Final Rule Expands Short-Term, Limited-Duration Insurance

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On August 3rd, 2018, the Departments of Labor, Health, and Human Services (HHS), and the Treasury (Departments) published final regulations amending the definition of short-term, limited-duration insurance for purposes of the Affordable Care Act (ACA).

What is this type of insurance?

Short-term, limited-duration insurance is a type of health insurance coverage that is designed to fill temporary gaps in coverage when an individual is transitioning from one plan or coverage to another plan or coverage. Specifically, existing regulations defined short-term, limited-duration insurance as “health insurance coverage provided pursuant to a contract with an issuer that has an expiration date specified in the contract (taking into account any extensions that may be elected by the policyholder without the issuer’s consent) that is less than 12 months after the original effective date of the contract.”

Although short-term, limited-duration insurance is not an expected benefit, it is specifically exempt from the definition of “individual health insurance coverage” and, therefore, is not subject to the ACA’s market reform requirements. However, the Departments have become aware that short-term, limited-duration insurance is being sold as a primary form of health coverage, in some instances.

What is included in the final rule?

On October 31st, 2016, the Departments published final regulations revising the definition of short-term, limited-duration insurance for purposes of the exclusion from the definition of individual health insurance coverage. Following the 2016 final regulations, there was concern that shortening the permitted length of short-term, limited-duration insurance would drastically reduce affordable coverage options for consumers. As a result, the Departments issued the 2018 final regulations to lengthen the maximum period of short-term, limited-duration insurance, in an effort to provide more affordable consumer choice for health coverage.

The final regulations amended the definition of short-term, limited-duration insurance so that it may offer a maximum coverage period of less than 12 months after the original effective date of the contract, consistent with the original definition (that is, the final rule expended the potential maximum coverage period by nine months). Under this definition, the expiration date specified in the contract takes into account any extensions that may be elected by the policyholder without the issuer’s consent, provided that it has a duration of no longer than 36 months in total (taking into account renewals or extensions).

In addition, the final rule revised the required notice that must appear in the contact and any application materials, due to concern that short-term, limited-duration insurance policies lasting almost 12 months may be more difficult to distinguish from ACA-compliant coverage (which is typically offered on a 12-month basis.)

More Information

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