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Proposed Regulations Would Expand Availability of Short-Term, Limited-Duration Insurance

05.22.2018

Earlier this year, the Department of Labor, Department of Health and Human Services and IRS jointly issued proposed regulations that would expand the availability of short-term, limited-duration health insurance. The proposal followed 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.

Longer coverage periods

Indeed, the proposed regulations lengthen the maximum permissible coverage period. The agencies are proposing to amend the definition of short-term, limited-duration insurance so that an insurer may offer coverage periods of less than 12 months, including any extensions that may be elected by policyholders.

This amendment would restore the previously applicable maximum coverage period, thereby reversing the October 2016 final regulations that reduced the maximum coverage duration to any period of less than three months, including extensions.

Notice changes

The proposed regulations would also revise the required notice that must appear in enrollment materials for short-term, limited-duration insurance. Specifically, the regs would require the use of one of two versions of the notice, depending on whether the coverage start date is before January 1, 2019.

Two different forms of notice are needed 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. Both versions of the notice are 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.

Marketplace analysis

Short-term, limited-duration insurance is intended to fill temporary gaps in coverage that may occur when an individual is transitioning between coverages — for example, when an employee changes jobs and is in a waiting period under the new employer’s health plan. Although short-term, limited-duration coverage isn’t an excepted benefit as defined under the Health Insurance Portability and Accountability Act, it’s still exempt from the ACA’s individual-market requirements because it’s excluded from the definition of individual health insurance coverage. The exemption means the coverage need not offer all the elements that the ACA requires, such as the pre-existing condition exclusion prohibition and coverage of essential health benefits without annual or lifetime dollar limits. In turn, this allows insurers to offer the coverage at a lower cost than ACA-compliant plans.

The distinction also has some limited relevance for group health plans and group health insurance. For instance, limited wraparound coverage can wrap around most types of individual health insurance coverage but cannot wrap around short-term, limited-duration coverage. According to the preamble and a fact sheet issued by the Centers for Medicare and Medicaid Services, the agencies project that, after the elimination of the individual mandate penalty, approximately 100,000 to 200,000 additional individuals would shift from the individual market to short-term, limited-duration insurance in 2019. The longer duration may lead to individuals buying this type of coverage as their primary form of health insurance — a result that the October 2016 regulations intended to avoid by shortening the duration to less than three months.

Latest developments

The agencies are seeking comments on the proposed regulations by April 23, 2018, including conditions under which insurers should be able to allow short-term, limited-duration insurance to continue for 12 months or longer. Touch base with your benefits advisor for the latest developments.

IRS updates guidance on employer mandate penalties

In February, the IRS updated guidance on its webpage relating to potential penalties and other important information pertaining to applicable large employers (ALEs) subject to the employer mandate. Here are some highlights:

2018 adjusted penalty amounts. The adjusted penalty amounts per full-time employee for failures occurring in the 2018 calendar year will be $2,320 under Internal Revenue Code Section 4980H(a) and $3,480 under Code Sec. 4980H(b).

Adjustment to affordability standard. The guidance reflects the indexing adjustment for the required contribution percentage used to determine whether employer-sponsored health coverage is “affordable” for purposes of the employer mandate. The affordability threshold for 2018 is 9.56%.

Expired transitional relief. The guidance notes that no transitional relief is available for 2017 and future years. Relief that was available for the 2015 plan year (including months falling in 2016 for non-calendar-year plans) has now expired.

As a reminder, the IRS has begun sending Letter 226J to inform ALEs of their potential liability under the employer mandate for the 2015 calendar year — the first-ever assessment of these penalties. If your organization falls under the definition of an ALE, be on the lookout for this letter so you can promptly review and respond to the correspondence.

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