Benefits, Health Care Reform

Final Rule Expands Short-Term Limited Duration Insurance (STLDI)

On August 3, 2018, the Departments of the Treasury, Labor, and Health and Human Services (the “Departments”) released a final rule that extends the maximum period for which short-term, limited-duration insurance (“STLDI”) policies can be offered. The maximum will now be less than 12 months, and insurers can renew or extend STLDI policies for an additional 24 months (for a total of not more than 36 months).  This article details some of the provisions in the final rule, which largely adopts the proposed rule that was issued February 20, 2018.  It also lists some of the states that have prohibited the sale of STLDI or limited its term (usually to three months).  California is one of the states that has banned the sale of STLDI (CA SB 910, enacted by the Legislature but awaiting signature of the Governor as of August 26, 2018).

Background on STLDI

STLDI regulations were issued pursuant to Executive Order 13813 (Oct. 2017), in which the President ordered federal agencies to issue guidance to expand the use of STLDI, Association Health Plans (AHPs) and health reimbursement accounts/health savings accounts.  (Final Rule is at 83 Fed. Reg 38212)

The purpose of STLDI is to allow people to buy basic health insurance coverage for short periods of time, for example:

  • so they won’t have a gap in coverage between jobs and also won’t have to buy expensive comprehensive COBRA coverage.
  • if they are uninsured and want to enroll in health coverage between exchange open enrollment periods and did not have a special enrollment event.

The duration of STLDI policies is not set by statute; instead, the Departments set it by regulation. For almost 20 years, regulations defined STLDI as less than 12 months; however, regulations issued under the Obama administration limited it  to less than three months, as of January 1, 2017.  81 Fed. Reg. 75316 (Oct. 31, 2016).  The August 2018 final rule significantly increases the duration, to not more than 36 months with renewals.

Since STLDI does not meet the definition of “individual health insurance coverage” under the Public Health Service Act (PHSA), it is exempted from many of the consumer-protection requirements under the Affordable Care Act (ACA).  This means STLDI policies generally cost less than ACA-compliant policies but also means that out-of-pocket costs can be very high for insureds who need medical services.

Examples of provisions STLDI policies can include that ACA-compliant policies cannot:  1) preexisting condition exclusions, 2) annual and life time limits, 3) higher cost-sharing requirements, and 4) medical underwriting.  Additionally, STLDI policies are not required to cover “essential health benefits” (EHBs), so they can exclude coverage for EHBs such as hospitalization, emergency room services, mental health benefits, maternity services, prescription drugs, and pediatric dental.

STLDI is also not considered “minimum essential coverage” so buying STLDI will not shield individuals from the individual mandate tax, which goes to zero as of January 1, 2019.

Provisions in the Final Rule

Duration and Renewals  

As noted above, the Final Rule extends the duration of STLDI to less than 12 months and also allows (but does not require) insurers to extend or renew STLDI policies for up to 24 months, for a total of 36 months.  The Final Rule also allows consumers to “lock in” premium rates for STLDI policies they can buy in the future, policies that are not considered part of the initial 12-month policy or 24-month renewal.  This means consumers can buy separate policies that run consecutively, allowing them to string together STLDI policies for more than 36 months, at set rates.

Required Notice to Consumers

Enrollment materials and the STLDI contract must include one of two versions of a consumer notice, in at least 14-point font.  The notice must state that STLDI is not considered “minimum essential coverage” and is not required to comply with consumer-protection requirements in federal law, particularly the Affordable Care Act.  The notice also must state that states can still regulate STLDI.

State Regulation of STLDI

Under PHSA preemption, states can enact laws or promulgate rules that limit the contract period or renewals and extensions of STLDI to less than that allowed by federal rules, but states cannot expand these terms.  Several states have already limited STLDI or are in the process of doing so, including:

  • California SB 910 (passed by the Legislature, awaiting Governor’s signature) prohibits the sale of STLDI policies as of January 1, 2019.
  • Maryland enacted a law in April 2018 that limits the duration of STLDI to three months and bans their renewal.
  • In Washington state, the Department of Insurance is currently writing new rules that would limit the duration to three months and ban renewals.
  • Massachusetts, New Jersey and New York also severely limit or prohibit sale of STLDI.

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