On August 1, 2018, the Department of the Treasury, the Department of Labor, and the Department of Health and Human Services (together, “the Departments”) jointly promulgated a final rule on Short-Term Limited-Duration Insurance (“final rule”). The final rule further amends the proposed rule released in February and seeks to carry out the directions given in Executive Order 13813 “Promoting Healthcare Choice and Competition Across the United States” to expand access to Short-Term, Limited Duration Insurance (STLDI) plans.
STLDI plans are excluded from the definition of individual health insurance coverage and, therefore, are not required to comply with certain rules for health insurance plans, including the coverage and consumer protection requirements of the Affordable Care Act (ACA). The original intent of these plans was to allow consumers to fill a gap in coverage as they transition between other coverage. The stated goals of the regulatory changes are also to allow individuals to avoid paying for benefits that they do not believe they need, to provide less expensive coverage options, and to make available coverage options with access to more providers than is typically the case in the individual market.
This fact sheet provides an overview of the final regulations and the potential impact on State insurance markets.
The Departments finalized their proposal to amend the regulatory definition of STLDI to allow such plans to be sold for coverage periods of less than 12 months (meaning, for up to 364 days). This is an increase of nine months from the current limit of less than three months.
Renewals and Extensions
Unlike the proposed rule, under the final rule, a carrier may make STLDI plans renewable for up to a total of 36 months without any medical underwriting or experience rating after the initial sale of the policy. This guaranteed renewal will be permitted to be provided for under the terms of the contract, but will not be required.
In the preamble, the Departments specify that an individual will be permitted to purchase SLTDIs under unique contracts for more than 36 months total as long as the individual only remains under a single contract for up to 36 months. This applies even if the contracts are back-to-back and / or with the same issuer. It also applies if the individual purchases the option to enroll in the subsequent coverage without underwriting at the same time as buying the initial contract.
The Departments added a severability provision to allow the rest of the rule to remain in effect if a court finds the 36-month maximum duration to be invalid.
The preamble of the final rule specifies that states may set a shorter maximum initial duration or total duration (including initial contract term, renewals and extensions) for STLDI plans.
The Departments also defer to state law to determine whether periods of coverage are under the same contract.
Finally, though the Departments had sought comments regarding whether to create a standard expedited processes for renewing STLDI plans, they declined to adopt one in the final rule, instead deferring to states to do so.
The final rule amends the notice required to be included in contracts and application materials in order for a plan to be considered a STLDI plan. The expanded notice seeks to address the potential for confusion with ACA-compliant health plans, particularly now that STLDI plans may be sold for virtually the same duration of coverage. The amended notice highlights—now in more detail—that STLDI plans may not contain all the coverage or protections required by the ACA, and that enrollees may be subject to a gap in coverage if this coverage expires outside of an open enrollment period. The final rule requires that the notice include specific examples of what services may fail to be covered by STLDI plans and what other limitations may be included.
Plans issued prior to January 1, 2019, will be required to continue to include the notice that the plan would not qualify as “minimum essential coverage” for purposes of the individual mandate. That part of the notice will not be required starting in 2019 since the mandate will no longer be in effect at that point.
The final rule changes the formatting requirements of the notice.
The notice may also include any information required by state law. The preamble of the final rule specifies that states may require issuers to include additional information and / or forms of disclosure as part of the consumer notice.
In the preamble to the final rule, the Departments suggest that states may take the expanded access to STLDI plans a step further by requesting a Section 1332 State Innovation Waiver in order to seek pass-through funding that could be used to provide subsidies for the purchase of STLDI plans.
The final rule will be effective 60 days after publication. Any policies sold on or after that date will have to meet the requirements of the final rule (including the notice requirement) to qualify as a STLDI plan.
The Departments stated that their intent with the amended rule is to expand coverage by allowing individuals to have access to coverage as they await the next open enrollment period, and to allow individuals to purchase less expensive coverage without benefits they do not feel they need.
However, at the same time, people may unknowingly enroll in plans without needed coverage and the changes may lead to market segmentation.
STLDI plans are not required to—and, therefore, typically do not—comply with common ACA protections for individual market coverage, such as guaranteed availability, covering preexisting medical conditions, excluding prohibited limits on coverage, limiting out-of-pocket costs, limiting rating factors, and covering essential health benefits such as preventive care, mental health and substance use disorder services, and maternity care. Doing so allows them to limit premiums, both because they cover fewer services and also because they attract healthier on average enrollees. However, those individuals that enroll in the plans may not realize they may be exposed to higher costs for care. The Department noted this lack of understanding that these plans are not ACA-compliant, could be compounded by the fact that these plans will be able to be sold for nearly 12 months, like ACA-compliant plans, and may be more of alternatives than “gap fillers.”
Further, the impact of these changes could extend beyond those individuals that change their coverage. STLDIs generally attract healthier individuals. Significant departure of healthier populations from the individual markets would lead to adverse selection, undermining the risk pools and viability of those markets for those who must or seek to remain in such coverage. In fact, the Departments updated their estimates in the final rule, noting that around 500,000 “healthy people” may switch from ACA-compliant to STLDI plans in 2019 and 1.3 million by 2028. The numbers are likely to be higher than they would have been If the individual mandate remained in place . It may also lead to fewer insurers participating in the individual market. Compounding the adverse selection concern is the fact that STLDI plans are not part of the single risk pool. As a result of this, premiums for compliant coverage are expected to increase by one percent in 2019 and five percent by 2028. The American Academy of Actuaries have also raised concerns about the potential impact on insurance markets.