Illustration of a prescription drug pill being broken apart

When Jeanne Balvin had emergency surgery for diverticulitis in June 2017, her short-term health insurance plan—a policy she bought instead of more comprehensive insurance—covered most of the bills after she paid a $2,500 deductible.

But when she landed back in the hospital with an abdominal infection a few weeks later, she says her insurance company, UnitedHealthcare, wouldn’t cover the charges—and then canceled the three-month policy she had just renewed.

UnitedHealthcare said the infection was a preexisting condition related to the diverticulitis and wouldn’t be covered under the terms of the contract. And when Balvin, 61, was hospitalized a third time at the end of July—this time for a blood clot probably caused by inactivity following the hospitalizations—she had no insurance at all, leaving her with $97,000 in hospital bills.

UnitedHealthcare, in a statement to Consumer Reports, said it could not comment specifically on Balvin’s situation. But the company emphasized that short-term plans are meant to be stopgap measures, and offer less comprehensive coverage than insurance sold on the Affordable Care Act (ACA) exchanges or employer-based plans.

Those are limitations that Jeanne and her 63-year-old husband, Norm—both retirees who live outside of Phoenix—say they thought they understood. They knew the premiums were much more affordable than ACA-compliant plans because short-term insurance covers far less. Jeanne’s policy was just $274 per month, one-third of what an ACA plan would cost her. 

More on Managing Healthcare Costs

“We took a calculated risk,” says Norm, who carries ACA insurance himself because a melanoma diagnosis disqualifies him from most non-ACA-compliant plans. “Jeanne was in good health, and the premiums were so much less. That made a big difference in our budget."

Norm says that they knew care for a preexisting condition wouldn’t be covered by Jeanne’s short-term plan, but they didn’t realize Jeanne’s insurance could be canceled retroactively.

"Short-term insurance is only good if you’re healthy,” he says.

If you don’t know much about short-term health insurance, you’re likely to hear a lot more soon, especially if you are one of the more than 20 million Americans who buy your own health insurance.

That’s because the Trump administration is making those plans a centerpiece of its efforts to give people more insurance options. Starting Oct. 2, you will be able to buy policies that cover you for up to one year, instead of the current three-month limit. That makes it easier for people who want the lower premiums offered by the plans to use it for year-round coverage.

Insurers are gearing up to promote the plans when open enrollment, the time when people who buy their own insurance must choose a plan for next year, kicks off Nov. 1.

But as the Balvins discovered, short-term coverage is very limited. In addition to not covering preexisting conditions—defined as anything for which you had symptoms or sought treatment for up to five years before enrolling—it also typically doesn’t cover maternity care, mental health issues, or prescription drugs.

The deductibles—the amount you pay before insurance begins to kicks in—can be dauntingly high. And if you get sick, your policy can be rescinded. To top it off, though extending the length of the plans to a full year will improve coverage somewhat, it will also make the monthly premiums more expensive, undermining their main selling point.

Cost vs. Coverage

Still, for the 9 million people who, like the Balvins, don’t qualify for financial assistance to help reduce the cost of health insurance, these short-term plans can be tempting.

Premiums for comprehensive health insurance sold on the ACA exchanges have more than doubled since the marketplaces launched in 2014, jumping from an average $223 per month to $490 per month in 2018, according to the Kaiser Family Foundation, a nonprofit that analyzes national health policy issues.

By contrast, the average monthly premium for a three-month short-term plan was just $107 in 2018, according to eHealth, an online marketplace where consumers can compare prices and buy health insurance. For family coverage, a short-term plan was $258 per month in 2018, compared with $1,168 per month for an ACA plan.

Short-term plans will be even more attractive now that people need to get a medical exam only once a year to get approved instead of every three months. 

Another change by the Trump administration: Starting next year, insurers can offer short-term policies that can be renewed up to three years.

And starting Jan. 1, people will no longer be fined a penalty if they don’t have ACA-compliant health insurance.

The Trump administration acknowledges the shortcomings of short-term insurance. “These plans aren’t for everyone, but they can provide a much more affordable option for millions of the forgotten men and women left out by the current systems,” Alex Azar, head of the Department of Health and Human Services, said in August, when the revised rules were announced.

These plans do expand choices for people who find ACA insurance to be unaffordable, says Sean Malia, senior director of insurance carrier relations at eHealth.

But, Malia says, short-term plans were never designed to be a substitute for long-term coverage. Rather, they were meant for people who have a temporary lapse in health insurance, say, from losing a job with employer insurance or aging off a parent’s plan.

“People are positioning these plans as alternatives to the ACA,” Malia says. “We look at these as an alternative to going uninsured.”

Pushing the Product

Spurred by the changes, the Department of Health and Human Services estimates [PDF] that enrollment in short-term policies will increase by 600,000 in 2019—mostly people who currently have ACA-compliant insurance. And as many as 1.4 million more people could own these kinds of policies after five years.

The agency is encouraging navigators who help people sign up for ACA insurance and insurance brokers who sell on and off the exchanges to inform consumers about these plans. Companies that sell short-term medical insurance are gearing up for the increased demand.

One large seller, HealtheDeals, announced earlier this month that it is hiring 50 additional brokers and opening two new sales centers to be ready when open enrollment starts in November “as consumer demand increases for affordable health insurance products.”

Another, Health Insurance Innovations, told investors on an earnings call that it is ramping up efforts to reach as many consumers as possible and make them aware of the changes in the short-term health insurance market. Its stock is up 50 percent since the new rule was announced Aug. 1.

However, whether you have an option to buy short-term insurance will depend on where you live. A handful of states ban the sale of short-term health insurance outright, and a number of others restrict the policies to no more than six months of coverage. 

With the regulatory changes and marketing push, health policy experts say that consumers might not fully understand how short-term plans work and could end up paying more than they would have if they had comprehensive health coverage.

“It just makes it harder for people to know the difference between a policy that will cover you if you get sick and one that won’t,” says Karen Pollitz, a senior fellow at the Kaiser Family Foundation. “If you get sick under one of these plans, there’s a pretty good chance it won’t pay for what you need. Then you’ll have to pay out of your own pocket to get the care you need.”

How to Evaluate Short-Term Insurance

Here is what you should know if you’re considering buying a short-term health insurance plan.

Don’t Look Just at Premiums
There are many types of short-term insurance plans, and premiums vary widely [PDF], depending on how much they cover. The least expensive plans cost just $40 or $50 per month. “If you see insurance that inexpensive, you have to wonder what you’re giving up,” says Malia from eHealth.

For example, he says the most inexpensive plans typically impose daily benefit limits, covering only a certain number of days in the hospital or a certain amount every day. Other short-term plans are more generous, Malia says, and will cover a percentage of the cost after you meet a deductible.

But don’t look just at premiums. Deductibles, which you must pay up front for most care before insurance begins to cover anything, can be as steep as or steeper than those for ACA plans. Though deductibles vary, too, the average 2018 deductible on a three-month health insurance plan for a single person was $4,964 vs. $4,578 for a 12-month ACA plan, according to eHealth. For family coverage, the average three-month short-term plan deductible was $10,259 in 2018, compared with $8,803 for an ACA plan.

Be aware that short-term insurance will still be available for periods of less than a year, and if you have a plan that’s good for, say, six months, the deductible resets every time you renew it. You’ll probably still have copays—a flat fee you pay each time you go to a healthcare provider—as well as coinsurance, a percentage of the cost even for covered care that is your responsibility.

Find Out What’s Not Covered
According to a recent analysis by the Kaiser Family Foundation, a nonprofit organization that focuses on national health-policy issues, 43 percent of short-term plans do not cover mental health services, 62 percent do not cover substance abuse treatment, 71 percent do not cover outpatient prescription drugs, and no plans cover maternity care. If you need that kind of care, you’ll be paying the full sticker price—not the lower rates that insurers negotiate with healthcare providers—out of your own pocket.

Even when short-term plans cover some of those services, there are limits that would not be allowed under ACA plans, says Pollitz at the Kaiser Family Foundation. For example, six of the seven short-term plans looked at by Kaiser that offered prescription drug coverage cap the amount covered at a few thousand dollars.

If you’re not currently taking any medication, you might not care. “But if you have a heart attack or find a lump and have cancer, you will need a lot of medication,” Pollitz says. “Paying out of pocket for prescription drugs will more than offset what you might have saved on premiums.”

Beware of Coverage Gaps
People in favor of short-term health insurance plans sometimes say that if you do develop a health problem and need more comprehensive coverage, you can sign up for an ACA plan then. Though that’s true, in most cases you can do so only during open enrollment, which runs from Nov. 1 through Dec. 15 in most states.

Know That There Are No Limits to Your Out-of-Pocket Costs
Unlike ACA health insurance, which caps your out-of-pocket costs so that they can’t be higher than your deductible, there are no such limits required on short-term health insurance. If you have a very costly illness or hospitalization, you could be on the hook for tens of thousands of dollars if you hit your coverage cost limit.

Watch Out for Rising Premiums
The chief attraction of short-term plans is their low premiums. But longer-term or renewable plans are going to be priced higher than current plans that last just a few months, Malia says.

Malia estimates that rates for plans that last one year will have premiums that are 35 to 50 percent higher than the three-month plans currently available. So a policy that lasts for 90 days that’s $100 per month could go up to $135 to $150 dollars per month for up to one year of coverage. Plans that are renewable up to three years without additional underwriting will be even more expensive, Malia says.

Today, the Balvins say they don’t think the potential for savings is worth the risks that come with short-term health insurance.

And while Jeanne is in good health again, the family is still feeling the financial pain. Though they were able to use the hospital’s financial assistance program to reduce their bill, they were still on the hook for $21,000, which they paid out of their retirement savings.

Together the Balvins now pay about $1,900 per month for insurance bought through the ACA exchanges. Jeanne’s portion is $810, triple her short-term-policy premiums.

The Balvins say their only other option is to go without health insurance, a risk they’re not willing to take. “It’s painful to pay so much, but we’re between a rock and a hard place,” Norm says. “You can’t leave yourself exposed like that.”