Short-Term Limited Duration Insurance

By HealthPriceCompare - May 18, 2023

Short-term, limited-duration insurance (STLDI) is a type of health insurance that provides limited coverage and benefits for a period of as little as a month to as long as three years. These plans may offer coverage for some of the same types of health care services as traditional comprehensive health insurance, but they have different plan designs and are not regulated with the same consumer protections as comprehensive health coverage.

Unlike other products that are considered "limited benefit" or "excepted benefit" policies such as cancer-only policies or hospital indemnity policies that pay a fixed dollar benefit per inpatient stay, short-term policies, like high-deductible health plans, are generally considered to be major medical coverage; however, short-term policies are distinguished from other comprehensive major medical policies because they only provide coverage for a limited term, typically less than 365 days.

Another distinguishing characteristic of these plans is that their coverage period can terminate at the end of the contract term. To continue coverage beyond that date requires applying for a new policy. As a result, an individual who buys a short-term policy and then becomes seriously ill may not be able to renew coverage when the policy ends.

The History of Short-Term Limited Duration Medical Plans

Short-term insurance plans have been traditionally marketed as a solution for consumers experiencing a gap in coverage. In October of 2016, federal regulations were issued that limited STLD policy durations to three-month terms without renewal.

In 2018, federal regulators extended the permissible length of coverage for short-term plans and gave consumers the option of renewing plans. In October 2018, federal regulations changed the definition of STLDI to exclude it from the definition of individual health insurance coverage and lengthened the permissible maximum duration of these plans from three months to 364 days with an option to renew for a total coverage period of up to three years.

Short-Term Limited Duration Medical Plan Characteristics

Since they are not regulated with the same consumer protections as comprehensive health coverage as codified in the Affordable Care Act (ACA), STLDI plans have different characteristics, plan designs and cost sharing responsibilities such as the following:

Medical Underwriting: Applicants with pre-existing health conditions can be turned down or charged higher premiums, based on health status, age or gender;

Pre-Existing Conditions: Policyholders may be investigated by the insurer to determine whether the newly-diagnosed condition could be considered pre-existing and so excluded from coverage;

Essential Health Benefits: Short-term policies do not have to cover maternity care, prescription drugs, mental health care, preventive care, and other essential benefits;

Lifetime and Annual Limits: Some policies cap covered benefits at $2 million or less;

Not Subject to Cost Sharing Limits: Some short-term policies require cost sharing in excess of $20,000 per person per policy period, compared to the ACA-required annual cap on cost sharing of $8,200 in 2020;

Not subject to rate review or minimum medical loss requirements;

What Explains Their Popularity

With these limitations, why would anyone purchase one of these policies? For some, their personal circumstances make it necessary. The reasons can be due to leaving a job that had a health insurance plan and not qualifying for its COBRA plan, retiring early and looking for temporary insurance until qualifying for Medicare, no longer qualifying for a group plan due to divorce, moving to a new state where an existing plan cannot follow, no longer qualify for a parent's insurance or people who want to have a plan with no network and find ACA plans too expensive.

It also mostly boils down to their premiums which in some cases can be up to 80% less than ACA compliant plans. Due to its considerable cost sharing responsibilities and coverage exclusions, STLDI premiums are considerably less expensive than ACA compliant, comprehensive policies. It is a rational economic decision for an individual who is in good health and does not expect medical issues to not need all the benefits that come with ACA compliant policies. It is also sensible for someone who wants their health insurance to truly perform like insurance where it only protects its policyholders from a catastrophic medical situation such as severe trauma or a life-threatening disease.

For these reasons, STLDI policies are an attractive option for many individuals. However, their significant cost-sharing responsibilities mean that policyholders also need to be intelligent and informed consumers of medical services before its cost sharing limits are met.