Why Choose ACA vs. Short-Term Health Insurance
The Gist
There are a lot of options for health insurance, including employer-offered plans, Affordable Care Act (ACA) plans, and short-term options. Each has its own benefits and potential drawbacks, so it’s important to know the differences.
There are a number of reasons you may choose short-term health insurance coverage, such as if you are between jobs, recently graduated from college, are not covered by your parent’s plan, or if you simply need coverage immediately. It’s important to know that while it may be easy to enroll in short-term health insurance, the policy may not cover many essential services.
ACA plans differ from short-term health coverage in a few specific ways — namely, they cover 10 essential medical services (which we’ll cover below), but you can only sign up for them during the nationwide open enrollment period (unless you qualify for a special enrollment period due to a qualifying life event).
It’s important to know all your options and shop around for the best plan that suits your health care needs and budget.
In This Article
Is There Still a Tax Penalty If You Don’t Have Health Insurance?
ACA Versus Short-Term Health Insurance — Which Is Right for You?
In Short
When the Affordable Care Act (ACA) passed in 2010, the new law expanded health care access to more than 30 million Americans who lacked insurance, including freelancers and independent contractors. In the more than a decade since, ACA coverage has become the go-to health insurance option for rideshare drivers, app-based contractors, and all sorts of 1099 “gig economy” workers.
In short, the ACA mandated that everyone in America would have access to comprehensive health care plans at affordable prices. To do so, the law created Health Insurance Marketplaces (sometimes called “exchanges”) where uninsured people could enroll in ACA plans. As if that wasn’t convenient enough, you can even find customizable ACA plans with just a few clicks on Stride’s website and enroll in less than 10 minutes!
If you need insurance immediately, a short-term health insurance policy might be marketed to you as a reasonable option — but these plans come with considerable drawbacks. Short-term health insurance plans can be purchased at any point in the year and typically will be active for two to 12 months, although you might get the option to extend. This type of health insurance policy comes with some major downsides. For instance, you can be denied coverage if you have pre-existing conditions, and your out-of-pocket expenses could be huge because most plans will not offer comprehensive benefits.
In this article, we will cover the key differences between ACA versus short-term health insurance plans, including their benefits, how to enroll, and more.
What Is an ACA Plan?
“ACA plans” are the plans that you can enroll in on HealthCare.gov. ACA plans typically have a lower monthly premium than private health insurance. Additionally, a majority of ACA plans are subsidized by the federal or state government — meaning your monthly payment could be as low as $0 if you meet certain income levels. Importantly, thanks to the ACA law, you can’t be denied coverage due to pre-existing conditions.
ACA plans are also required to cover 10 essential health care services. These benefits of ACA plans include:
Hospitalization
Emergency and urgent care services
Maternity, post-natal, and newborn care
Behavioral health counseling and treatment
Rehabilitative or habilitative services and devices
Laboratory tests and services
Prescription medications
Mental health and substance abuse treatment
Preventative checkups and chronic illness treatment
Pediatric services, including vision and dental care
The benefits of ACA plans do come with their drawbacks. For instance, you can only sign up for ACA plans during the open enrollment period (OEP), which runs from Nov. 1 to Dec. 15 in most states. If you experience a qualifying life event — like moving, getting married, or having a baby — then you’re eligible for a special enrollment period (SEP) during which you can enroll in new coverage outside of OEP.
Additionally, it’s important to know that the benefits of ACA plans can take 30 to 45 days to go into effect. ACA plans are also limited by network restrictions, which could mean you have to change doctors or facilities to get your health care covered by insurance.
What Is a Short-Term Health Insurance Plan?
If you lose your job or Medicaid availability, you may get targeted with ads for short-term health insurance plans. A short-term health insurance plan is exactly what it sounds like: a temporary policy you can enroll in if you have urgent medical needs. These policies often offer limited or non-comprehensive coverage, as they do not have to conform to many ACA regulations.
You might need a short-term health insurance plan if you:
Are healthy and are not old enough to qualify for Medicare.
Missed the OEP and did not have a qualifying life event that would grant you a SEP.
Just turned 26 and are no longer on your parents’ plan.
Are between jobs, and your new benefits haven’t started yet.
Have signed up for an ACA plan but are in the 30- to 45-day waiting period.
Besides the short-term nature of the plan, one of the major issues with short-term health insurance is that you can be denied coverage due to pre-existing conditions. Your monthly payment can change based on your health situation, for instance, if you smoke. Most importantly, there is no guarantee that your short-term health insurance plan will provide coverage for the 10 essential health care benefits we described above.
Short-term health insurance is usually quite limited, but many plans will include:
No network restrictions
Office visits
Hospitalization
Mental illness and substance abuse treatment
Is There Still a Tax Penalty If You Don’t Have Health Insurance?
Broadly, the answer to this question is no. As of 2019, the government is no longer collecting tax penalties for people who are uninsured for more than five months of the year (before, some uninsured people could owe as much as $2,500 in tax penalties).
Fortunately, this is no longer the case. But while you don’t have to worry about the IRS penalizing you for being uninsured, certain states might still have penalties in place. As of 2023, you can still be penalized for being uninsured if you live in Massachusetts, New Jersey, California, Rhode Island, or the District of Columbia.
That said, you absolutely should have health insurance! Tax implications, penalties, and laws aside, having a comprehensive health insurance plan, like the kind offered by the ACA, can help save you major headaches (and out-of-pocket expenses) if the unexpected happens.
ACA vs. Short-Term Health Insurance — Which Is Right for Me?
To recap, ACA plans are comprehensive plans that typically have to be renewed every year, while short-term insurance plans are temporary stopgap plans that may lack essential benefits. We recommend shopping for ACA plans unless short-term insurance is your only option.
Remember, even if you missed the OEP, you might qualify for an SEP. Losing your job or existing coverage is a qualifying event, so make sure to enroll as soon as possible. An ACA plan will offer you the peace of mind of a comprehensive health insurance policy, saving you headaches (and out-of-pocket expenses) should medical bills arise.
Still wondering which plan is right for you? Here’s a quick chart showing how the benefits of ACA plans differ from those of short-term health insurance.
As you can see, one of the key differences when you’re comparing ACA versus short-term health insurance plans is that ACA plans are more comprehensive, and you cannot be denied an ACA plan. Short-term health insurance might carry a cheaper premium but could mean larger out-of-pocket expenses, especially for major medical treatments.
What’s the Best Way to Shop for ACA Health Insurance Plans?
As we’ve learned above, short-term insurance might be a nice stopgap for people who are in immediate need of health insurance coverage, but it comes with considerable drawbacks. If you are currently without insurance or are shopping for a new comprehensive plan, an ACA plan might be your best bet.
When it comes to health care, thanks to the ACA, there are more options than ever before, but finding the right plan can be a bit like finding a needle in a haystack. It’s important to know all of your options so you’re not overpaying for coverage.
While there are government insurance sites available, they won’t necessarily show you all of the options available in your zip code or income range. That’s why Stride makes shopping for health insurance a breeze.
Answer a few questions on our easy-to-use site to discover the best plan for your unique health care needs — then enroll in 10 minutes or less with just a few clicks.
