CMS has continued their efforts to expand access to affordable coverage through the release of their latest proposed rule aimed at extending short-term health plans.
In October 2017, President Trump released an executive order that directed the Secretaries of the Department of Health and Human Services (HHS), Labor, and Treasury, collectively referred to as the tri-agencies, to “consider proposing regulations or revising guidance” to increase access to the availability of short-term, limited-duration insurance or STLDI. In response, the tri-agencies issued a proposed rule in February 2018 revising the definition of STLDI with the intent of increasing the maximum period that STLDI could be made available and “provide more affordable consumer choice for health coverage”.
Comments on the proposed rule are due by April 23. The policy will go into effect 60 days after publication of the final rule which is expected in late 2018.
What exactly is short-term, limited-duration insurance (STLDI)?
STLDI, colloquially referred to as short-term health plans, was designed with the intent to provide access to affordable care for individuals experiencing gaps in coverage, such as during the transition from one plan to another during a change in employment. Per CMS’ fact sheet, others that might benefit from STLDI include those who think coverage under the ACA individual market is not affordable or doesn’t lend enough options. By definition, STLDI is meant to be temporary (i.e., less than 12 months).
How does this proposed rule compare to Obama-Era regulations?
In October 2016, the Obama Administration issued a final rule that revised the definition of STLDI that had been in place for almost two decades, by limiting STLDI to be in effect for less than three months when including renewal periods. This change was made in response to concerns that marketing STLDI as a form of primary coverage would adversely alter the risk pool for ACA compliant health plans. This proposed rule reverses the fall 2016 final rule by permitting short-term health plans to be in effect for up to 364 days, as originally allowed under the Health Insurance Portability and Accountability Act (HIPAA).
What is the potential impact on the ACA individual market?
Individuals who enroll in short-term health plans for more than three months are currently subject to pay a federal tax penalty, which incentivizes enrollment in ACA compliant coverage. However, this penalty will no longer be in place as of January 1, 2019, following the repeal of the individual mandate in December 2017 tax legislation. Short-term health plans are generally cheaper than ACA compliant plans, so coupling this with repeal of the mandate will likely lead to individuals exiting the individual market.
Since short-term health plans are in effect for less than a year, they are not subject to compliance with the ACA’s clauses against medical underwriting. As a result, most enrollees in STLDI are younger and healthier. In addition, short-term health plans aren’t subject to certain ACA reforms such as the coverage of essential health benefits (EHBs). They are also exempt from the single risk pool requirement and risk adjustment program implemented under the ACA. The below items highlight examples of policies that short-term health plans can implement that are not compliant with the ACA:
- Not providing coverage for prescription drugs (an EHB)
- Denying coverage of individuals with pre-existing conditions
- Imposing higher premium costs on those with poorer health status
- Imposing annual or lifetime limits
- Charging higher out-of-pocket amounts that exceed the maximums allowed under the ACA
- Cancelling coverage altogether
The expansion of short-term health plans will likely encourage healthy enrollees to exit the ACA individual market thereby leaving high-risk individuals behind. Many are worried this will markedly drive up premium costs for those that remain in the individual market. In response, key stakeholders including Blue Cross Blue Shield Association, Families USA, America’s Health Insurance Plans (AHIP), Center on Budget and Policy Priorities (CBPP), and the American Cancer Society Cancer Action Network, among others, issued an open letter raising concerns about the impact of this proposed rule on the individual market risk pool.
Summary of Proposed Rule
- Allows medical underwriting
- Allows STLDI to offer coverage for up to 364 days
- Allows individuals to reapply for STLDI or renew their policy following the 364-day period
- Requires notice that STLDI coverage does not have to comply with ACA reforms to be prominently displayed in contract and application materials
- Extends nonenforcement policy to states for short term coverage sold prior to April 1, 2017