Tri-Agencies Proposed Rule Alters Short-Term, Limited Duration Insurance Offering

On February 20^th the Department of the Treasury, Department of Labor, and Department of Health and Human Services (together the “tri-agencies”) released a proposed rule which would alter how long short-term, limited-duration insurance (“STLDI”) plans could be offered. Under current rules the maximum duration that a STLDI plan can be offered is less than 3 months, if the proposed rule is enacted that period would be extended to less than 12 months.  The tri-agencies are accepting comments on the proposed rule until April 23^rd.

What are short-term, limited-duration health insurance plans?

STLDI plans were designed to provide temporary coverage for consumers who otherwise could not access longer-term health insurance products (such as a consumer transitioning between jobs). Coverage offered by STLDI plans is not considered Minimum Essential Coverage and because STLDI plans do not meet the definition of “individual health insurance coverage” established by the Public Health Service Act they are exempted from many of the Affordable Care Act (“ACA”) requirements. Due to the fact that STLDI plans don’t have to comply with ACA requirements they commonly feature preexisting condition exclusions, annual and life time limits, feature higher cost-sharing requirements, and are medically underwritten they tend to be less expensive and attract younger, healthier enrollees.

Why are the regulations changing?

The proposed rule was issued in response to President Trump’s October 12, 2017 executive order which, among other things, instructed the tri-agencies to reconsider the Obama era rule which limited the time period STLDI plan could be offered to less than 3 months. The presumed intent of proposed rule is to foster more and less expensive health insurance options for individuals in the individual market.  However, the Obama administration initially issued the regulations limiting STLDI plans after observing that the plans were adversely impacting the marketplace risk pools, and the political motivation to adversely impact those risk pools and through them “Obamacare” can’t be fully discounted.

What is the likely impact?

The consensus among policy makers is that extending the duration of the coverage period that STLDI can be offered is likely to increase the number of consumers who elect to enroll in these plans over health insurance that constitutes Minimum Essential Coverage. The number of people enrolling in STLDI plans is likely to increase further in 2019 when consumers will no longer face a tax penalty for failing to maintain minimum essential coverage. One estimate suggests that if the proposed rule is enacted in 2019, 4.2 million consumers will enroll in the STLDI plans and 2.9 million fewer people will maintain Minimum Essential Coverage. While we don't know the scope this would have on the risk pools in the individual market, it warrants monitoring by plans and providers moving forward.