Final Regulations Expand Availability of Short-Term, Limited-Duration Insurance

On Aug. 1, 2018, the DOL, HHS and Department of the Treasury (the Departments) issued a final rule related to short-term, limited-duration coverage. The rule finalizes the proposed rule, issued in February 2018, with some modification. The issuance of the rules was a direct result of an executive order issued by President Trump in October 2017, which sought an extension of the coverage.

As background, short-term, limited-duration insurance is a type of coverage intended to fill temporary gaps in coverage when an individual is transitioning from one plan or coverage to another form of coverage. This type of coverage is exempt from the definition of "individual health insurance coverage" under the ACA and is, therefore, not subject to ACA provisions that apply to individual health insurance plans — including the requirement to provide coverage for essential health benefits, the prohibition on annual and lifetime dollar limits and prohibition on pre-existing condition exclusions. As a result, short-term, limited-duration insurance plans generally cost less than ACA-compliant plans.

The proposed rule to change the maximum duration of short-term, limited-duration coverage to less than 12 months from the current maximum duration of less than three months was finalized. Additionally, the final rule permits such coverage to be renewed for no more than a total of 36 months.

Under the proposed rules, issuers were required to provide a disclosure to consumers explaining that short-term, limited-duration coverage isn’t required to comply with certain federal requirements and doesn’t constitute minimum essential coverage. The final rule revised the notice to add language specifying the federal requirements with which the policy is not required to comply.

For example, the required notice states that the consumer should be aware of any policy exclusions related to pre-existing conditions, mental health services, preventive care and maternity care. Further, the revised notice explains that an individual who doesn’t have minimum essential coverage in 2018 may owe a payment on their tax return. This is to reflect the individual mandate that’s in place for the remainder of 2018 and the fact that the penalty for such goes away in 2019. The notice must appear in the contract and application materials in at least 14-point font.

Importantly, the final rule makes clear that states may further restrict the availability of short-term, limited-duration policies. A state may prohibit such coverage, enforce a shorter maximum policy period, restrict renewals or require additional disclosure. Such laws will not be preempted by the final rule.

The final rule is applicable to policies sold on or after 60 days following publication in the Federal Register.

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