On February 20, 2018, the Department of Health and Human Services issued proposed regulations that would extend the maximum coverage period for short-term plans from three months to twelve months. The rule change comes at the request of President Trump, whose October 12 executive order encouraged the Secretaries of the Treasury, Labor, and Health and Human Services to “consider proposing regulations or revising guidance, consistent with law, to expand the availability of STLDI” (short-term, limited-duration insurance).
The proposed rule contains “amendments to the definition of short-term, limited-duration insurance for purposes of the exclusion from the definition of individual health insurance coverage” and is designed to “increase insurance options for individuals unable or unwilling to purchase PPACA-compliant plans.”
In short, it would increase the maximum term of these short-term policies from three months to twelve months, which was the standard before it was changed under the Obama administration.
The proposed rule also modifies the required disclosure for short-term, limited duration policies to ensure people understand that these plans do not comply with the individual mandate. As stated in the proposed rule, “since short-term, limited-duration insurance does not qualify as minimum essential coverage, any individual enrolled in a short-term, limited-duration plan that lasts 3 months or longer in 2018 would potentially incur a tax liability for not having minimum essential coverage during that year. Starting in 2019, the individual shared responsibility payment included in section 5000A of the Code is reduced to $0.”
Kaiser Health News quotes new HHS Secretary Alex Azar, who said that the administration wants “to open up affordable alternatives to unaffordable Affordable Care Act policies,” noting that expanding short-term coverage “is one step in the direction of providing Americans health insurance options that are more affordable and more suitable to individual and family circumstances.”
While those with pre-existing medical conditions may not qualify for a short-term plan, this move will help healthy individuals who have been priced out of the market obtain health insurance coverage. As Secretary Azar says, this is simply an option and is one step toward getting more Americans covered.
The rule change for short-term policies is not without its critics, though. Some worry that the plans might leave consumers without needed coverage for preventive care, pre-existing conditions, maternity, and mental health. There’s also a concern that insurers will be able to “cherry pick,” accepting healthy individuals while declining those with higher expected claims costs.
The real issue that critics have with short-term coverage, though, or any alternative to ACA-qualified plans for that matter, is that it could dilute the risk pool in the individual ACA market by enticing younger and healthier individuals with low-cost but less-comprehensive options.
The government acknowledges this possibility. The Kaiser article reports that Seema Verma, head of the Centers for Medicare & Medicaid Services, believes “that between 100,000 and 200,000 ‘healthy people’ now buying insurance through those federal exchanges would switch to the short-term plans, as well as others who are now uninsured.”
It’s great that healthy individuals might find a more affordable option, but if they drop their individual market coverage that will drive up premiums for less healthy individuals who do not qualify for a short-term plan. For that reason, opponents worry that expanding short-term coverage could do more harm than good.
While it is possible that increasing the maximum length of short term plans from three months to 12 months could ultimately harm the individual market in the states with laws that allow it, we have to acknowledge the fact that individual health insurance rates are already way too high. We already have adverse selection in the individual market. We already have high out-of-pocket costs and shrinking provider networks and skyrocketing premiums. We already have significant problems that need to be fixed. If the individual market goes further downhill, short-term coverage might be a contributing factor, but certainly will not be the only reason or even the primary reason.
The fact is that your clients are in need of solutions, and a certain percentage of them could benefit from this new option to purchase a lower-cost plan outside of the individual market. With a term up to 12 months, these policies will allow healthy individuals to purchase coverage that will protect their families from big, unexpected claims throughout the year. And if a condition does arise during the 12-month term that would prevent them from applying for a new standard issue short-term plan, they can purchase guaranteed-issue ACA-qualified coverage in the individual market during the annual open enrollment period.
Put simply, these short-term plans will be a great alternative for some of your clients, so this is a solution you should be discussing with those who might qualify. Be sure to mention that the plans will not exempt people from the individual mandate penalty, but also remind them that the penalty goes away in 2019.
Keep in mind that this is just a proposed rule at this point. We are now in a 60-day comment period that will end April 23, 2018. After the comment period, HHS will consider the comments, make any necessary changes, and likely issue a final rule. The change, if finalized, will be effective 60 days after publication of the final rule.
Specifically, the Departments are seeking comments about “the conditions under which issuers should be able to allow short-term, limited-duration insurance to continue for 12 months or longer with the issuer's consent.” In other words, while the terms would be limited to less than twelve months, consumers might be able to apply for a new coverage term when the original term expires.
AHCP will keep an eye on the proposed rule and will let you know when the rule is finalized and you can begin selling extended short-term plans.