Temporary insurance can be a money-saving alternative to COBRA. For employers, it can cut overhead. For employees and ex-employees, it can cut out-of-pocket costs. But the plans aren’t right for everyone.

On the one hand, the plans are much cheaper for employees or dependents no longer eligible for your health plan. For employers, it’s a no muss, no fuss way to reduce your COBRA rolls and cut HR’s paperwork burden. The COBRA notice recipient simply declines COBRA and lines up his or her own temporary coverage.

But there are also potential drawbacks. Here are four need-to-know issues:

• Plan expiration. Coverage under a short-term plan runs out faster than COBRA. While some policies offer coverage for up to a year, the majority run out within six months. The ideal temporary coverage enrollee is someone who expects to have a source of full-time coverage available in a month or two.
• Intended for major medical issues. In most cases, short-term plans health plans aren’t designed to meet routine healthcare needs. Rather, they’re there to cover serious injury or sudden illness.
• Service limitations. While the plans often cover an array of high-cost medical issues (hospitalization, emergency surgery, etc) and prescription drugs, some major services – most notably pre-natal care – may be excluded.
• Deductibles. While the plans often carry much lower premiums than COBRA, they often come with high deductibles. Once deductibles come into play, it may cost the employee less money out-of-pocket to accept COBRA.