Short-term health plans are presently limited by federal rules to a duration of no more than 90-days of coverage but under the final rule issued by Trump Administration on August 1, 2018, effective October 3, 2018, short-term plans will be permitted to be available for up to 364 days. This rule will permit short-term health plans to be more like a longer-term alternative to regulated, comprehensive insurance policies. But before insurers consider selling or marketing these plans it’s important to consider the federal rule does not override the regulatory power of the states—and many states have, or are considering, prohibitions or restrictions on these plans.
In response to consumer complaints and confusion over the policy coverage, at least 17 states have taken steps to restrict or prohibit their sale with many more considering similar action. This article will highlight the modifications introduced by the federal final rule, Congressional efforts to further expand short-term health plans, and state efforts to prohibit or restrict them. Finally the article will highlight the expected impact the plans are likely to have on the Affordable Care Act (ACA) marketplace.
Short-term health plans are exempt from complying with requirements the ACA requires for health insurance plans. For example, short-term plans do not have to cover pre-existing conditions, do not have to cover essential health benefits (EHBs), and can impose cost caps per year.
The rule permits short-term plans to be available to individuals for up to 364 days. The plans may be renewed, at the discretion of the insurer, for up to 36 months. Thus, the rule does not include guaranteed renewability. HHS stated in the final rule that it does not have the legal authority to make plans guaranteed renewable because short-term plans are exempt from the definition of individual health insurance coverage under HIPAA.
Nothing in the rule precludes the purchase of separate insurance contracts that run consecutively, so long as each individual contract is separate and can last no longer than 36 months.
Republican lawmakers have introduced several pieces of legislation to adopt guaranteed renewals of short-term health plans, but it is unclear if such legislation could pass this Congress.
On March 7, Sen. John Barrasso (R-WY) introduced legislation to allow short-term plans to be a permanent option for consumers but the bill have not been considered by any committee. The bill, the Improving Choices in Health Coverage Act, is cosponsored by Sens. Johnny Isakson (R-GA), Tom Cotton (R-AR), Pat Toomey (R-PA), Lamar Alexander (R-TN) and Roger Wicker (R-MS). On the House side, Rep. Ted Bud (R-NC) introduced a companion bill along with cosponsors Andy Harris (R-MS) and Todd Rokita (R-IN).
At the time, the White House stated it supported the legislation and said that allowing guaranteed renewability in short-term plans was one of its health policy priorities for the March omnibus. Attempts to include the bill in March budget bill were unsuccessful.
Nothing in the final rule precludes states from prescribing shorter terms. Many state insurance regulators have expressed deep concern that short-term plans are likely to mislead consumers and have sought to aggressively regulate or ban the plans. Most of the states that have taken action to limit the plans are Democratic-leaning states that support the ACA but some Republican-leaning states have also limited the plans.
Many states already have existing laws which prohibit the sale of or severely restrict the duration of short term health plans. Massachusetts, New Jersey, and New York ban underwritten short-term coverage outright. Arizona and Indiana limit the duration of the plans to no more than 185 days.
In other states, state legislatures have introduced and passed a slew of bills to prohibit or limit duration of short term plans. In California, the state Senate passed a bill in August that would prohibit the sale of short-term plans (plans of less than 12 months). The bill is pending in the state Assembly, where two committees have approved it. Prior to the 90-day policy limit implemented by the Obama administration, California limited short-term plans to 185 days. The state later complied with the federal 90-day rule but it will revert to the 185-day limit once Trump’s rule is in place if the new legislation does not become law first.
In Maryland, Gov. Larry Hogan, a Republican, signed a bill that limits short-term policies to less than three months and says they cannot be extended or renewed. In Vermont, a similar law, signed by Gov. Phil Scott, also a Republican, limits short-term plans to three months or less and prohibits renewals. Rates and advertising are subject to approval by the state insurance commissioner.
A new Hawaii law sets a three-month limit on short-term plans and generally prohibits insurers from selling them to anyone who was eligible to buy comprehensive insurance through the Affordable Care Act marketplace in the prior year.
In Virginia, Gov. Ralph Northam, a Democrat, vetoed legislation earlier this year which would have authorized insurers to sell short-term plans lasting up to 364 days.
The federal government predicts in the final rule that another 600,000 people will enroll in the short-term plans, and that number will increase until about 2022, when it peaks at around 1.6 million.
The government predict that up to 200,000 people from the ACA exchanges will choose a short-term plan in 2019. For background, eighty-seven percent of exchange enrollees receive subsidies in 2018, and they are unlikely to change coverage because short-term plans are not eligible for subsidies and provide less comprehensive coverage.
The difference in premiums paid between the noncompliant plans and ACA plans is substantial. In the fourth quarter of 2016, a short-term plan cost about $124 a month compared to $393 a month for an unsubsidized individual market compliant plan under ACA.
Contributed by Greenberg Traurig, LLP
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