How Short-Term Health Insurance Works

Short-term coverage mostly works like to other forms of health insurance coverage. In exchange for your monthly premiums, you get protection against covered medical costs. In this section we'll look at how short-term health insurance works and explain when cost-sharing applies.

The three pillars of a short-term health insurance plan

Paying Premiums

Negotiated Rates

Out-of-Pocket Maximum


Doctor Office Visits

Emergency Care Benefits

Cost Sharing




What do you get for paying monthly premiums?

Negotiated Rates: Some short-term plans (but not all) utilize health insurance networks of covered doctors and hospitals. When you visit an in-network medical care provider you benefit from discounted rates for the care you receive.

Out-of-pocket Maximum: Depending on the kind of care you receive, and on your plan, you may need to make a copayment or pay for certain services out-of-pocket (toward your deductible or coinsurance, for example). Your plan's out-of-pocket maximum is the most you could potentially have to pay toward covered medical services before the insurer pays in full for all the covered medical care you receive, up to the coverage maximum. If your plan includes copays for things like office visits, these copays typically do not count toward your out-of-pocket maximum.

Coverage Maximum: Most short-term health insurance plans put a limit on the total amount of coverage they will provide. Your plan's coverage maximum is the upper limit of your coverage for qualifying medical services. In most cases this maximum resets with a new policy; some carriers, however, use lifetime maximums that do not reset.

What benefits are provided to you by your short-term plan?

Doctor Office Visits: Sick visits to your doctor are typically covered by short-term plans, though a copayment or an annual deductible may apply. Some plans may limit the number of visits covered with only a copay or exclude certain types of doctor visits.

Emergency Care Benefits: If you receive emergency care, but are not admitted to the hospital, some plans will pay a set dollar amount for different types of emergency care, like visits to the ER or trips in an ambulance. Some plans have co-payments for these types of care, or may only pay a percentage of the cost.

Hospitalization: Though cost-sharing may apply, short-term plans are primarily designed to provide you with coverage in case of a serious accident or unexpected injury. Coverage for hospitalization may vary by plan and may be capped at a specific dollar amount. Cost-sharing (copayments, deductibles, and coinsurance) will vary by plan.

What forms of cost sharing to short-term plans involve?

Copayments: Some covered medical services may require you to make a copayment, which is a set dollar amount you contribute toward the total bill. Most plans will cover any remaining costs in excess of the copay, but some may require cost-sharing of fees in excess of the copay amount.

Deductibles: All short-term plans include a deductible, which is a set dollar amount up to which all claims are paid by the policyholder. Once this amount has been reached, remaining claims are subject to coinsurance.

Coinsurance: Some short-term plans involve another form of cost sharing known as coinsurance. When you pay coinsurance, you're typically paying a certain percentage of the cost for a covered medical procedure, while the insurer pays the rest.

Understanding Cost Sharing

Like major medical health insurance plans, short-term plans involve various forms of cost-sharing. The monthly premium you pay to maintain your coverage is not a form of cost-sharing, but copayments, deductibles, and coinsurance are. The maximum dollar amount you may be required to pay for covered services is known as your maximum out-of-pocket amount or coverage maximum.

Your Copayment

Copayments are specific dollar amounts ($20, for example) that you may need to pay for prescription drugs or certain kinds of office visits. Copayments typically do not count towards maximum out-of-pocket limits.

Your Deductible

The deductible is a specific dollar amount ($3,500, for example) that you must first contribute toward the cost of covered medical services before the health insurance company begins to pay.

Your Coinsurance

Coinsurance (pronounced "co-insurance") is a form of cost-sharing that often comes into play after you've met your deductible. Coinsurance is usually expressed as a percentage of the total covered amount. If your coinsurance is 20%, that means the insurer covers the remaining 80%.

Your Out-of-pocket Maximum

This is the most you could be called upon to pay out-of-pocket towards covered medical expenses during your coverage term. After you've contributed $10,000 between your deductible and coinsurance, for example, the insurer may pick up the rest of the bill for covered services.

Here is an example of how insurance cost-sharing works:

Let's assume you have a health plan with a $3,500 deductible, 20% coinsurance, and a $10,000 out-of-pocket maximum.

1$3,500 Deductible


If you incur a $110,000 medical bill, you will first need to pay your $3,500 deductible before the insurance company begins paying. That would leave you with $6,500 left before you reach your $10,000 out-ofpocket maximum.

220% Coinsurance


With 20% coinsurance, you would pay 20% of costs until reaching your out-of-pocket maximum. So, you pay $1,000 for every $4,000 paid by your insurance company. That means, for the next $32,500 in covered medical expenses you would pay $6,500 and your insurer would pay $26,000.

3$10,000 Out-of-Pocket Maximum

Out-of-Pocket Maximum

Once you've paid your $3,500 deductible and $6,500 in coinsurance, you've reached your $10,000 out-of-pocket maximum. Altogether, for this $110,000 medical bill, you will have paid $10,000 and your insurer will have paid the remaining $100,000.

Deductible You
pay $3,500
Coinsurance You Pay $6,500 Remaining Medical Bill Insurance Pays $74,000
Pays $26,000

Total You Pay: $10,000

Total Insurance Pays: $100,000

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