The Departments of Health and Human Services, Labor, and Treasury have amended the definition of short-term, limited-duration individual health insurance coverage. The amendments allow coverage to last up to 364 days rather than up to three months. This applies 60 days after August 3, 2018, the date the new regulations were published in the Federal Register.
Short-Term Coverage and the ACA
Short-term, limited-duration insurance is a type of health insurance coverage designed to fill temporary gaps in coverage that may occur when an individual is transitioning from one plan or coverage to another. Short-term coverage is exempt from the minimum essential coverage requirements under the Affordable Care Act (ACA) ( P.L. 111-148) because it is not considered individual health insurance. Although short-term coverage does not satisfy the requirements for avoiding individual mandate liability, the individual mandate does not apply after 2018.
In 2016, the Obama Administration changed the maximum term from less than one year to less than three months. They wanted to make it more difficult for insurers to offer stripped down, short-term coverage to the young and healthy in competition with Affordable Care Act individual market coverage that has to be available to any applicant.
Making Short-Term Coverage More Viable
The Trump Administration has made it a priority to make short-term insurance more viable as a means of getting around the Affordable Care Act’s prohibition against pre-existing condition exclusions. The amended rule—
- Changes the maximum period back up to less than one year (i.e., 364 days); and
- Provides that short-term contracts may be renewed for a maximum period of less than
36 months.
Because issuers of short-term contracts can pick and choose whom and what they will cover, the costs of coverage will be far less, and the expectation is that these savings will be passed along in lower premiums. Younger and healthier individuals should benefit, but older individuals and individuals with pre-existing conditions will still need to obtain more expensive Affordable Care Act-compliant coverage in order to have their pre-existing conditions covered. Affordable Care Act-compliant coverage might become more expensive as younger and healthier individuals leave these plans, leaving behind an older and sicker risk pool.
Because the individual mandate is eliminated after 2018, insurers have no reason not to offer short-term plans starting in 2019.
Group Health Plans
Although these changes are primarily aimed at the individual insurance markets rather than group plans, the definition of short-term, limited-duration insurance is relevant to group health plans and group health insurance issuers. For example, an individual who loses coverage due to moving out of an HMO service area in the individual market triggers a special enrollment right into a group health plan ( Reg. §54.9801-6(a)(3)(i)(B)). Also, a group health plan that wraps around individual health insurance coverage is an excepted benefit if certain conditions are satisfied ( Reg. §54.9831-1(c)(3)(vii)).
Amendments of Reg. §§54.9801–2 and 54.9833–1, amending the definition of short-term, limited-duration insurance for purposes of its exclusion from the definition of individual health insurance coverage, are adopted.
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