How Do Short Term and ACA Health Insurance Plans Differ?

There’s no shortage of options when it comes to buying health insurance in 2019. That doesn’t necessarily make your decision easier.

Two common types of coverage include short term health insurance and major medical insurance. Both provide a range of healthcare benefits to help you reduce your out-of-pocket medical spending, and both are available for a range of premium costs. So how do short term health insurance and qualifying health insurance under the Affordable Care Act (ACA) differ, and why would you choose one over the other?

Short term plans fit a range of life circumstances

People in a wide variety of life situations find short term health insurance plans to be a valuable solution, including those who want an affordable alternative to an ACA plan as well as those who need temporary coverage for as few as 30 days.

Many individuals and families choose short term plans due to their flexibility (choice of plan length, no provider network restrictions), availability (available year-round) and affordability (savings of 50% or more compared to ACA plans).

You may consider a short term health plan if you:

  • Want an alternative to ACA health insurance
  • Have a job that doesn’t offer benefits
  • Are between jobs with benefits or in an employer waiting period
  • Need a COBRA alternative
  • Recently graduated from college and don’t have coverage through your parents
  • Need health insurance outside of ACA open enrollment and don’t qualify for a special enrollment period

These are only a few common examples; there may be other circumstances in which short term coverage is right for you. Short term plans are not available in every state, and maximum policy lengths vary among the states where short term health insurance is sold.

How an ACA plan differs: ACA health insurance tends to be the go-to for those who want access to all 10 essential health benefits, have a pre-existing condition, or qualify for a subsidy may find that an ACA health insurance plan is the right healthcare benefits solution.

Need it now? Short term coverage is readily available

You can buy short term health insurance anytime. There is no open enrollment period—apply and, if you qualify, enroll 365 days a year.

Need benefits fast? Short term health insurance policies can begin as soon as the day after you apply for and enroll in coverage if your application is approved.

How an ACA plan differs: Major medical plans are available at two specific times. The first is during the annual open enrollment period—in recent years, this has been Nov. 1 through Dec. 15. The other is during a special enrollment period—a period of time in which you can buy ACA plans outside of open enrollment following a qualifying life event such as having a baby, moving to a new ZIP code, or getting married or divorced.

Major medical insurance coverage often begins within 30 to 45 days of enrollment.

Gain access to range of benefits for the unexpected

Short term health insurance benefits typically include doctor office visits, hospitalization, and care for injuries and unexpected major illnesses. Benefits also include some mental illness and substance abuse treatment. Some plans offer optional benefits such as prescription drug coverage. However, short term plans do ask medical questions to pre-qualify insureds since it does not fall under ACA law.

How an ACA plan differs: Under the Affordable Care Act, all major medical insurance plans must include the 10 essential health benefits (e.g., emergency services, maternity and newborn care, prescription drugs) and certain no-cost preventive services. Plus, there is no discrimination if you have a pre-existing condition. Everyone who applies is accepted and the insurance does not cost more due to any pre-existing condition.

Customize your coverage

Short term health insurance plans are not one-size-fits-all. You can customize your coverage by selecting the policy length you need (as few as 30 days), the deductible amount you can best afford, and the additional benefits that meet your healthcare needs.

How an ACA plan differs: All major medical insurance plans are grouped into “metal levels” by cost-sharing percentage. Plans fall into one of four categories: bronze, silver, gold and platinum. Within each metal level, you select the plan whose deductible, coinsurance and out-of-pocket maximum best meet your budget and healthcare needs.

Short term plans (typically) have smaller monthly premiums

Affordability is one of the reasons some individuals and families choose short term health insurance. Monthly premiums for short term plans typically cost less (50% less or more) than monthly premiums for unsubsidized ACA plans.

How much will short term coverage cost you? You can easily find out by obtaining a quick online quote.

Ultimately, your short term health insurance premium is impacted by the plan you select. A range of deductibles are available to help you tailor coverage to meet your financial and healthcare needs. Additional benefits may also be available, which can increase your monthly premium while also helping to lower your out-of-pocket cost for certain healthcare services and expenses.

How an ACA plan differs: While both short term and ACA plans help reduce what you pay out of pocket for healthcare, major medical insurance costs tend to be higher because they adhere to all Affordable Care Act requirements—the inclusion of all 10 essential health benefits, specified no-cost preventive care, guaranteed issue. According to the CMS Health Insurance Exchanges 2019 Open Enrollment Report, the average premium (before premium tax credit) was $612 in the 39 states that use the HealthCare.gov platform.

ACA plans are also subsidy-eligible. You must qualify based on income and you purchase ACA coverage through a state or federal health insurance exchange. ACA subsidies (i.e., premium tax credits and cost-sharing reductions) are not available for short term health insurance plans.

You choose where to buy

In addition to being able to quickly purchase short term health insurance online 24 hours a day, 365 days a year, you can purchase it from several sources. Short term plans are available directly from carrier websites as well as through other websites that sell multiple health insurance products. You may also work with an agent or broker to find short term coverage.

Short term plans are not available through state or federal ACA health insurance exchanges, and they are not available in every state.

How an ACA plan differs: ACA plans are available through the same channels as short term plans as well as through state or federal health insurance exchanges. Major medical insurance is available in every state.

Go anywhere with short term health insurance

No network restrictions! Short term health insurance plans allow you to see your preferred healthcare providers and choose the hospitals and clinics where you receive care. That means you can keep your doctor and go where it’s convenient for you—near work, near home, wherever.

How an ACA plan differs: Major medical plans utilize provider networks, which vary in size and location. If you do not visit in-network providers, you will pay your policy’s out-of-network rates for healthcare.

What to know about tax penalties + short term coverage

As of Jan. 1, 2019, the federal law has changed regarding the individual shared responsibility payment—the tax penalty owed when you don’t have an ACA plan and don’t qualify for an exemption.

In 2019, you will not face a federal tax penalty if you go without ACA-compliant health insurance and instead opt to go without insurance or decide to enroll in alternative coverage such as short term health insurance. Some states may enact their own mandates and penalties related to minimum essential health insurance coverage.

As for 2018, the federal tax penalty was still in place. If you did not have ACA-compliant coverage in 2018 and you were not eligible for an exemption, you could still owe a penalty when you file your 2018 federal taxes.

Short term vs ACA health insurance, the quick take

To sum it all up, short term health insurance is affordable, limited coverage for those who qualify and ACA health insurance (major medical) is subsidy-eligible, comprehensive coverage for those who want benefits fully subject to ACA requirements (e.g.,10 essential health benefits, guaranteed issue.

Key short term health insurance takeaways

  • Coverage option for temporary situations or as an ACA alternative
  • No open enrollment period—apply year-round
  • Start coverage as soon as the day after your application is approved
  • Benefits for a range of medical expenses related to injury and unexpected illnesses—office visits, hospitalization, mental illness and substance abuse treatment and more
  • Customize your coverage by selecting your policy length as well as the deductible you can afford and the benefits that meet your healthcare needs
  • Monthly premium is typically lower than major medical
  • Not subsidy-eligible
  • Buy directly from the insurance carrier, through insurance websites, or from an agent or broker
  • See your preferred provider—no provider network restrictions
  • Not guaranteed issue
  • Availability and max policy length vary by state

Bottom line: When you need fast, affordable coverage for unexpected healthcare and qualify based on health history, a short term health insurance plan may be right for you.

Key ACA health insurance takeaways

  • Coverage option for those who want all ACA benefits, have preexisting conditions or ongoing medical needs, or qualify for a subsidy
  • Enrollment limited to the annual open enrollment period or a special enrollment period, if you qualify
  • Policies typically take effect within 30 to 45 days of enrollment
  • Includes the 10 essential health benefits and specified no-cost preventive care services as required by the Affordable Care Act
  • Select your cost-sharing percentage by metal level (bronze, silver, gold, platinum)—deductibles and out-of-pocket maximums vary by plan selected within that metal level
  • Monthly premiums tend to be higher than short term premiumsSubsidy-eligible when you qualify based on income and purchase from a state or federal exchange
  • Buy through state or federal health insurance exchanges, directly from a carrier, through insurance websites, or from an agent or broker
  • Network restrictions apply
  • Guaranteed issue
  • Available in every state; coverage lasts the entire year

Bottom line: When you need benefits for healthcare a short term plan doesn’t include (e.g., preventive care, maternity and newborn care), have preexisting conditions or ongoing healthcare needs, qualify for subsidies, and can purchase coverage during an open or special enrollment period, then a major medical insurance plan may be right for you.

The “right” health insurance coverage varies from person to person and even from year to year. Now that you better understand the differences between short term and ACA health insurance plans, you can make an informed decision about what coverage makes sense for your healthcare needs and financial circumstances.