Short-Term Health Plan Gaps and Limits Leave People at Risk

Consumers buying coverage during this Affordable Care Act (ACA) open enrollment season will face a more complicated shopping experience, with products marketed as lower-cost alternatives that come with a catch — many cover far less. Because of recent moves by the Trump administration, insurers in most states can now sell short-term plans that provide coverage for just under 12 months, with the option in many states to renew the plan twice, for a total of almost three years of coverage under a “short-term” plan. These plans usually lack consumer protections people have come to expect under the ACA and have gaps in coverage that may not be readily apparent in marketing materials or easily understood by consumers. The lack of critical plan information when enrolling marks a return to the way people bought coverage prior to the ACA, when there was no way to easily compare plans or understand the full scope of coverage. As a result, consumers may enroll in short-term plans believing they are purchasing a plan that will cover unexpected health conditions only to be reimbursed pennies on the dollar for medical services or have their claim denied outright.

To understand the limitations and gaps in short-term plans, we looked at brochures available online from five insurers for short-term plans with durations just under 12 months.¹ For the plans we reviewed, only the plan brochures are available to shoppers; people generally need to enroll in coverage before seeing details that would provide more complete information about plan benefits, costs, and limits. Still, the brochures reveal plan features that put people at risk of unexpected costs and coverage gaps.

Short-Term Plans May Be Cheaper, But They Expose Consumers to Medical Underwriting, Skimpy Coverage, Dollar Limits, Preexisting Exclusion Periods and Rescission

Plans that meet ACA standards, including marketplace plans, can’t discriminate against consumers with preexisting conditions. They must offer coverage to all applicants and cover a comprehensive set of benefits without dollar limits or waiting periods, and they can’t cancel coverage when a consumer gets sick. Short-term plans are not subject to these same standards. As a result, short-term plans we reviewed:

• Use applicant health histories to determine who can get coverage. In general, applicants for short-term plans must answer a health questionnaire used to screen out applicants with symptoms of an illness or condition — even if not yet diagnosed or treated. One insurer we reviewed offers a plan that is available regardless of health status, but still excludes coverage for conditions for which medical advice, diagnosis, care, or treatment was recommended or received in the prior 12 months.
• Exclude key service categories from covered benefits. None of the five insurers reviewed covers maternity. Prescription drugs are not covered by three insurers and excluded in some plans by the other two insurers. Three insurers exclude coverage for mental health and substance use disorder services, and two exclude tobacco cessation treatment. One of these insurers also excludes “treatment, services or supplies not defined or specifically covered under the policy,” but the policy is typically provided only after enrollment.
• Generally don’t provide coverage for preexisting conditions. One insurer purports to cover preexisting conditions under a new product, but many people who have a preexisting condition — including anemia, a cyst, or hernia — are not eligible for the plan. Only those conditions listed in a Schedule of Benefits provided after enrollment are actually covered. Even then, payment for preexisting conditions caps out at $25,000 per coverage period.
• Have dollar limits for covered services. One brochure lists few categorical benefit exclusions, other than for preexisting conditions, but puts dollar caps on covered benefits, including $1,000 a day for hospital room and board coverage, $1,250 a day for the intensive care unit, $50 a day for doctor visits while in the hospital, and $100 a day for inpatient substance abuse treatment. Two plans pay $250 for an ambulance trip that can cost thousands of dollars. And all plans cap total benefits paid under the plan — as low as $100,000 per coverage period — making the plan inadequate for catastrophic costs.
• Don’t guarantee coverage will be renewed. None of the plans guarantee coverage will be renewed. A new health condition could make an enrollee ineligible to renew or purchase a second plan. In practice, insurers deny claims or cancel coverage for conditions that they determine are preexisting.

Proponents of short-term plans say they are a necessary coverage option for people who need to fill a gap in coverage and have some protection against catastrophic costs until they can get more comprehensive coverage during open enrollment or at work. But our review of short-term plans available as enrollment season approaches suggests they are neither sufficient to fill a gap between comprehensive plans nor adequate to protect against catastrophic costs. Moreover, critical details on the plans are unavailable to consumers when they are buying coverage. People need more information to understand whether the plan will provide adequate protection for preexisting conditions and those not yet diagnosed.

Looking Forward

The Trump administration has opened the door to lower-cost alternatives to comprehensive coverage, including short-term plans that may be promoted as a longer-term coverage option. But these plans present risks for consumers and state insurance markets. States remain the primary regulators of health insurance and are in a critical position of determining the role of these coverage options in their state markets. States can be more protective than the federal rule, by banning short-term plans, limiting the duration of coverage, or applying consumer protections. At the very least, states should ensure consumers have full information to make an informed decision and buy fully aware of the risks.

Buying Tips

1. Check with your insurance department to confirm the plan is approved for your state.
2. Read the fine print in the full plan documents before you enroll.
3. Understand how the plan defines preexisting conditions and how that affects your costs and coverage.
4. Consider if can you afford to pay out of pocket if the plan is cancelled or you need care not covered by the plan.