New proposed rule for Short-Term, Limited Duration Health Insurance
The federal government issued a proposed rule on February 20, 2018, addressing Short-Term, Limited Duration Insurance (STLDI). The proposed rule will not be finalized and implemented until after the public comment period closes on April 23, 2018. This rule was developed jointly by the Departments of Health, Treasury, and Labor, respectively, through the following agencies: the Centers for Medicare & Medicaid Services (CMS), the Internal Revenue Service (IRS), and the Employee Benefits Security Administration (EBSA). This proposed rule follows up on President Trump’s Executive Order from October 12, 2017, which we wrote about here.
The existing rules, subject to revision by the proposed new rule, were issued in 2016 under the Obama Administration. They specify that STLDI must be limited to three months and must contain a prominently featured notice on all enrollment materials stating that this coverage is not Minimum Essential Coverage (MEC) — or in other words, is not comprehensive — and the purchaser could still be subject to tax penalties for not complying with the requirement to have MEC.
In the meantime, tax reform legislation was signed into law by President Trump on December 22, 2017. This new law changed the financial penalty for not carrying MEC to $0, effective January 1, 2019. The Affordable Care Act (ACA) law still carries a so-called mandate to carry MEC, but the tax legislation removed the financial penalty after this year, weakening the ability to enforce this.
STLDI plans are usually intended for people who need basic coverage while out of the country or who have short periods of unemployment. They are not required to cover all the Essential Health Benefits (EHBs), making them cheaper, less comprehensive, and therefore ineligible for MEC status. For example, they may lack maternity coverage or habilitation/rehabilitation services, but if an individual unexpectedly needs one of these things (e.g., due to an unplanned pregnancy or an accident), they would not be covered until their next chance to get MEC. They may also have lifetime coverage limits, meaning that if the insured’s accident or illness cost more than what the plan was willing to cover, they would be responsible for the remainder.
Effectively, this means that people could purchase STLDI plans in perpetuity without penalty. This situation could leave these individuals with insufficient coverage and pull them from the risk pool with the rest of the individual market, making the costs for that group go up even more.
What does the proposed rule do?
The upshot of this proposed rule is that the federal government is proposing to widen a small loophole in the ACA that currently protects a small number of people with cheaper, limited coverage. Widening this coverage allows people who want this cheaper, less-comprehensive insurance to have coverage at the expense of people who are left in the individual market because they do need (or might need) the full range of EHBs.
The proposed rule suggests lengthening the amount of time this coverage can be in effect, from the current limitation of three months to up to twelve months, the same as other ACA plans. The proposed rule also suggests changing the required notification to include language acknowledging that this coverage may not be MEC, and not carrying MEC through the end of 2018 carries a financial penalty.
The federal government is requesting public comments on all aspects of the proposed rule, including the length of time that these STLDI plans may be in effect — more or less than the proposed 12 months. Furthermore, they note that the purchasers for these less-comprehensive plans are likely to be younger and healthier, which will draw these individuals out of the current individual market, making MEC even more expensive.