Short-Term Plans - They're Baaaack
On August 1st, 2018, the DOL, HHS, and IRS published final regulations for "short-term, limited duration health insurance," the next step in the Administration's efforts to modify the ACA.
Before we dive into the changes, let's get one thing out of the way: these policies, once they become available, are not something an employer can offer to an employee. These are products that will be available only on the individual market. So, the effect this ruling has on employers is yet to be seen, but likely will be relatively minimal.
Under the final rule, individuals will be able to purchase coverage for a term of less than 12 months and continue to renew it until they reach a maximum duration of 36 months. Even though these plans are titled "health insurance," they do not meet the definition of health insurance under the ACA, and therefore are not subject to many of the ACA's restrictions. These plans will be allowed to have caps on annual and lifetime benefits, will be able to enforce pre-existing condition exclusions, and will not be required to cover all essential health benefits.
Importantly, these plans will not represent minimum essential coverage for ACA purposes either – but that's okay in the individual market, because starting in 2019, there's no penalty for purchasing coverage that doesn't meet the MEC standard for individuals, a result of the new tax law recently enacted.
For individuals who purchase these plans, there's the promise of cheaper insurance that's more tailored to their specific needs, which is usually a plan to tide them over when they have a coverage gap while changing employers. However, these plans will be required to boldly state all the limitations up front so that people will know what they're purchasing. Additionally, since these plans will be sold by insurers, state laws will also apply – and may undermine the Administration's efforts.
California, for instance, already has a law working its way through its system to prohibit these types of plans, meaning they won't be available in that state. Each state will have to evaluate whether these plans will be allowed, and whether they will modify the requirements, which will have an effect on their cost.
Employers need to stay abreast of these developments – it's not inconceivable that these plans will provide employees with an alternative to employer-sponsored MEC plans, for instance. They may also provide an alternative for COBRA coverage for employees who have termed their employment. I can also potentially see – down the road –the requirement for certificates of creditable coverage to return, given the pre-existing condition exclusions clause in the final rule.
In summary, this is a step back in time – prior to the ACA, short-term plans played a small but significant role in the individual market. They were all but eliminated by the ACA until now, and it will be interesting to see how the carriers and states react.
As always, stay tuned and don't hesitate to ask your Assurance representative if you have any questions.
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