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New Regs Extend Short-Term, Limited Duration Insurance Coverage

10.15.2018

The Department of Labor, Department of Health and Human Services, and IRS jointly finalized regulations in August that extend the permissible duration of short-term, limited-duration health insurance. This action follows President Trump’s executive order directing the agencies to consider regulations or guidance that would allow such insurance to cover longer periods and to be renewed by the consumer.

The regs, which finalize previously proposed rules with some modifications, were scheduled to take effect 60 days after publication in the Federal Register. Let’s look at some highlights.

Lengthening of coverage period

In finalizing the regs, the agencies have interpreted “short term” to mean an initial coverage period of fewer than 12 months. They’ve also implemented the “limited duration” requirement by allowing renewals or extensions for up to a total of 36 months.

The regs don’t preclude the purchase of separate policies that run consecutively, so long as each individual policy is separate and can last no longer than 36 months. States may adopt a definition with a shorter maximum initial term or shorter maximum duration (including renewals and extensions), but they may not lengthen these periods.

The preamble explains that short-term, limited-duration coverage is like COBRA in that both serve as temporary coverage for individuals transitioning between other types of coverage. In fact, the agencies looked to COBRA (which permits a maximum of 36 months of continuation coverage) for the meaning of “limited duration.” Recognizing that the 36-month maximum duration standard may be challenged in court, the agencies have added a severability clause to ensure that the remaining standards in the regulations would still be effective.

The interpretation of the limited-duration requirement to mean up to 36 months is a new feature added in the final regs. This takes the potential duration well beyond the maximum coverage period of 12 months that applied before the October 2016 regulations, which reduced the maximum coverage duration to fewer than three months (including any possible extensions).

Changing of notice requirements

Enrollment materials for short-term, limited-duration insurance must include one of two versions of the required notice, depending on whether the coverage start date is before January 1, 2019. There are two versions because certain language relating to maintaining minimum essential coverage to avoid the individual mandate penalty under the Affordable Care Act (ACA) will no longer apply starting in 2019, when the individual mandate penalty is reduced to zero.

The notice is intended to warn consumers that short-term, limited-duration policies aren’t required to comply with certain federal health insurance mandates — principally those contained in the ACA. In the final regs, the notice has been revised to add specific language making consumers aware of potential exclusions or limitations of pre-existing conditions or of certain benefits. Examples include:

  • Hospitalization,
  • Emergency services,
  • Maternity care,
  • Preventive care,
  • Prescription drugs, and
  • Mental health and substance use disorder services.

New language also indicates that the policy might have lifetime and annual dollar limits on health benefits. States have flexibility to require additional disclosures.

Rising premiums possible

The preamble acknowledges that making short-term, limited-duration policies more available and for longer periods than currently permitted could affect the risk pools for individual health insurance coverage, thus raising premiums for that coverage. But the agencies have determined that more affordable coverage options “substantially outweigh the estimated impact on individual health insurance premiums.”

The preamble also notes that — though premium tax credits aren’t available for the purchase of short-term, limited-duration insurance — states may be able to provide subsidies to purchasers of such coverage with funds provided under ACA innovation waivers if they satisfy the applicable waiver requirements. (Premium tax credits are available only to qualifying individuals who enroll in coverage through a Health Insurance Marketplace, commonly known as an exchange.) For more information on how these regs may affect employers, contact your benefits advisor.

Sidebar: HHS proposes regulations to address 2018 risk adjustment program

The Department of Health and Human Services (HHS) has issued proposed regulations that would re-adopt the risk adjustment methodology previously established under the risk adjustment program for 2018.

The risk adjustment program, established under the Affordable Care Act, applies to nongrandfathered plans and insurers in the individual and small group markets. In an effort to stabilize premiums and reduce incentives for insurers to avoid higher-risk enrollees, plans with lower-than-average actuarial risk are assessed charges that are used to make payments to plans with higher-than-average actuarial risk.

A district court ruling in New Mexico barred the agency from using the methodology in the risk adjustment transfer formula for 2014 to 2018 because the HHS didn’t adequately explain its decision to adopt a methodology that ensures that amounts collected from insurers equal payments made to insurers (budget neutrality). In July, the HHS reissued final regulations that explained the rationale for the use of statewide average premiums under the risk adjustment program for 2017 — thereby restoring operation of the program after a short pause in risk adjustment collections and payments based on the court ruling.

The proposed regulations would allow the program to continue for 2018. The preamble provides additional explanation in support of budget neutrality and why the HHS views use of statewide average premiums as essential to the success of the program.

As the HHS notes, health insurers are in the process of determining the extent of their participation in Health Insurance Marketplaces (commonly known as exchanges) and the rates and benefit design for plans they’ll offer for 2019. So, uncertainty about payments under the risk adjustment program for 2018 could lead insurers to substantially increase 2019 premiums to account for the uncompensated risk associated with high-risk enrollees. These proposed regulations are aimed at maintaining stability and predictability in the individual and small group markets by ensuring that collections and payments under the risk adjustment program may be made for 2018 in a timely manner.

Team

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