On February 20, 2018, the Departments of Health and Human Services, Labor, and Treasury (the Departments) published a proposed rule to expand the availability of short-term, limited-duration insurance (STLDI) in order to “provide more affordable consumer choice for health coverage.” The proposed rule follows President Trump’s October 12, 2017 Executive Order directing the Departments to examine expanding the availability of STLDI.
The proposed rule provides that STLDI is “designed to fill temporary gaps in coverage that may occur when an individual is transitioning from one plan or coverage to another plan or coverage.” This type of coverage has not been defined as individual health insurance coverage. As a result, STLDI is not required to comply with the Affordable Care Act (ACA) market reforms and consumer protections, such as the provision of essential health benefits and the elimination of lifetime and annual limits, and pre-existing condition exclusions.
The ACA’s consumer protections such as guaranteed enrollment and special enrollment periods led the Obama administration to place restrictions on the availability of STLDI. The Departments issued a final rule (81 Fed. Reg. 75316 Oct. 31, 2016) limiting coverage to a duration of less than 3 months, prohibiting renewals of coverage, and requiring the following notice to be included in STDLI contract and application materials:
THIS IS NOT QUALIFYING HEALTH COVERAGE (“MINIMUM ESSENTIAL COVERAGE”) THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE AFFORDABLE CARE ACT. IF YOU DON’T HAVE MINIMUM ESSENTIAL COVERAGE, YOU MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES.
The Trump administration now proposes to amend the definition of STLDI so that it can be offered for a maximum coverage period of less than 12 months from the original date of the contract. This would align the definition with the original definition under HIPAA. The Trump administration seeks comment on whether there should be rules or guidance about renewals or the renewal process.
The proposed rule acknowledges that these changes could lead to consumer confusion. Specifically, consumers may have a difficult time distinguishing between ACA-compliant coverage and STLDI that lasts close to twelve months. To address this concern, the Departments propose a notice that would need to be prominently displayed in the contract and in any application materials:
THIS COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU UNDERSTAND WHAT THE POLICY DOES AND DOESN’T COVER. IF THIS COVERAGE EXPIRES OR YOU LOSE ELIGIBILITY FOR THIS COVERAGE, YOU MIGHT HAVE TO WAIT UNTIL AN OPEN ENROLLMENT PERIOD TO GET OTHER HEALTH INSURANCE COVERAGE. ALSO, THIS COVERAGE IS NOT “MINIMUM ESSENTIAL COVERAGE”. IF YOU DON’T HAVE MINIMUM ESSENTIAL COVERAGE FOR ANY MONTH IN 2018, YOU MAY HAVE TO MAKE A PAYMENT WHEN YOU FILE YOUR TAX RETURN UNLESS YOU QUALIFY FOR AN EXEMPTION FROM THE REQUIREMENT THAT YOU HAVE HEALTH COVERAGE FOR THAT MONTH.
The final two sentences would not need to be included for policies with a start date on or after January 1, 2019 because the Tax Cuts and Jobs Act eliminated the individual mandate penalty.
In combination with the Department of Labor’s proposed rule published on January 8, 2018 (Health Law Pulse summary here) and the elimination of the individual mandate penalty in the Tax Cut and Jobs Act, the expansion of STLDI will likely siphon younger and healthier enrollees away from the individual market. The Departments themselves estimate that 100,000 – 200,000 individuals will move from Exchange coverage to STLDI in 2019. This would further segment the individual market, could lead to adverse selection, and may result in reduced competition and increased premiums in the Exchange market. The Departments believe the increase in premiums, and in turn premium tax credits, will cause an increase of $96 – 168 million In advance payments of the premium tax credit.
Additional insight can be gleaned from an examination of the Departments’ assessment of the qualitative costs, benefits, and transfers:
Comments on the proposed rule are due by 5 p.m. EST on April 23, 2018.