483 / What is short-term care insurance?

Short-term care insurance is often a type of critical care insurance that functions much like long-term care insurance. Unlike long-term care insurance, however, short-term care insurance coverage remains in effect only for a relatively short period of time (12 months or less). Taxpayers become eligible for short-term care insurance benefits when they need assistance performing two or more activities of daily living (ADLs). ADLs include the following activities: (1) eating, (2) toileting, (3) transferring in and out of bed, (4) bathing, (5) dressing and (6) continence.¹ Short-term care insurance can also function much like a typical health insurance policy, although coverage will usually be limited to certain specified benefits.

Note that there are many different types of short-term insurance. New rules released under the Trump administration would have allowed short-term health insurance plans that are valid for up to 12 months, rather than the 90-day maximum imposed under the Obama administration. The Trump-era rules also added a provision that allowed these short-term plans to be renewed for up to three years. Short-term limited-duration health insurance (STLDI) plans are generally less expensive, but often provide limited coverage. Further, these plans do not have to satisfy the Affordable Care Act market reform provisions, which means that the plans can set annual and lifetime caps on benefits, exclude certain services (such as maternity care, preventive care and mental health coverage) and reject individuals with preexisting conditions.

A federal district court in Washington, D.C. upheld the rule that expands STLDI insurance so that short-term plans can be sold for up to 12 months, and can also be extended or renewed for up to 36 months. Because of this ruling, short-term health insurance plans can continue to be sold in states that permit such plans. The D.C. Circuit Court of Appeals upheld the lower court ruling.²

One of President Biden’s first acts in office, however, was to issue an executive order that explicitly repealed the Trump-era executive order that sparked the formal agency rule permitting STLDI. In July of 2023, the Department of Labor, Treasury department and Department of Health and Human Services issued joint regulations that would once again limit the duration of STLDI policies to three months. The rule would also provide that the maximum duration of the policy could be no more than four months within the 12-month period starting on the date the policy was originally effective (including any renewal or extension period). In terms of extensions and renewals, the four-month rule would apply for policies issued by the same issuer to the same policyholder.

Certain types of short-term care insurance, known as recovery insurance, typically provides for a fixed level of daily benefits—around $140 per day is common—for a set period of time. However, the terms of short-term care insurance contracts often provide that if the actual cost of care is less than the stated daily benefit, the remaining funds can be used to pay for care even after the time period for coverage has expired. (For example, if the policy provides a daily benefit of $100 per day for 365 days, but the actual cost of care is $75 per day, the remaining $25 per day can be used to fund care on day366 and beyond.)