On August 1 the Departments of Treasury, Labor, and Health and Human Services (the Departments) published a final rule that will expand the availability of short-term limited duration insurance (STLDI).  A Health Law Pulse summary of the proposed rule may be read here.  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 final rule states the Departments received approximately 12,000 comments to the proposed rule (available here).  “[T]he Departments determined that the expansion of additional coverage options such as short-term, limited-duration insurance is necessary, as premiums have escalated and affordable choices in the individual market have dwindled.”

The Obama administration had placed strict limits on the offering 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  The CMS press release accompanying the final rule lauded STLDI as providing “coverage for people transitioning between different coverage options, such as an individual who is between jobs, or a student taking time off from school, as well as for middle-class families without access to subsidized plans.”  The final rule permits a significant expansion of the duration an individual may enroll in a STLDI policy.  The final rule permits enrollment in a STLDI contract that is less than 12 months and may be renewed or extended for a duration no longer than 36 months.  The Departments acknowledge the likelihood of a legal challenge to the 36-month maximum duration policy.  The Departments believe the policy is legally sound but the final rule includes a severability clause: “If a court holds the 36-month maximum duration provision set forth in paragraph (1) of this definition or its applicability to any person or circumstances invalid, the remaining provisions and their applicability to other people or circumstances shall continue in effect.”  The Departments are clear that these restrictions only apply to the same insurance contract.  The Departments do not prohibit issuers from offering new STLDI to consumers or prevent consumers from stringing together coverage under separate policies that may extend beyond 36 months. 

The final rule strengthens the language that must be included in a STLDI contract to make clear to the consumer how the coverage is different from individual market coverage. The following language must be prominently displayed and in at least 14-point type:

This coverage is not required to comply with certain federal market requirements for health insurance, principally those contained in the Affordable Care Act. Be sure to check your policy carefully to make sure you are aware of any exclusions or limitations regarding coverage of preexisting conditions or health benefits (such as hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental health and substance use disorder services). Your policy might also have lifetime and/or annual dollar limits on health benefits. 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 are only required for policies that have a coverage start date prior to January 1, 2019, since the Tax Cuts and Jobs Act changed the shared responsibility payment to $0 beginning with 2019.  

The Departments acknowledge that the final rule “does not preempt any state laws prohibiting the sale of short-term, limited-duration insurance”.  The final rule provides an updated estimate that 600,000 people will purchase STLDI for 2019, increasing to 1.6 million in 2021.  200,000 of these enrollees would have otherwise purchased coverage through the Exchanges and 300,000 would have purchased off-Exchange plans.  The premium increases consumers are likely to see in the individual market for 2019 are the result of this final rule, the recent Association Health Plan final rule (HL pulse summary here) and the elimination of the shared responsibility penalty.  Taken together, these policies are expected to steer some healthier enrollees out of the individual market, thus creating a less healthy and more expensive risk pool.

Short-term limited duration plans have been criticized and referred to as “junk insurance” due to their limited benefits and the lack of consumer protections.  The expansion of STLDI remains controversial and the final rule is likely to face a legal challenge.  Twelve states recently filed a lawsuit challenging the Association Health Plan final rule that was published in the June 21, 2018 federal register.