventive care, etc.)
Enrollment Period	Available year-round	Open enrollment or qualifying life event
Premium Cost	Generally lower	Higher but with tax credits & subsidies
Out-of-Pocket Costs	Higher deductibles & copays	Standardized out-of-pocket limits
Guaranteed Renewability	Not guaranteed	Guaranteed
Regulations	Varies by state and insurance company	Federally regulated under the ACA

Typical Coverage Duration and Renewal Options

Short-term health insurance plans typically last between 30 days and 4 months, depending on state regulations and the insurer’s policies. Under current federal rules, short-term health plans:

• Can be purchased year-round, without needing to wait for an enrollment period.
• Have a maximum duration of 4 months (3 months with a 1-month extension).
• Do not guarantee renewability—if your health changes, you may be denied coverage when reapplying.

While short-term plans can offer a temporary solution to help fill gaps in coverage, they are not a replacement for comprehensive health insurance. Before choosing a short-term health insurance policy, it’s crucial to evaluate your health needs, financial situation, and alternative coverage options.

Pros of Short-Term Insurance Policies

Despite their limitations, short-term health insurance policies offer several advantages for individuals needing temporary coverage. These policies can be a cost-effective, flexible, and fast solution for those in transition between traditional insurance plans. Below are the major benefits of choosing a short-term health insurance plan.

1. Affordability

One of the biggest advantages of short-term health insurance is its lower cost compared to traditional ACA plans. These policies typically have:

• Lower monthly premiums – Since short-term plans do not provide essential health benefits (such as maternity care, mental health services, and preventive care), they are significantly cheaper than ACA health plans.
• Flexible payment options – Many short-term plans allow policyholders to pay monthly or select shorter coverage terms based on their budget.
• Customizable coverage – Policyholders can choose deductible amounts and coverage limits to adjust premium costs.

While short-term plans have lower upfront costs, they often result in higher out-of-pocket expenses for medical services, making them a less comprehensive option for individuals needing frequent or specialized care.

2. Quick Approval Process

Many short-term health insurance plans offer fast approvals, making them ideal for individuals needing immediate coverage. Key benefits include:

• Minimal paperwork – Unlike ACA health plans, which require detailed documentation and income verification, short-term policies have simple applications with basic medical questions.
• No waiting periods – Many short-term plans can begin coverage as early as the next day after approval.

3. Flexible Coverage Options

Unlike ACA plans, which require standardized essential health benefits, short-term health insurance plans offer customizable coverage based on personal needs. These plans allow individuals to choose their coverage duration, typically ranging from 30 days to 4 months. Some policies offer optional benefits, such as prescription drug coverage, telehealth services, and accident insurance. 

4. Temporary Coverage for Transitional Periods

A short-term health insurance policy can serve as a temporary solution for people facing coverage gaps due to life transitions, such as:

Ideal for Individuals Who Are:

• Between jobs and waiting for new employer-sponsored insurance.
• Recent college graduates without immediate job-based health coverage.
• Retirees under 65 waiting for Medicare eligibility.
• Freelancers or gig workers who don’t qualify for group insurance.
• Individuals outside ACA open enrollment who don’t qualify for a Special Enrollment Period.

5. Wide Availability

ACA health plans have strict enrollment periods, but short-term health insurance is available year-round, offering quick approval and immediate coverage. Many insurers provide online applications with minimal paperwork, making these plans easily accessible.

While available in most states, some impose restrictions, and others, like California, New York, and Massachusetts, have banned them due to limited benefits. Before applying, it’s essential to check state regulations and review coverage details to ensure the plan meets your needs.

Cons of Short-Term Insurance Policies

While short-term health insurance policies offer affordability and quick enrollment, they come with significant drawbacks. These plans do not provide the same level of coverage as ACA-compliant health insurance and may leave policyholders vulnerable to high medical costs and coverage gaps.

Below are the major disadvantages of short-term health insurance plans.

1. Limited Coverage

Short-term insurance policies do not cover all essential health benefits. This means that certain medical services and treatments may not be covered, leading to higher out-of-pocket costs.

Common Exclusions:

• Pre-existing conditions – Short-term plans typically exclude coverage for any previously diagnosed medical conditions.
• Preventive care – Many temporary health plans offer little to no coverage for routine checkups, screenings, and vaccines.
• Maternity and newborn care – Unlike ACA plans, short-term health insurance does not cover prenatal care, childbirth, or postpartum care.
• Mental health and substance abuse services – Many short-term plans exclude therapy, counseling, and addiction treatment.
• Prescription drugs – Some policies provide limited or no prescription medication coverage.

2. No Guaranteed Renewability

ACA-compliant health plans guarantee renewability, but short-term health insurance has limited terms and no renewal guarantees. Coverage typically lasts 30 days to 4 months, and once the term ends, policyholders must reapply. If health conditions change during the coverage period, insurers may deny re-enrollment or increase premiums. For those needing long-term stability, an ACA plan or another alternative may be a better option.

3. Higher Out-of-Pocket Costs

Although short-term insurance policies offer lower monthly premiums, they often come with high deductibles, copayments, and limited coverage caps.

Common Cost Disadvantages:

• Higher deductibles – Many short-term health insurance policies have deductibles ranging from $2,500 to $10,000, meaning policyholders pay significant expenses out of pocket before coverage kicks in.
• Limited maximum benefit payouts – Most short-term plans cap how much they will pay per illness, treatment, or policy period.
• Higher copayments – Patients may be responsible for a larger portion of medical costs, especially for hospital visits and specialist care.

4. Does Not Meet ACA Requirements

Short-term health insurance does not meet the Affordable Care Act’s (ACA) minimum essential coverage requirements. These plans are not eligible for ACA subsidies, making them less affordable for low-income individuals. They also exclude essential health benefits like maternity care, prescription drugs, and mental health services, and some states impose tax penalties for those without ACA-compliant coverage.

5. Potential for Gaps in Coverage

Short-term health insurance policies have significant coverage gaps due to limited networks and exclusions, which can leave policyholders financially vulnerable when seeking medical care.

Common Coverage Issues:

• Limited provider networks – Some short-term plans only cover doctors and hospitals within a restricted network.
• Claim denials – Policies may deny claims for services they deem “unnecessary” or “excluded”.
• Coverage may end suddenly – If a policyholder develops a new medical condition, they may not qualify for a new short-term plan.

Who Should Consider Short-Term Insurance?

While short-term health insurance policies come with limitations, they can be a useful temporary solution for specific groups of people.

Short-term health insurance may be suitable for:

1. Young, healthy individuals who rarely need medical care and prefer lower premiums.
2. Freelancers, gig workers, and part-time employees without employer-sponsored insurance.
3. Recent college graduates transitioning off their parents’ insurance but not yet covered by an employer.
4. Early retirees under 65 waiting for Medicare eligibility.
5. Individuals between jobs or waiting for employer-sponsored coverage to begin.

Alternatives to Short-Term Insurance

For those seeking more comprehensive and long-term protection, several alternative options may offer better benefits and financial security. Here are four primary alternatives to short-term health insurance:

1. ACA Health Plans – Provide comprehensive coverage, including essential health benefits and pre-existing condition protections. Subsidies may lower costs for eligible individuals.
2. Medicaid & CHIP – Offer free or low-cost coverage for low-income individuals and families, with year-round enrollment.
3. COBRA Coverage – Extends employer-sponsored insurance for up to 18-36 months, maintaining full benefits but often at a higher cost.
4. Healthcare Sharing Programs – Lower-cost, faith-based alternatives where members share medical expenses, though coverage is not guaranteed.

How to Choose the Right Short-Term Insurance Policy

Selecting the right short-term health insurance policy requires careful evaluation of coverage, costs, and limitations. Since these plans vary widely by provider and state regulations, it’s important to compare options and ensure they meet your needs before enrolling.

Below are the key steps to choosing the best short-term health insurance plan for your needs.

• Assess Your Needs – Determine if a short-term plan aligns with your health status, expected medical expenses, and budget. These plans work best for healthy individuals who don’t require frequent medical care.
• Compare Plans – Review key details such as coverage limits, exclusions, deductibles, and copayments. Some plans may offer limited prescription benefits or telehealth services, while others exclude them entirely.
• Check State Regulations – Not all states allow short-term health insurance, and some impose restrictions on coverage duration and renewability. Verify what’s available in your state before applying.
• Consider Supplemental Coverage – Since short-term plans often exclude dental, vision, mental health, and maternity care, adding separate insurance for these needs may be necessary.
• Understand Enrollment & Cancellation Policies – Short-term plans are not renewable, meaning you’ll need to reapply once your policy expires. They can be canceled at any time without penalties, but refunds for unused months may not be available.

Because short-term plans lack essential health benefits and pre-existing condition coverage, it’s crucial to compare them with ACA plans, Medicaid, or COBRA to determine the best option for your situation.

Conclusion

Short-term health insurance can be a useful temporary solution, but it is not a substitute for comprehensive coverage. If you have ongoing healthcare needs, exploring ACA plans, Medicaid, or COBRA may be a better option.

Always compare policies and seek expert advice before making a decision.

FAQs

How long does a short-term health insurance policy last?

Most plans last between 30 days and 4 months.

Can I get coverage for pre-existing conditions?

No, most short-term health insurance plans do not cover pre-existing conditions.

How much does short-term health insurance cost?

Premiums are lower than ACA plans but come with higher deductibles and out-of-pocket costs.

Can I cancel my short-term health insurance policy anytime?

Yes, you can cancel without penalties.

What medical services are covered under short-term health insurance?

Coverage varies, but most plans include:

• Emergency room visits (with high out-of-pocket costs).
• Hospitalization for sudden illness or injury.
• Some doctor visits (but with limitations).
• Limited prescription drug benefits (varies by plan).
• Some telehealth services.