By now you’ve probably heard the news: the Department of Health and Human Services, in conjunction with the Department of Labor and Department of Treasury, has issued the final rule on the expansion of short-term, limited duration health insurance plans that the President called for in his executive order last October. The rule expands the length of short-term plans, which is a big deal for healthy individuals who do not have access to employer-sponsored coverage and who do not qualify for a premium tax credit.
What are short-term health plans?
As CMS explains in its press release about the final rule, “Short-term, limited-duration insurance is a type of health insurance coverage that was primarily designed to fill gaps in coverage that may occur when an individual is transitioning from one plan or coverage to another plan or coverage, such as in between jobs. This type of coverage is exempt from the definition of individual health insurance coverage under the Patient Protection and Affordable Care Act (PPACA) and is therefore not subject to the PPACA provisions that apply to the individual market.”
That said, the final rule expands the definition of short-term plans so that they are no longer really short-term in nature. Instead of being a temporary solution for people who are in-between jobs, short-term plans will likely become the go-to solution for many individuals who cannot afford ACA plans or who do not use health care services very often.
What does the final rule say?
Believe it or not, the final rule on short-term, limited-duration health insurance is 121 pages long. What you probably care about, though, can be summarized in just a few sentences:
- Short-term plans must be less than 12 months in duration. That means they can have a term of up to 364 days.
- The plans can be renewed for up to 36 months.
- Certain important disclosure language must be included with the plans and during the application process to help consumers understand what they are getting.
How soon will expanded short-term plans be available?
The final rule is effective 60 days from the date it was published in the Federal Register, so that means short-term health plans can be offered as early as October 2, 2018. UnitedHealth One (Golden Rule) began offering STM plans up to 12 months in duration as of Sep 14 for policies with effective dates October 2nd and later, while National General will permit sales of 12 month duration STM plans starting on October 2.
What do my clients need to know?
For your individual clients who do not qualify for a premium tax credit, there will likely be quite a bit of interest in this new solution. Short-term health plans can be less expensive than ACA-compliant individual plans, sometimes much less expensive, and with the individual mandate penalty going away in 2019, your clients don’t have to worry about getting hit with a tax penalty for failing to maintain minimum essential coverage. That said, there are pros and cons to this strategy.
- Less costly alternative: For comparable deductibles and out-of-pocket limits, short-term plans are usually less expensive than ACA metallic plans because they do not include some of the ACA protections for people with pre-existing conditions (most STM plans exclude pre-existing conditions) and because they allow the carrier to underwrite and decline coverage.
- Could reduce out-of-pocket exposure: While the ACA attempted to cap people’s out-of-pocket exposure, that out-of-pocket limit continues to increase. In 2019, the out-of-pocket maximum on an ACA-compliant plan is $7,900 for individuals and $15,800 for people with family coverage. Short-term plans allow clients to select coverage with lower out-of-pocket exposure than the typical individual plan. They also allow people who really want to lower their premium to select plans with an even higher out-of-pocket limit than the statutory maximum.
- Limited preventive care: Unlike ACA metallic plans, short-term plans are not required to cover preventive care on an up-front basis with no cost sharing. Most provide no preventive care at all so be sure to know the details of the plans you present.
- No coverage for pre-existing conditions: Short-term plans are designed to protect against unforeseen illnesses and injuries, but they do not provide coverage for any pre-existing conditions the client already has. For that reason, this solution really is designed for a select group of clients. Those with a pre-existing condition should consider an ACA plan.
- Does not cover all essential benefits: The Affordable Care Act requires that all “essential benefits” be covered by individual health plans, including maternity and mental health. Short-term plans are not required to cover all essential benefits.
- Limited drug coverage: Few short-term plans cover prescription drugs, and those that do put an annual cap on coverage. While the cap may vary, many have a limit of $500 per year. This is a big disadvantage of short-term plans. While individuals may not take any prescriptions at the time they purchase the short-term plan, if they develop a condition while covered that requires an expensive specialty drug, they could quickly be out of pocket thousands of dollars per month.
- Annual caps: The Affordable Care Act does not permit annual or lifetime dollar limits on essential benefits, but that rule does not apply to short-term plans. Most short-term health plans have an annual cap, sometimes $1 million, sometimes less than that.
Are these junk policies?
Recognizing that short term medical plans do have limitations, are they really “junk policies” like some people say? It really depends on who you ask. For someone with a pre-existing condition, or someone who is prescribed an expensive medication while covered under a short-term plan, an argument could certainly be made that these plans are inferior compared with ACA-compliant metallic plans. On the other hand, for people who cannot afford the high premiums of today’s health plans, having access to health coverage can be a lifesaver. Short-term plans might be the only coverage some of your clients can afford, and they will likely be a very popular solution going forward.
As with any health insurance strategy, short-term health plans are not a one-size-fits-all solution. Instead, they provide a practical alternative for a select group of clients. For those clients who do not qualify for a premium tax credit and who do qualify for a short-term plan, this can be an excellent solution that can save them money. Keep in mind, though, that these are not as comprehensive as ACA plans, so there are definitely some holes in the coverage and some risks in choosing this less costly alternative. To learn about short term medical plans available in your state and to get appointed, call AHCP Agency Services at 877-228-8773 or click here to explore further.