With the Affordable Care Act facing an uncertain future and Washington proposing so many changes to the healthcare system, millions of Americans are actively seeking alternative health coverage to meet their medical needs. One such alternative, short-term health plans, have started grabbing people’s attention.
Working with the U.S. Department of Labor, the U.S. Department of Health and Human Services (HHS) and the IRS, last month President Trump signed an executive order to address regulation changes for individual plan buyers who are unable or unwilling to buy ACA-compliant plans, offering a new short-term insurance plan rule as a possible solution. Short-term health plans are individual plans offered by way of a new HHS rule allowing for 364-day health plans, with an option to renew or extend coverage after that for up to an additional 36 months. The extension is designed to semi-replicate the offerings of COBRA.
Prior to 2017, the Obama administration had imposed a three-month duration cap to prevent issuers of short-term medical insurance plans from pulling healthier, younger people away from the ACA Health Insurance Marketplace. Additionally, it protected consumers from being fooled into thinking that short-term plan and ACA coverage are comparable, when in reality the ACA plans provide “essential benefits” that short-term plans may not. How the term “short-term medical insurance” is defined is important, as major ACA medical underwriting and benefits rules do not apply to short-term medical insurance, therefore, issuers of short-term medical plans can apply any underwriting rules and benefits limits state regulators will permit. So, it’s always important to understand the fine print. For example, ACA regulations have also protected individuals from being turned away for any pre-existing conditions. An issuer of any ACA-compliant major medical coverage must accept any individual applicant, regardless of their medical history or state, cover at least 60 percent of their standard essential health benefits packages, including mental health care, and provide coverage without imposing limits on annual or lifetime benefits.
States will still regulate short-term plans individually, with states having a say in how these rules will apply specifically within their borders, if at all. In states allowing short-term medical insurance, an issuer offering this type of plan can reject applicants who have cancer, or who suffer from acne, exclude coverage for mental health care or maternity care, and set the annual benefits limit at $2 million, $20,000 or $2,000. Many states are now coming up with alternative legislation to change the limits of how these plans will work. In California, for example, lawmakers are reviewing a bill that would prohibit the sale of short-term health plans altogether, starting in January of 2019. In New York and Vermont, new rules make offering short-term medical coverage difficult or even impossible in their jurisdictions.
What are the new rules specifically and when do they go into effect?
These new rules won’t officially take effect until October 2018, however some health insurance carriers have already started offering some of these alternative solutions.
This new final ruling changes these three aspects:
- Rule states that short-term plans may be sold with initial terms of up to 364 days.
- Rule allows for short-term plans to be renewed as long as the total duration of the plan doesn’t exceed 36 months.
- Rule requires that short-term plan information include a detailed disclosure to help individuals understand how these short-term plans differ from individual health insurance.
How will this impact the insurance market?
It is difficult to predict and much of it will depend on state regulation.
Depending on the rules within an individual state, short-term health plans may be more affordable, and the 36-month extensions will not require additional medical underwriting, keeping the initial plan in place without modification. There is also no rule stating that an individual could cannot jump from one short-term plan to another, so these short-term plans could be strung together indefinitely.
Whether these new short-term plans will be offered on a group basis is yet to be determined.
Please give us a call if you would like further information. We will keep you up to date on any new information that affects the employer group marketplace.