Short-Term Health Insurance?

How It Works

Short-term health plans, also called gap plans or temporary plans, typically cover a period of one to 12 months. They’re designed to cover unforeseeable medical needs that arise, offering an alternative to going uninsured and paying the out-of-pocket for any procedure or treatment. In some cases, you can get approved for a policy almost immediately after applying.

Today’s short-term plans are similar to the individual plans that existed before Obamacare became effective. They don’t have to cover what the law deems "essential health benefits" (seeEssential Health Benefits Under the Affordable Care Act), including emergency room visits, hospitalization, lab services and maternity care. So read the policy carefully to see what it will pay for and what it won’t. (Services That Health Insurers Often Decline provides some general rules-of-thumb.)

These plans are subject to medical underwriting and aren't guaranteed issue, meaning you could be rejected if insurers think you’re too big a risk. For example, some policies say you shouldn’t even bother to apply if you’re pregnant, have diabetes or have cancer; you won’t get approved. Short-term health insurance doesn’t cover pre-existing conditions and policies can only be renewed a limited number of times – or in some cases can’t be renewed at all, especially if you end up filing an expensive claim.

Where to Get It

You can shop for a short-term health insurance plan through an online broker such as eHealth. You can also enlist the help of a living, breathing agent who sells health insurance. Reputable brokers and agents do not charge consumers application fees or other fees; they are paidcommissions by the insurance companies (learn more in How Does an Insurance Broker Make Money?). Another option is to head directly to your favorite health insurer’s website and buy a policy directly through the company. It’s a good idea to shop around so you can compare plans and choose the one with the best combination of premiums, deductibles, co-insurance and coverage for your situation. Some states have many options; others have few.

The Tax Bill

Here's another bit of bad news. Short-term health insurance plans don’t count as minimum essential coverage under the Affordable Care Act. That means you may have to pay the tax penalty for being uninsured, even though you technically aren't.

Penalties are calculated by income and per person, and you’ll pay the penalty based on which calculation results in the higher amount. In 2015, the penalty is 2% of your annual household income that's above the tax filing threshold (not to exceed the national average of a marketplace bronze plan annual premium) or $325 per adult and $162.50 per child under 18, whichever is greater. In 2016, the penalty is 2.5% of your annual household income above the tax return filing threshold or $695 per adult and $347.50 per child. (The aforementioned "bronze plan" is the most basic of the insurance plans offered by state health care exchanges. See Choose Among Bronze, Silver, Gold And Platinum Health Insurance Plans.)

However, if your "short term" is very short, you'll be glad to know that the ACA has an exemption for "a short gap in coverage" of "no more than two consecutive months." Click hereto read the details.