The Departments of Labor (DOL), Treasury (DOT) and Health and Human Services (HHS) (tri-agencies) recently released their final rule on short-term, limited-duration insurance (STLDI).
As noted in my commentary on the proposed rule, this final rule is in response to the President’s October 2017 Executive Order which directed the tri-agencies to, “expand the availability of and access to alternatives to expensive, mandate-laden [Patient Protection and Affordable Care Act] PPACA insurance.”
In sum, supporters opine this rule will expand access to affordable coverage while critics suggest it will greatly diminish consumer protections included in the PPACA. The rule goes into effect on October 2, 2018.
Before getting into the details, here’s what you need to know at the outset: This final rule amends the definition of STLDI by stating the initial contract length must be less than 12 months, but the policy may be extended or renewable up to a maximum of 36 months. This breaks with an Obama-era rule that defined STLDI as coverage lasting less than three months to address concerns that STLDI was being sold alongside PPACA-compliant plans as a type of primary coverage.
But wait – before you jump to conclusions that this is another dig at the PPACA (which it very well may be, but hold your judgement until the end), STLDI was originally defined in regulation as coverage with an initial contract length of less than 12 months back in 1997. Therefore, the Trump Administration has basically put the original rule back on the books. The final rule also maintains that STLDI is different than individual health insurance coverage.
The real problem with this rule, for lack of better words, is allowing the coverage to be renewable for up to three years. Doesn’t that kind of sound like individual health insurance to you? Me too.
So why does that matter?
STLDI was never intended to function as one’s primary source of health coverage. It was primarily designed to provide temporary health coverage during gaps in coverage such as the transition from one plan to another. STLDI is generally exempt from PPACA and other federal health insurance requirements because it is not considered individual health insurance coverage. States have primarily regulated it under accident and sickness insurance rather than major medical insurance because of this.
STLDI is not mandated to provide essential health benefits (EHBs) or safe-guard against imposing strict, maximum coverage limits, high out-of-pocket cost-sharing and pre-existing condition exclusions. The final rule requires STLDI issuers to alert consumers with a prominent notice within the application and contract materials that STLDI coverage is not required to comply with ACA requirements.
I also want to point out the tri-agencies’ response to comments to the proposed rule in that the applicability of non-discrimination provisions under Section 1557 of the PPACA was beyond the scope of this regulation. This signals that STLDI issuers can underwrite all of us, which is expected given that it’s not subject to the strict PPACA provisions. If you aren’t familiar, underwriting refers to the process of using one’s medical or health information in determining whether an applicant should have coverage and what they should pay. It was prohibited under the PPACA because it often leads to people with pre-existing conditions being denied care or paying a markedly higher premium to account for their poorer health status.
Many think STLDI is a great option if used as originally intended – temporary coverage to fill a gap. But, the thought of someone relying on short-term, limited-duration coverage for up to 3 years just seems a little odd. You be the judge.