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Ten things you should know about short term medical insurance

Impact of the Affordable Care Act on temporary health insurance

by Tony Novak, CPA, MBA, MT
revised 4/6/2014

This article was originally published in 1992 and updated several times, most recently following passage of the Affordable Care Act of 2010.

Short term medical insurance (STM) has been the most popular type of health insurance purchased online since the early development of online enrollment systems. These policies provide strong coverage at a low cost through a wide range of reputable insurance companies. But there are a few important things every potential policy holder should know before enrolling in short term medical insurance:

1. Understand the reason for the low price. STM is typically the least expensive type of major medical insurance, often priced at 1/2 the monthly cost of renewable coverage, specifically because it does not cover the cost of treating pre-existing medical conditions. In addition, this coverage is exempted from some other provisions of state and federal health insurance law that would otherwise increase the cost or limit availability of this type of insurance.

2. Typical Usage. This coverage is most commonly used by adults who are changing jobs, recent college graduates and self-employed individuals. Most people are eligible for coverage through the Health Insurance Marketplace where new coverage becomes effective on January 1 of each year. STM policies typically last until regular long term coverage becomes available.

3. Nationwide coverage; network providers not required. The coverage is equally effective throughout the entire United States and may be used with any doctor or hospital. STM does not require the use of PPO network providers. The simplicity of the coverage is one of the most attractive features.

4. Distinguish coverage for domestic vs. international travel. STM policies provide coverage for treatment inside of the United States or outside out the U.S. for international travellers. But the policies do not provide equal coverage for both types. International short term medical plans are issued by different companies than those that issue domestic policies.

5. Benefit from advantages of  online enrollment. Applying for STM is fast and easy online and the Internet adds several additional benefits for policyholders. Processing of applications and issuance of policies is done in real time in a matter of less than five minutes. Policies and ID cards can be downloaded immediately. Additionally, the policy and proof of coverage can be downloaded and sent to anyone who may need proof of coverage.

6. How to extend coverage. Because of the attractive features for healthy applicants, this insurance is sometimes desired for more than 12 months. STM can be used to cover you for longer periods of time only if you enroll for sequential policies, changing coverage every 6 to 12 months, depending on specific state rules. You must reapply for a new policy after an older policy ends. It is necessary to change insurance companies after 12 months of coverage. But you can continue to do this without any time limitations.

7. Dealing with restrictive state laws. STM is not issued in certain states including Massachusetts, New Jersey, New York or Vermont. Residents of these states may purchase coverage while travelling away from home or staying at a temporary residence away from their home state. For example, some may qualify for STM while staying at school, camp, a vacation home, or an out-of-state convention. In this cases a policy issued in another state provides national coverage even after returning home to a state that does not originally issue STM coverage.

8. Fewer product choices are available now. Since the passage of the Affordable Care Act in 2010, commercial insurance companies have withdrawn a significant number of products on many states. An up-to-date listing of remaining products is posted at FreedomBenefits.net.

9. STM may become more important in 2014. The need for short term medical insurance may increase if open enrollment season under the Health Insurance Marketplace is limited to once each year.

10. Exemption from reform laws. STM is exempt from most of the Affordable Care Act health insurance reform provisions. STM has no impact on any eligibility issue, individual mandate requirement or any other aspect of the new law.