Short-term, limited-duration health insurance access expands
Maximum contract period extends to 12 months, renewals allowed
INSIGHT ARTICLE |
In August 2018, the Departments of Treasury, Labor, and Health and Human Services (HHS) jointly published a final regulation expanding access to short-term, limited-duration health insurance (short-term policies). Short-term policies provide individuals with health insurance during gaps in other coverage; however, they usually do not include core consumer protections under the Affordable Care Act (ACA).
Short-term health insurance background
Short-term policies pre-date the ACA as they have been available for over 20 years. The purpose of a short-term policy is to fill temporary gaps in coverage that may occur when a person is transitioning between coverages. For example, an individual who terminates employment may purchase a short-term policy to fill a coverage gap until health insurance is obtained through a new employer.
Since short-term policies are exempt from certain ACA requirements, these policies generally can be offered at lower prices than ACA-compliant individual policies. Therefore, short-term policies typically provide consumers with a more affordable option for health coverage. However, short-term policies can impose various limitations and exclusions that are not allowed in ACA-compliant policies. In addition, short-term policies are not considered minimum essential coverage so consumers who purchase them may still owe an individual mandate penalty for not having ACA coverage for years before 2019.
Prior to the ACA, short-term policies had a contract period of less than 12 months. This changed in 2016 when the federal government reduced the contract period to less than three months. In October 2017, President Trump issued an executive order which directed federal agencies to consider proposing regulatory changes that would expand the availability of short-term policies. Consequently, the agencies have issued a final regulation which allows short-term policies to cover longer periods and be renewed by the consumer.
New short-term policy requirements
Starting in October 2018, short-term policies must have an initial contract term of less than twelve months, with renewals or extensions allowed for up to a total of 36 months. However, states may impose a shorter maximum initial contract term or a shorter maximum duration of a policy.
In addition, disclosure requirements must be satisfied in the marketing of short-term policies to consumers. Insurers must provide a notice in the short-term policy and in the application materials which states that the coverage is not required to comply with certain federal market requirements for health insurance, principally those contained in the ACA. The notice also advises consumers to be aware of any exclusions or limitations in coverage. States can require insurance companies to provide additional information as part of the consumer notice.
Exclusions and coverage limitations can occur because short-term policies are not subject to certain ACA protections:
Pre-existing conditions. Individuals with pre-existing health conditions can be denied a short-term policy based on the condition existing prior to the effective date of the policy. If a potential pre-existing condition emerges during coverage, the short-term policy issuer may investigate the policy-holder’s application for evidence that a pre-existing condition existed at the time the policy was purchased. If such evidence is discovered, the issuer can refuse to pay expenses associated with the condition or retroactively cancel the policy.
Guaranteed availability and renewability. Issuers of short-term policies can reject individuals based on health factors, or can charge higher premiums due to these factors. In addition, they are not required to renew or continue an individual’s policy.
Essential health benefits. Coverage for the ten essential health benefits is not required. The ten essential health benefits are:
- Ambulatory patient services (outpatient services)
- Emergency services
- Maternity and newborn care
- Mental health, substance abuse and behavioral health treatment
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including dental and vision care
Dollar limits. Issuers of short-term policies can place annual and lifetime dollar limits on the amount the plan will pay for certain treatments and other benefits. They can also design plans without out-of-pocket maximums, potentially leaving consumers with financial exposure for high medical expenses. In addition, they are not required to offer full coverage without cost sharing for certain ACA preventive services.
Short-term policies may also contain design features that restrict or limit coverage for prescription drugs, pregnancy care, and mental health and substance abuse disorders.
The federal government estimates that as many as 200,000 individuals previously enrolled in ACA-compliant individual market coverage will purchase short-term policies in 2019. It estimates that only about 10 percent of these individuals would have been entitled to a premium tax credit subsidy if they had purchased coverage through the Exchange.
For more information, visit the Short Term, Limited Duration Insurance page on the Department of Labor website.
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