The Only Time Short-Term Health Insurance Makes Sense

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By Dan Rafter

There's only one time you should buy short-term health insurance -- when you have no other option.

"We call them Swiss-cheese policies," says Sarah O'Leary, founder and chief executive of national health care consumer advocacy group Exhale Healthcare Advocates. "They are less expensive because you get what you are paying for. I don't recommend that anyone stay with a short-term policy for long. And I recommend that people only pay for one if they have absolutely no other choice."

What Is Short-Term Coverage?

As the name suggests, consumers aren't supposed to take out short-term health policies for a long time. The insurers that market these policies pitch them as insurance that consumers can use to bridge the gaps when, for whatever reason, they are between more traditional, long-term health care insurance policies.

Insurers say that the policies are right for consumers who are between jobs or for those who missed their employers' open enrollment periods and don't want to go months without health insurance coverage. Consumers who think that temporary insurance granted by the Consolidated Omnibus Budget Reconciliation Act -- which allows former employees to continue their health insurance coverage after leaving their jobs -- is too expensive might consider signing up for short-term health insurance, too.

O'Leary, though, said that short-term health insurance should always be treated as a last option for consumers. COBRA insurance, if consumers can afford the higher premiums, is a better choice. And traditional long-term health insurance policies always provide better coverage.

Lack of Coverage

Short-term health insurance policies have become even less appealing under the Affordable Care Act. Since they have so many holes in coverage, they don't even meet the Affordable Care Act requirement that consumers carry adequate health insurance. Those relying on short-term health insurance policies will be subject to the same tax penalties as people who have no insurance.

Short-term health insurance policies usually don't cover maternity care, treatment for mental illnesses, routine office visit, or preventative care. Because they don't follow the mandates of the Affordable Care Act, short-term health policies also aren't required to provide coverage for pre-existing medical conditions.

"Maternity care and delivery usually aren't included. That's a big one," O'Leary said. "That can cost you up to $40,000 if you don't have the right coverage. You don't see much preventative care covered, either. The holes in these policies can add up to a lot of money."

The Last Resort

When do these policies make sense? O'Leary says that you should consider them only if you really don't have any other choices for insurance.

"These policies are better than no coverage at all," O'Leary said. "And that's about it."

Say you are switching jobs. You might sign up for a short-term health policy if you know that the gap in your insurance coverage will be especially brief. Some consumers would rather pay the lower premium prices that come with short-term insurance than the higher ones that come with COBRA, which provides far more comprehensive coverage.

Maybe you missed the open-enrollment period to sign up for a traditional health insurance policy, and you don't expect a qualifying life event in the near future that would allow you to sign up before the next open enrollment. A short-term health insurance policy will provide at least some coverage before that enrollment period rolls around again.

If you have no other choice but to take out a short-term health insurance policy, make sure to ask your provider exactly what coverage you are getting for your money. You don't want to be surprised by a big medical bill when you visit your doctor.

Have you ever relied on a short-term health insurance policy?
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