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In addition to the ACA marketplace, short-term health insurance is another type of private health insurance policy available to individuals and families. Different types of insurance policies come with different terms and conditions. Knowing about them well helps to choose and buy them according to the specific needs and budgets of people. In this blog, I will break down in easy language and compare the ACA and the Short Term insurance so that you can make informed decisions for your health benefits.
ACA health plans, or Obamacare, were formerly known as major medical insurance, which simply refers to comprehensive health insurance under the Affordable Care Act of 2010. Think of it as your ‘full service’ health insurance option, designed to provide robust protections for your family’s health and financial well-being.
ACA plans are categorized into four "metal tiers" (Bronze, Silver, Gold, Platinum) based on their actuarial value. These plans indicate how much of your health coverage costs the insurance company will pay, on average percentage of benefits.
It’s important to note that ACA plans utilize provider networks, meaning you generally pay less for care from in-network doctors and hospitals.
You can typically enroll in an ACA plan during the annual Open Enrollment period. It usually starts on November 1 through December 15 for the coverage starting in the first January of the following year. However, you might be eligible for a Special Enrollment Period (SEP) outside of Open Enrollment if you experience a Qualifying Life Event (QLE), such as losing health coverage, getting married, having a baby, or moving.
ACA must include what the law calls ‘10 Essential Health Benefits (EHBs). These are a set of services that every comprehensive individual and small group health insurance policy is required to cover, with no annual or lifetime dollar limits. Think of them as the foundational health services you can expect.
Here are the 10 Essential Health Benefits:
The ACA plans provide guaranteed issue protection to the consumers. This means that the insurance companies must sell their health insurance plans to any consumer applying for coverage, regardless of their health status or pre-existing conditions.
The ACA offers sliding-scale subsidies because the amount of assistance slides up or down gradually depending on your income, rather than staying fixed. It makes coverage more affordable for eligible individuals and families. These subsidies come in two main types:
Government Subsidy by Income Level Chart
Premium Tax Credits (PTCs):
If your household income is between 100% and 400% of the Federal Level, you may qualify for PTC. These reduce your monthly insurance payments. You can apply these credits to any of the four "metal levels" of coverage: Bronze, Silver, Gold, or Platinum.
Cost-Sharing Reductions (CSRs):
These are discounts that lower the amount you actually use healthcare services and have to pay for deductibles, copayments, and coinsurance. CSRs are only available if you purchase a Silver plan for earning up to 250% of the FPL.
Out-of-pocket maximum:
Most ACA plans also have a maximum out-of-pocket dollar limit. Once you reach this limit, the insurance company will pay 100% of your covered expenses for the rest of the year.
Short-Term health insurance (STHI) is a temporary type of health insurance policy, primarily designed to fill gap coverage, or for a short-term medical plan. It offers flexible and fast health coverage.
People often choose these plans if they are between jobs, recently graduated, or waiting for new employer benefits to begin. A crucial point to understand is that Short-Term plans are NOT the same as ACA plans. They are free from many ACA requirements. Additionally, they do not have to cover the 10 Essential Health Benefits mandated by the ACA. For example, most Short-Term plans do not cover
Unlike ACA plans, Short-Term plans are not guaranteed issue. This means that when you apply, you will be reviewed by answering medical questions and will be approved for coverage. Insurers can deny coverage based on your medical history and may reject without any explanation.
If you have a pre-existing condition, under the short-term health plan, the insurer will not cover it, and it will likely not be covered. Insurers may also have waiting periods before coverage begins for certain situations.
Short-term plans typically have lower monthly premiums compared to unsubsidized ACA plans, often costing 50% less or more. This can make them seem like a cheaper option upfront. However, it does not qualify for federal subsidies, and out-of-pocket costs can be significantly higher due to high deductibles, copayments, and limitations on overall benefits or the lack of an out-of-pocket maximum.
Short-term health insurance is not available everywhere. As of the 2024 update, these plans are banned in 14 States, such as Washington D.C., California,
Some states may still have their own mandates and penalties related to Minimum Essential Coverage (MEC). Short-term plans generally do not protect you from such state-level tax penalties.
Historically, STHI could last for fewer than 12 months with a maximum total coverage period of up to 36 months, including renewals. However, since September 1, 2024, new federal regulations have been amended to limit STHI.
Plans purchased on or after this date will no longer have an initial contract, will no longer be more than three months, and the maximum coverage period will be no more than four months, including any renewals or extensions.
No specific open enrollment period like ACA; you can apply at any time in the year, and if approved, coverage can begin as soon as the day after you enroll.
STHI allows you to see your preferred healthcare providers without being restricted to a specific network, unlike many major medical plans.
Here's a quick comparison of ACA health plans and Short-Term health plans:
|
Feature |
ACA Health Plan (Major Medical) |
Short-Term Health Plan (Temporary) |
|
Coverage Type |
Comprehensive |
Limited, temporary, gap coverage |
|
Essential Health Benefits |
Must include all 10 EHBs |
Generally does NOT include all 10 EHBs |
|
Pre-existing Conditions |
Covered |
NOT covered |
|
Guaranteed Issue |
Yes, guaranteed acceptance |
No, must apply and be approved based on medical questions |
|
Subsidies Eligibility |
Yes, eligible for Premium Tax Credits & Cost-Sharing Reductions based on income |
No, not subsidy-eligible |
|
Provided or Sold by |
Healthcare.gov or state-run ACA Marketplaces |
directly by insurance companies, brokers, or private websites. |
|
Enrollment Period |
Limited to annual Open Enrollment or Special Enrollment Period |
Year-round, apply anytime |
|
Policy Duration |
Generally continues as long as premiums are paid |
Limited (e.g., maximum 4 months total coverage from Sep 1, 2024) |
|
Monthly Premiums |
Tend to be higher (before subsidies) |
Typically lower |
|
Out-of-Pocket Costs |
Can be reduced by subsidies; annual out-of-pocket maximums apply |
Can be very high due to higher deductibles and limited benefits; some may not have OOP max |
|
Provider Networks |
Utilizes provider networks, may pay more for out-of-network |
Often no network restrictions, allowing more choice |
|
Tax Penalties |
Generally exempt from federal (and often state) penalties |
May face state-level penalties (federal penalty removed as of 2019) |
The "right" health insurance coverage is unique to each person and can even change year to year. Here’s a general guide to help you decide:
|
ACA Plans Are Ideal If: |
Short-Term Plans Might Be for You If: |
|
You need comprehensive coverage for a wide range of medical services. |
You need temporary coverage for a short period (e.g., between jobs, after graduating, or during an employer waiting period). |
|
You have pre-existing conditions or ongoing medical needs, as these plans must cover them. |
You are generally healthy and don’t expect major medical needs or treatment for pre-existing conditions. |
|
You want benefits like maternity care, mental health services, and robust prescription drug coverage. |
You are okay with lower monthly premiums but potentially higher deductibles and out-of-pocket costs if you need significant care. |
|
You are eligible for government subsidies (Premium Tax Credits or Cost-Sharing Reductions) that can significantly lower your costs. |
You need health insurance outside of ACA Open Enrollment and do not qualify for a Special Enrollment Period. |
|
You prefer a plan with a specified out-of-pocket maximum to limit your financial risk. |
You value flexibility to choose any doctor or hospital without network restrictions. |
|
You can enroll during the Open Enrollment Period or qualify for a Special Enrollment Period. |
You understand that these plans do not cover pre-existing conditions and may have very limited benefits for certain services. |
|
Best For: Long-term protection and comprehensive benefits. |
Best For: Short-term flexibility and lower upfront costs. |
Before making your decision, take a moment to consider these important points:
It is a best practice to always examine the policy details of any plan before you are going to buy. Especially pay close attention to the deductibles, copayments, coinsurance, and out-of-pocket maximums. Be aware of specific exclusions and limitations. Short-term plans, in particular, may limit the number of primary care visits or types of surgeries covered.
Eventually, many updates and changes regarding the ACA and short-term health insurance plans will take place, which we have discussed earlier. The availability and maximum policy length of Short-Term plans can vary by state. Always check with your state's Commissioner of Insurance for details on potential restrictions and bans in your area.
Some states may still have their own mandates and tax penalties for not carrying health insurance even after the IRS removed the federal tax penalties by the IRS in 2018. If you have questions about this, consult a qualified tax advisor.
Use the [Healthcare.gov subsidy calculator](https://www.healthcare.gov/lower-costs/) to see if you qualify for premium tax credits or cost-sharing reductions. If you do, ACA plans become much more affordable and offer significantly better value.
- Do you or family members have ongoing health conditions?
- Are you taking prescription medications?
- Do you anticipate needing maternity care?
- How important is mental health coverage to your family?
Verify whether short-term plans are available in your state and what limitations apply.
Consider the full financial picture:
- Monthly premiums
- Deductibles
- Out-of-pocket maximums
- Coverage exclusions
- Potential costs of uncovered services
- How long do you need coverage?
- When can you enroll in different types of plans?
- Will you have access to employer insurance in the future?
Navigating health insurance can be complex. Don't hesitate to work with a local health insurance agent or broker. You can also find valuable information on official government websites like HealthCare.gov for ACA plans or your). These resources can help ensure you have an accurate understanding of your options.
The choice between ACA and Short-term Health insurance isn’t about just picking up the cheapest premium; it is about the perfect balance of your coverage, cost, and health benefits according to your unique situation. This content has clearly displayed the key differences between the ACA and STHI health care plans. By understanding these carefully and considering your situation, you can make a thoughtful choice that makes sense for you and your family.
Sources:
01. Centers for Medicare & Medicaid Services: (https://www.cms.gov/)
02. https://www.healthcare.gov/
03. National Association of Insurance Commissioners https://content.naic.org/
04. Kaiser Family Foundation: (https://www.kff.org/)
05. GoodRx Health Insurance Guide: (https://www.goodrx.com/insurance
