Trump officials are pushing 'short-term' insurance plans as a replacement for Obamacare, but they come with a catch

With health care costs spiraling upwards, many Americans are likely looking for ways to offset the extra financial burden.

The expiration of enhanced Affordable Care Act (ACA) subsidies on January 1, 2026, will send premiums up for millions, but even those who get their health insurance through their employer can expect to see a price increase of up to 6.7% next year (1).

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Without clear relief in sight, the Trump administration is once again turning to a solution it first proposed in 2017: expand the availability of “short-term” health insurance plans. But not everyone is a fan of this idea.

“These policies are a horrible idea,” said Ken Swindle, an Arkansas-based attorney, according to The Washington Post (2). “People think they’re getting comprehensive medical coverage, but they’re not, and they often don’t realize that until it’s too late.”

What are short-term health insurance plans?

Short-term health insurance plans, often called “short-term limited duration insurance,” are temporary policies sold by private insurers that are meant to fill the gaps when someone is between other types of coverage, such as between jobs or waiting for employer or Medicare coverage to begin.

These plans were defined by federal regulation in the late 1990s as coverage that expires in less than 12 months from the original effective date, including any extensions the policyholder might request. They were included as part of a push to make health insurance more portable, so people didn’t feel chained to their jobs in order to keep their health care coverage (3).

Because they are excluded from the federal definition of individual health insurance, short-term plans do not have to follow Affordable Care Act rules on essential health benefits, preexisting conditions or annual and lifetime limits (4).

In 2018, the Trump administration relaxed the rules around short-term insurance with an executive order that directed agencies to expand access to the plans. These plans, which were previously limited to just four months, were then extended to last as long as three years.

At the time, officials argued that ACA plans had become too expensive for many unsubsidized buyers and said longer short-term plans would provide cheaper options and more consumer choice.

“President Trump is bringing more affordable insurance options back to the market,” said Alex Azar, Trump’s former health secretary during the president’s first term in office, according to The Washington Post (2). “These plans aren’t for everyone, but they can provide a much more affordable option for millions of the forgotten men and women left out by the current system.”

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What’s wrong with short-term plans?

Health insurance, like many kinds of insurance, is based on a simple economic mechanism: many people pay into the insurance pool, but only a small percentage of them actually ever use it. When the ACA was first passed, it included an “individual mandate” that required most people — especially young, healthy people — to maintain individual insurance coverage or pay a penalty for noncompliance (5).

The provision was originally an idea from the conservative Heritage Foundation to preserve private insurance in preference to state-run medical systems (6), but its inclusion in “Obamacare” made it a political football. When Congress failed to kill the ACA in 2017, Republicans and President Trump did the next best thing, which was to lower the individual mandate penalty to zero dollars.

The Biden administration tightened the rules around short-term insurance in 2024 to limit these policies to a maximum of four months, including renewals, and require clearer disclosures about what is not covered. But the current Trump administration has reversed that rule while going back to its 2018 playbook: advocate for expanded short-term insurance as a cost-saving measure.

Short-term insurance plans are typically cheaper than ACA coverage, costing about half as much as a plan sold on state-run marketplaces created by Obamacare. As The Washington Post notes, a 40-year-old nonsmoker in Florida can secure ACA coverage for about $500 a month, while a short-term plan would cost said person about $320.

But there’s a reason why short-term insurance plans are cheap: there’s no requirement for these plans to cover preexisting conditions, as well as basic health care needs like mental health and maternity care (2). In fact, their coverage is said to be so “full of holes” that five states — including New York and California — have banned their sale.

“Even some major insurers have questioned whether relying on the short-term plans is a good idea, warning that many consumers could mistake them for comprehensive coverage,” The Washington Post reports. “The Biden administration referred to them as ‘junk’ plans.”

What can American consumers do?

Unfortunately, there’s not a lot consumers can do to stem the tide of rising health care costs, short of voting for legislators who have realistic policy solutions. But buyers who have a clear-eyed understanding of their needs and risks can mitigate the costs somewhat.

Younger, healthier people — especially those who have not yet started a family — can opt for a high-deductible health insurance plan paired with a health savings account. Health savings plans are tax-advantaged in three ways: you get a tax deduction when you contribute, the money in the account can be invested and grows tax-free, and when you take it out to pay for medical bills or health insurance deductibles, that’s tax-free as well (7).

High-deductible health insurance accounts have minimum deductibles (the amount you pay before insurance kicks in). According to the IRS (8), these costs are, “not less than $1,700 for self-only coverage or $3,400 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,500 for self-only coverage or $17,000 for family coverage.”

That’s a lot of money to pay out of pocket. But if you’re young, healthy and don’t have kids, it makes sense, especially if you’re a high earner. However, if you’re not any of those things, your next best bet is your tiered workplace-sponsored plan.

An honest risk assessment here is also necessary. Are you only worried about catastrophic emergencies, like a car crash, or do you have a chronic health problem like hypertension or diabetes? Your company’s plan administrator can help you get an idea of which tier is best for you.

If you don’t have access to a workplace plan because you’re self-employed or a gig worker, the health care exchanges in your state and federally are still a good option, even if prices are going up. Short-term insurance plans are meant to be just that — short-term solutions — not a revolving fix for a larger problem.

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Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Mercer (1); The Washington Post (2); Centers for Medicare & Medicaid Services (3, 4); Congress.gov (5); The Atlantic (6); HealthCare.gov (7); IRS.gov (8)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.