HHS, DOL and IRS (the “Agencies”) have jointly issued revised final regulations reducing the maximum duration of short-term, limited-duration health insurance (“STLDHI”) coverage.
Background. STLDHI is designed to provide temporary coverage for individuals transitioning between health insurance policies. Short-term insurance plans often provide some protection to those who enroll by paying a percentage of hospital and doctor bills after the policyholder meets the specified deductible.
STLDHI is exempt from the definition of individual health insurance coverage under the Affordable Care Act (“ACA”). Therefore, it is not subject to the ACA’s individual market requirements that apply to individual health insurance plans (e.g., the mandate to cover Essential Health Benefits, and the prohibition on imposing pre-existing condition exclusions).
Final Regulations. The Agencies are amending the definition of STLDI to limit the length of the initial contract term to no more than three months and the maximum coverage period to no more than four months, considering any renewals or extensions. Previously, the rules defined STLDI as coverage with an initial contract term of fewer than 12 months and a maximum total coverage period of 36 months. According to the Agencies “the revised definition of STLDI in these final rules will realign the federal definition of STLDI with its traditional role of serving as temporary coverage, help ensure that consumers can clearly distinguish STLDI from comprehensive coverage, and ultimately reduce the financial and health risks to consumers who would otherwise enroll in this limited coverage as a long-term alternative to comprehensive coverage.”
These final rules also amend the definition of STLDI to provide that a renewal or extension includes STLDI sold by the same issuer, or any issuer that is a member of the same controlled group, within a 12-month period. This addresses the practice, known as “stacking,” that permits issuers to provide separate, sequential STLDI policies that collectively evade duration limits, obscuring the distinction between STLDI and comprehensive coverage, and increases the risks to consumers who mistakenly enroll in STLDI as an alternative to comprehensive coverage.
The regulations also amend the required federal notice for STLDI to help consumers better distinguish between comprehensive coverage and STLDI and get information on their health coverage options. The notice must be prominently displayed on the first page of the policy, certificate, or contract of insurance, including for renewals and extensions, and included in any marketing, application, and enrollment materials.
The Agencies understand that most sales of STLDI occur through group trusts or associations. This arrangement is used by some issuers in states with less regulation of STLDI to sell STLDI to consumers in other states, avoiding state regulation in the state where the consumer resides. The preamble to the final rules explains that coverage sold to individuals through a group trust or association, other than in connection with a group health plan, is not group coverage for purposes of federal law and must meet the federal definition of STLDI or it is subject to the federal consumer protections and requirements for comprehensive individual health insurance coverage.
Generally speaking, the new regulations apply to STLDI contracts sold or issued on or after September 1, 2024.