485 / Will short-term care insurance satisfy the ACA requirement that individuals purchase health insurance coverage or pay a penalty?

No. According to the IRS, individual health insurance coverage does not include short-term, limited duration insurance.¹ Because short-term care insurance is, by its nature, short-term and limited in duration, such coverage will not satisfy insurance obligations under the Affordable Care Act (ACA).

Planning Point: It’s worth noting the current controversy surrounding short term medical health plans. Because individual health insurance “does not include short-term limited duration insurance,” this particular product has been exempted from many ACA market reforms.²

In June 2016, the Obama administration released a package of proposals designed to strengthen the public risk pool (i.e., those who have coverage through the federally facilitated marketplace, or “exchange”). Their concern was that the risk pool was being damaged by individuals who could enroll during special enrollment periods (triggered by life events) but chose not to.

This ties back to short term medical care (STMC), which had been sold precisely for such temporary stop-gap situations. The problem was that:

STMC is not subject to many of the ACA’s rules;

STMC can be medically-underwritten and priced on health;

STMC can discriminate against those with pre-existing conditions; and

STMC does not have to cover essential health benefits.

The problem (as it has been identified) is that insurers began selling STMC for periods as long as 12 months to serve as primary coverage, cherry-picking the healthiest people and plucking them out of the risk pool, all the while avoiding consumer protections.