On Wednesday, August 1, 2018, the Trump Administration issued the Short-Term, Limited-Duration Insurance Final Rule (the “Final Rule”), expanding the coverage length of “short-term, limited-duration insurance” policies under the Patient Protection and Affordable Care Act (“ACA”).
What changes are being made?
The Final Rule allows individuals to buy short-term insurance policies for coverage periods of up to 12 months – four times the length of the previous 3-month cap – and consumers are allowed to renew the policies for up to 36 months.[1] The Final Rule also requires insurers to display a notice in their insurance coverage contracts alerting consumers that the short-term policies are not intended to comply with the coverage requirements under the ACA.
For short-term policies with coverage dates commencing prior to January 1, 2019, the notice also contains a statement informing consumers that short-term policies do not meet the ACA’s minimum essential coverage requirements, meaning consumers may be forced to pay tax on any months during 2018 for which they have a short-term plan and no other coverage.[2]
What do short-term, limited duration insurance policies cover?
Short-term policies are designed to fill gaps in health insurance coverage for individuals transitioning between health insurance plans. While the term of coverage for short-term policies has been greatly expanded, the policies are still exempt from the minimum coverage requirements for “individual health insurance coverage” under the ACA.[3] This exemption allows short-term policies to have lower premiums than plans meeting ACA minimum coverage requirements; however, short-term policies also cover fewer healthcare services and have higher deductibles than plans sold on the ACA healthcare exchanges.
Healthcare coverage under short-term policies varies among the states, as each state is allowed to impose additional coverage obligations on short-term policies. For example, New Jersey and Massachusetts require short-term policies to follow many of the ACA rules for individual health insurance coverage. As a result of strict regulations, insurers generally do not offer short-term plans in Massachusetts, New Jersey, Rhode Island or Vermont. [4]
Unlike the states discussed above, most states do not require short-term policies to offer coverage for some categories of significant services, such as maternity care, mental health treatment, substance abuse treatment, or prescription drugs. While premiums for short-term policies are cheaper than plans on the ACA exchanges, Federal subsidies are not available for short-term policies. Additionally, short-term policies often have caps on how much the plan will pay for medical expenses in a given year – ranging anywhere from $250,000 to $2 million. Short-term policies may also disqualify individuals from coverage for having a pre-existing condition.
Victory for Consumers, or Simply “Junk Insurance?”
The Department of Health and Human Services press release accompanying the Final Rule claims that, while the new plans “aren’t for everyone,” they can provide an affordable option for millions of individuals currently left out of the current system.[5] Across the aisle, Democrats in Congress have termed these new short-term policies as “junk insurance,” claiming the policies will lead healthy people away from the insurance markets, which will raise premiums for sicker people and put the healthcare marketplace at risk.[6]
Echoing the response of Congressional Democrats, Blue Cross Blue Shield Association’s Vice President, Justine Handelman, claimed that the broad availability of short-term policies that do not provide comprehensive coverage could be harmful to consumers, because the availability of the policies may make comprehensive coverage more expensive and may leave consumers with inadequate coverage if they do not understand the risks of short-term policies.[7]
The Final Rule will become effective 60 days following publication in the Federal Register, which means consumers should be able to purchase the expanded short-term policies by November. The impact to healthcare marketplaces will continue to be analyzed over the coming months by various industry stakeholders, but the full impact of these low-cost, low coverage policies remains to be seen.
[1] Fact Sheet: Short-Term, Limited-Duration Insurance Final Rule, CMS, (Aug. 1, 2018)
[2] As we discussed in June, the ACA was amended by the Tax Cuts and Jobs Act of 2017, which, inter alia, removed the tax imposed on individuals who do not have minimum essential coverage beginning on January 1, 2019.
[4] Margot Sanger-Katz, What to Know Before You Buy Short-Term Health Insurance, New York Times, (Aug. 1, 2018)
[5] Trump Administration Delivers on Promise of More Affordable Health Insurance Options, Department of Health and Human Services, (Aug. 1, 2018)
[6] Robert Pear,'Short Term' Health Insurance? Up to 3 Years Under New Trump Policy, New York Times, (Aug. 1, 2018)
[7] John Bowden, Blue Cross Blue Shield: Trump short-term health plans expansion could ‘harm consumers’, The Hill, (August 1, 2018)