[Editor’s Note: This article summarizes the advantages of short-term medical (STM) plans. Unfortunately the Biden Administration recently restricted the maximum duration of STM plans to four months, thereby rescinding a directive from the Trump Administration to set the maximum duration at up to 36 months. It is expected, though by no means guaranteed, that the 36-month maximum will be reinstated if President Trump wins re-election in 2024.]
Once a year, tens of millions of Americans endure a process called ‘Open Enrollment’ where they review all available health insurance options on the government-run Affordable Care Act Marketplace (ACA, also known as ‘Obamacare’). Every year these plans become more expensive while simultaneously offering reduced benefits and worse coverage.
Yet relatively few people are aware that alternative options exist on the free market. These plans generally offer more flexibility and better coverage, at lower prices, than Obamacare plans and can save consumers hundreds of dollars per month while providing better and more customized coverage.
Short-Term Duration Life Insurance plans, often referred to as Short-Term Medical (STM) plans, are one example of health insurance options that have emerged as a popular free-market alternative to Obamacare. STM plans generally offer lower premiums and greater customization than ACA-compliant plans, and were originally approved by Congress in 1996 as a temporary health insurance solution for individuals between jobs or other life transitions.
Why STM Offers Wider Coverage at Lower Rates
One of the main advantages of STM is that it typically provides much wider coverage options at lower premiums when compared to ACA-compliant plans. This is primarily due to the more flexible regulatory environment governing STM policies. STM insurers are able to customize offerings that suit specific needs, rather than adhering to the stringent requirements of the ACA which mandates that all plans cover a set of “essential health benefits.”
These essential health benefits, while well-intentioned, often inflate the cost of premiums as they require insurers to cover a broad range of services like maternity care, mental health treatment, and substance abuse rehabilitation—services that many individuals may not need.
For example, a young and healthy individual may only want catastrophic coverage to protect against major accidents or illnesses, and prefer to do without the expensive and comprehensive care required by Obamacare plans.
STM enables this customization. Issuers can offer plans that focus on high-deductible, low-premium options. This flexibility can lower an individual’s overall health insurance costs by a significant amount.
Furthermore, because STM does not fall under the same guaranteed-issue requirements of the ACA, insurers are allowed to perform medical underwriting — where they can assess an applicant’s health status and adjust premiums accordingly, and even deny coverage if the applicant’s health is not suitable to that insurer’s risk profile.
This practice matches how auto insurers verify an applicant’s driving safety record before extending an offer to provide coverage. Just as auto insurers are able to offer better rates to safe drivers, free-market health insurers are able to offer lower rates to healthier individuals. This is a key feature of free-market competition that helps drive down overall healthcare costs for those who are less likely to use extensive medical services.
Many free-market health insurers are unwilling to cover what the industry refers to as ‘pre-existing conditions’. These are health problems that a person had before starting a new health insurance plan, and can include chronic conditions like asthma or heart disease, as well as shorter-term conditions like back injuries or pregnancy.
The Key Benefits of STM
The utility of STM plans expanded in 2018 when the Trump administration expanded the maximum plan duration from three months to twelve, with the option to renew for up to three years with guaranteed premium rates for up to 36 months. This far exceeded any guarantees offered through Obamacare, where rates are never guaranteed beyond 12 months.
STM plans differ from ACA plans in several key ways:
Customization. STM issuers are not required to cover the essential health benefits mandated by the ACA, such as maternity care or mental health services. This flexibility allows insurers to offer more affordable, tailored plans, where consumers can select only the coverage they need. By focusing on essential protection—such as catastrophic coverage for major illnesses or accidents—STM can significantly reduce healthcare costs, especially for healthier individuals who don’t need comprehensive services.
Medical underwriting. STM insurers can review an applicant’s health profile and adjust premiums to cover any unique features that they may need, or more importantly don’t need. This contrasts with Obamacare plans, which must accept all applicants and charge the same rate regardless of risk factors. This free-market approach fosters competition, resulting in lower prices for many consumers.
Greater flexibility. Many STM plans offer access to a wider range of healthcare providers than ACA plans, which often restrict choices due to narrow networks. For instance, many STM plans are part of nationwide PPO networks, while the vast majority of ACA plans are HMOs that only cover in-network care - and those networks typically narrow every year. This freedom of choice appeals to individuals who prioritize control over their healthcare decisions.
Increased self-reliance. STM plans insure the individual and their families, as opposed to employer-sponsored health plans which are group plans that a company offers to its employees. Those who receive health coverage from their employer generally lose that coverage if they leave their job or become too sick or injured to work for an extended period. STM plans continue to insure the individual regardless of their employment situation.
Free-Market Health Insurance vs. Government-Provided Healthcare
The core appeal of STM to free-market proponents is its ability to operate outside of the heavy-handed regulations imposed by Obamacare. The ACA was designed to provide a safety net for all Americans, particularly those with pre-existing conditions or low income. While the intention behind Obamacare was to ensure that healthcare would be affordable and accessible, in practice, the rigid framework has resulted in skyrocketing premiums, narrowing provider networks, and limited plan choices for millions of consumers.
In contrast, STM embraces the principles of free-market economics, where competition among insurers drives innovation and cost savings. By allowing insurers the freedom to tailor their offerings to specific demographics, STM creates a diverse marketplace of plans that can better meet the needs of different individuals. This approach empowers consumers to make informed choices based on their personal health needs and financial situation, rather than being forced into a one-size-fits-all government-mandated system.
Moreover, because STM plans are not subject to the same penalties and fees associated with Obamacare (such as the individual mandate, which required all Americans to have health insurance or face a tax penalty), they offer a compelling alternative for those who are not eligible for government subsidies under the ACA but still need affordable healthcare options.
‘Junk Insurance’?
Despite these advantages, some critics refer to STM as “junk insurance,” claiming that it lacks the comprehensive coverage required by Obamacare and could leave individuals with gaps in care. However, this criticism overlooks the fact that STM is a choice for consumers who understand its limits and prefer the cost savings it offers over more comprehensive but expensive ACA plans.
It is important to note that historically, STM’s harshest critics have not been consumers who use these policies. Instead its opponents have generally been politicians and insurance industry lobbying groups who seek to protect Obamacare and its plan providers from competition in the free-market. Even the Congressional Budget Office, a non-partisan government agency, acknowledges that many STM plans “offer more comprehensive coverage, at lower premiums, than comparable Obamacare plans.”
Conclusion
While Short-Term Duration Life Insurance (STM) may not be a solution for everyone, it undeniably fills an important niche in the healthcare market. For those who are healthy, between jobs, or seeking affordable coverage outside the framework of Obamacare, STM offers a viable, cost-effective alternative. Despite being labeled as “junk insurance” by its critics, STM provides flexible, lower-cost options that can often exceed the expectations of consumers when compared to ACA plans.
Ultimately, the free-market approach embodied by STM represents a fundamental difference in philosophy from government-controlled healthcare. Rather than dictating a uniform set of benefits, the free market allows consumers and insurers to engage in a dynamic, competitive environment that encourages innovation, lowers costs, and provides wider coverage tailored to individual needs. For many Americans, this represents the freedom of choice in healthcare—an opportunity to escape the limitations of government-provided plans like Obamacare and access truly comprehensive, affordable care.
In conclusion, STM offers a superior alternative to Obamacare for those seeking lower costs and more customized coverage. It allows individuals to tailor their healthcare to their specific needs, often at a fraction of the cost of ACA-compliant plans. The ability to lock in guaranteed premium rates for up to 36 months also helps to make STM plans a more affordable and flexible option when compared to more expensive and inflexible Obamacare plans.
STM plans are a compelling option in the ongoing health insurance debate and should be studied by anyone who is currently using a ‘one-size-fits-all’ Obamacare plan.
Coverbrook can offer competitive quotes on STM plans from several nationwide insurance carriers. To learn more, contact us at hello@coverbrook.com or call 1-855-500-1776.
