Final Rule Expands Short-Term, Limited-Duration Insurance

On Aug. 3, 2018, the Departments of Labor, Health and Human Services (HHS) and the Treasury (Departments) published final regulations amending the definition of short-term, limited-duration insurance for purposes of the Affordable Care Act (ACA). These regulations:

• Provide a maximum coverage period of up to 12 months; and
• Amend the notice to provide additional specificity, including a list of benefits that might not be covered.

In addition, the final regulations allow short-term, limited-duration insurance to continue for up to 36 months in total, taking into account renewals or extensions.

As a result of these final regulations, issuers can now offer short-term, limited-duration insurance policies that last up to 12 months. According to the Departments, this will provide consumers with more affordable options for health coverage.

Short-term, limited-duration insurance is a type of health insurance coverage that is designed to fill temporary gaps in coverage when an individual is transitioning from one plan or coverage to another plan or coverage. Specifically, existing regulations defined short-term, limited-duration insurance as “health insurance coverage provided pursuant to a contract with an issuer that has an expiration date specified in the contract (taking into account any extensions that may be elected by the policyholder without the issuer’s consent) that is less than 12 months after the original effective date of the contract.”

Although short-term, limited-duration insurance is not an excepted benefit, it is specifically exempt from the definition of “individual health insurance coverage” and, therefore, is not subject to the ACA’s market reform requirements. However, the Departments have become aware that short-term, limited-duration insurance is being sold as a primary form of health coverage, in some instances.

2016 Final Regulations

On Oct. 31, 2016, the Departments published final regulations revising the definition of short-term, limited-duration insurance for purposes of the exclusion from the definition of individual health insurance coverage. Under this revised definition, short-term, limited-duration insurance coverage was required to be less than three months in duration, including any period for which the policy may be renewed. The final regulations eliminated the ability for the coverage period to take into account extensions made by the policyholder “with or without the issuer’s consent.”

In addition, a notice must be prominently displayed in the contract and in any application materials provided in connection with enrollment in short-term, limited-duration insurance coverage with the following language:

THIS IS NOT QUALIFYING HEALTH COVERAGE (“MINIMUM ESSENTIAL COVERAGE”) THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE AFFORDABLE CARE ACT. IF YOU DON’T HAVE MINIMUM ESSENTIAL COVERAGE, YOU MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES.

The revised definition of short-term, limited-duration insurance applied for policy years beginning on or after Jan. 1, 2017. However, HHS stated that it would not take enforcement action against an issuer with respect to the sale of short-term, limited-duration insurance before April 1, 2017, on the ground that the coverage period is three months or more, provided that the coverage:

• Ends on or before Dec. 31, 2017; and
• Otherwise complies with the definition of short-term, limited-duration insurance in effect under the final regulations.

States were also permitted to elect not to take enforcement actions against issuers with respect to this type of coverage sold before April 1, 2017.

2018 Final Regulations

Following the 2016 final regulations, there was concern that shortening the permitted length of short-term, limited-duration insurance would drastically reduce affordable coverage options for consumers. As a result, the Departments issued the 2018 final regulations to lengthen the maximum period of short-term, limited-duration insurance, in an effort to provide more affordable consumer choice for health coverage.

These final regulations were issued as a result of the following recent developments:

• On Oct. 12, 2017, President Donald Trump issued Executive Order 13813, which directed the Departments to consider proposing regulations or revising guidance to expand the availability of short-term, limited-duration insurance by allowing it to cover longer periods and be renewed.
• On Dec. 22, 2017, President Trump signed a tax reform bill, called the Tax Cuts and Jobs Act, into law, which reduces the ACA’s individual mandate penalty to zero, effective beginning in 2019.

In light of these developments, the final regulations amended the definition of short-term, limited-duration insurance so that it may offer a maximum coverage period of less than 12 months after the original effective date of the contract, consistent with the original definition (that is, the final rule expanded the potential maximum coverage period by nine months). Under this definition, the expiration date specified in the contract takes into account any extensions that may be elected by the policyholder without the issuer’s consent, provided that it has a duration of no longer than 36 months in total (taking into account renewals or extensions).

In addition, the final rule revised the required notice that must appear in the contract and any application materials, due to concern that short-term, limited-duration insurance policies lasting almost 12 months may be more difficult to distinguish from ACA-compliant coverage (which is typically offered on a 12-month basis). Accordingly, one of two versions of the following notice must be prominently displayed (in at least 14-point type) in the contract and in any application materials provided in connection with enrollment:

This coverage is not required to comply with certain federal market requirements for health insurance, principally those contained in the Affordable Care Act. Be sure to check your policy carefully to make sure you are aware of any exclusions or limitations regarding coverage of pre-existing conditions or health benefits (such as hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental health and substance use disorder services).

Your policy might also have lifetime and/or annual dollar limits on health benefits. If this coverage expires or you lose eligibility for this coverage, you might have to wait until an open enrollment period to get other health insurance coverage. Also, this coverage is not “minimum essential coverage.” If you don’t have minimum essential coverage for any month in 2018, you may have to make a payment when you file your tax return unless you qualify for an exemption from the requirement that you have health coverage for that month.

Due to the elimination of the individual mandate penalty beginning in 2019, the final two sentences of the notice are only required to be included with respect to policies that have a coverage start date before Jan. 1, 2019.

The notice should be in sentence case (rather than all capital letters), and may contain any additional information, as required by applicable state law.