HHS, DOL and IRS (the “Agencies”) have jointly issued a final rule on August 3, 2018 (Fed. Reg., V. 83,8/3/18 p. 38212) that expands the availability of short-term, limited-duration health insurance. The final rule updates and finalizes a proposed rule that was issued on February 21, 2018. The final rule allows consumers to buy individual health insurance plans that provide coverage for any period of less than twelve months, rather than the current maximum period of less than three months. It also adds to the proposed rule the ability of consumers to extend coverage, taking into account renewals and extensions, for a period of no longer than thirty-six months in total. The final rule also slightly modifies the notice which informs the consumer of the policy’s non-compliance with the Affordable Care Act (the “ACA”), and allows issuers to avoid putting the notice in all capital letters. Note that short-term, limited-duration health insurance is fully subject to state jurisdiction, and some states will surely limit the effect of these rules in those states.
Background. Short-term, limited-duration health insurance is designed to provide temporary coverage for individuals transitioning between health insurance policies. Short-term insurance coverage often provides some protection to those who enroll by paying a percentage of hospital and doctor bills after the policyholder meets the specified deductible. It is not required to meet ACA standards.
In October 2016, the Agencies issued a final rule that restricts the maximum term of a short-term limited-duration insurance policy to less than three months. In response, certain stakeholders expressed concerns that this limit could cause harm to some consumers, limit consumer options, and ultimately have little positive impact on insurance risk pools.
Because it is exempt from the definition of individual health insurance coverage under the ACA, 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, the prohibition on imposing pre-existing condition exclusions or limitations, etc.).
Final Rule. The following are highlights from the final rule:
- Compliance with the ACA’s Individual Mandate. The proposed rule confirms that short-term, limited-duration health insurance coverage is not considered to provide Minimum Essential Coverage under the ACA. Therefore, a consumer whose health insurance coverage during the 2018 tax year is through a short-term policy may be subject to the ACA’s Individual Mandate Penalty (which requires nearly all Americans to be insured or pay a penalty). However, this will not be an issue after 2018 because Congress, as part of the tax overhaul bill passed at the end of 2017, has effectively eliminated the individual mandate starting in 2019 by eliminating any penalties for failure to have Minimum Essential Coverage.
- Extension of the Maximum Permissible Coverage Period. The Final Regulations amend the definition of renewals and extensions to allow for a period of coverage of no longer than thirty-six consecutive months in total. As a result, insurers could begin to offer any coverage period of less than twelve months, including any extensions that may be elected by a policyholder, up to a total of thirty six consecutive months. Thus, the Final Regulations permit renewals and extensions with the same carrier for a period of up to thirty-six months in total. As with the current regulations, this insurance may not be renewed after the maximum period of coverage. However, the preamble to the final regulations specifically provides that an individual may utilize short-term limited-duration insurance for more than thirty-six months so long as no one carrier provides coverage for longer than a consecutive thirty-six month period in total.
- Notice requirements. The proposed rule revises the notice that must be provided with enrollment materials for short-term, limited-duration insurance. Specifically, the proposed rule requires the use of one of two revised notice versions depending on whether the coverage start date is before January 1, 2019 or January 1, 2019 and later. The key changes are a requirement to provide additional warnings about gaps in coverage that may occur if an individual is only covered under short-term, limited-duration health insurance, and the elimination of the need to print the Notice Requirements in all capital letters. Starting in 2019, when the ACA’s individual mandate penalty is reduced to zero, certain language contained in any 2018 version of the notice will no longer apply. Both the 2018 and 2019 versions of the notice are intended to notify consumers that short-term, limited-duration policies are not required to comply with certain federal health insurance mandates, principally those contained in the ACA.
The proposed rule is available at: https://www.federalregister.gov/documents/2018/08/03/2018-16568/short-term-limited-duration-insurance