Short-Term Limited-Duration Insurance – In a Nutshell
On August 3, 2018, the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (the Departments) published a Final Rule to expand the availability of short-term medical policies. Called short-term, limited-duration insurance (STLDI), the policies are marketed to individuals as an alternative to ACA-compliant plans. Currently a short-term policy is limited to less than three months, but the new rule will allow carriers to issue the policies for longer periods.
What is short-term limited-duration insurance (STLDI)?
Short-term, limited-duration insurance is a specific type of health coverage that is exempt from the ACA’s market reform rules. STLDI policies may exclude entire categories of benefits, such as prescription drugs, maternity, or mental health care, may impose coverage caps, and may reject applicants with pre-existing conditions. STLDI policies offer lower premiums than ACA-compliant plans because they provide less coverage and typically only accept healthy applicants.
Note that STLDI is not minimum essential coverage and does not satisfy the ACA’s individual mandate. The individual mandate (i.e., the requirement for individuals to have some form of minimum essential coverage) expires at the end of 2018, after which persons without adequate health coverage will no longer be exposed to potential IRS tax penalties.
What is the purpose of the new federal rule?
The existing rule defines “short term” as less than three months and limits the policy’s duration by prohibiting renewals that would go beyond the three-month period. The new rule, on the other hand, will allow carriers to issue STLDI policies for an initial term of up to 364 days, and allows extensions or renewals for up a total of 36 months. This is a significant change that is intended to expand access to low-cost limited-coverage options for individuals.
The new federal rule takes effect for STLDI policies issued October 2, 2018, or later. There is a catch, however. Insurance is subject to state insurance laws, and many states appear reluctant to adopt the new rule for policies issued in their state. Some states even prohibit short-term policies under the current federal rule. At last weekend’s National Association of Insurance Commissioners (NAIC) meeting, several state regulators expressed concerns about “junk insurance” or deceptive marketing practices that may lure consumers into purchasing substandard coverage.
Are employers affected by STLDI policies or the new rule?
Employers are not directly affected by STLDI policies. The policies are marketed to individuals, where permitted by state insurance law; they are not group plans.
Some workers may consider STLDI options, or ACA-compliant individual insurance options, as an alternative to their employer’s group plan. In most cases, though, persons who buy individual insurance do so because they do not have access to an employer’s plan. Workers whose employment ends may also consider individual options as an alternative to COBRA.
Over the coming weeks and months, state insurance regulators and state legislatures are expected to review their existing laws and regulations on short-term, limited-duration insurance and consider whether to adopt changes. Some states likely will choose to implement rules to support the new federal rule, while other states certainly will impose restrictions or continue to prohibit the sale of insurance products they consider to be substandard.