Plans offer options for millions caught in the coverage gap, with incomes too high for subsidies, or those caught by the 'family glitch'

Short-term health insurance at a glance

The premium increases for ACA-compliant health insurance were substantial for 2017, and again for 2018 (the 2018 increases were due in large part to the uncertainty created by the Trump Administration and Republican lawmakers’ efforts to repeal the ACA). And although premium subsidies in the exchanges offset most or all of the increases for people willing to shop around for coverage, they don’t help everyone.

2019 rate increases for ACA-compliant plans are shaping up to be much more modest than the past two years, but premiums continue to be unaffordable for some people who don’t receive premium subsidies. If you’re among those consumers, should you consider short-term health insurance plans?

Why consider short-term coverage?

There are currently about 2.2 million people who are caught in the coverage gap in 18 states that have refused to accept federal funding to expand Medicaid (Maine and Virginia will expand Medicaid soon, so their residents are not counted in the estimate of how many people are are in the Medicaid coverage gap). Their household incomes are under the federal poverty level, so paying full price for health insurance is probably a non-starter.

Millions of Americans also have incomes above 400 percent of the poverty level, but not dramatically so. And thanks to the subsidy cliff, they can be facing premiums that are 25 percent – or more – of their income, depending on where they live.

Others are caught by the family glitch, and although their coverage is technically considered “affordable,” that may not actually be the case.

If you’re among these consumers – and you’ve looked at all the on- and off-exchange options for regular health insurance and simply cannot afford them – it’s worth at least weighing the pros and cons of short-term coverage.

And even if you’re planning to buy an ACA-compliant plan during open enrollment, keep in mind that it won’t take effect until January 1. If you buy your plan on November 1, you’ll have to wait two months for it to take effect. If you’ve got coverage already and you’re replacing it with your new plan, your current plan will continue to cover you until the end of the year, assuming you continue to pay your premiums. But if you’re currently uninsured, you’ll have to wait until January 1 to be insured. A short-term plan, on the other hand, can take effect as soon as the day after you buy it. So a short-term plan to cover you for the final couple months of the year might be just what you need in terms of added peace of mind while you wait for your new ACA-compliant plan to take effect at the start of the coming year.

If you’re considering a short-term plan, or just curious about how the rules work, here’s what you need to know:

Prior to October 2018, short-term plans were limited to three months in duration, but that’s now changed in most states

Short-term plans are available in most states, but there are five states (New York, New Jersey, Massachusetts, Rhode Island, and Vermont) where short-term plans aren’t available at all, and California will join them in 2019.

Availability of short-term plans has always varied from one state to another. But prior to 2017, short-term health insurance was defined by the federal government as a plan with a duration of less than one year (states were free to set shorter durations, and some states limited short-term plans to six months or less). The federal rules changed as of January 2017, though. In 2016, HHS finalized their proposal to limit short-term plans to “less than three months” in duration, for plans with effective dates of January 2017 or later. This rule applied in every state, although states were free to set more restrictive limits.

However, they noted in the final rule that they wouldn’t take enforcement action on this until April 1, 2017. So short-term plans with longer durations were still available for sale through the end of March 2017, as long as they were scheduled to terminate on or before December 31, 2017. As of April 1, 2017, no short-term plans could be sold with durations of three months or longer (90 days was ok).

The Obama Administration wanted to make sure that short-term plans would only be used for their original intent: as a stop-gap measure before another plan kicks in. Short-term plans were never intended to be used as a substitute for regular long-term health insurance, but that’s what some people had been using them for since the ACA regulations took effect in the individual market.

The Trump Administration, however, finalized new regulations to roll back the restrictions on short-term plans. As of October 2, 2018, federal rules once again allow short-term plans to have initial terms of up to 364 days, and the new federal rules also allow those plans to renew as long as the total duration of a single plan doesn’t exceed 36 months.

Trump Administration has finalized rules that revert to the “under a year” definition of short-term

The rule limiting short-term plans to 90 days started to be enforced after Trump took office, but it was an Obama Administration rule change, promulgated under then-Secretary of HHS, Sylvia Burwell. On June 8, 2017, a group of 14 Republican Senators sent a letter to HHS, asking the new administration to revert to the old rules for short-term plans.

President Trump signed an executive order in October 2017 that was expected to eventually result in a reversal of the Obama Administration rule and a return to the previous rule that limited the duration of short-term plans to anything less than a year. The executive order did not change anything in and of itself. Instead, it directed various federal agencies to “consider proposing” new regulations that would return to the previous rules for short-term plans.

In response to the executive order, HHS, the Department of Labor, and the Department of the Treasury finalized new rules for short-term plans in August 2018. The rules took effect October 2, 2018.

Under the new rules, short-term plans:

  • Can be sold with initial terms of up to 364 days.
  • Can be renewed (and can be issued with a guaranteed-renewable provision), but the total duration of the plan, including renewals, can’t exceed 36 months.
  • Must include a disclosure that clarifies that short-term plans aren’t ACA-compliant, don’t have to cover various essential health benefits, can have lifetime and annual benefit limits, and their termination does not trigger a special enrollment period for ACA-compliant individual market plans.

But quite a few states limit short-term policies no more than six months, and there are five states (and California will join them in 2019) that don’t have short-term plans at all. States may continue to enforce more stringent regulations on short-term plans; you can click on a state on this map to see how short-term plans are regulated within the state. And it’s noteworthy that even in the states where the pre-2017 federal definition (ie, less than one year in duration) was being used in 2016, the majority of available plans tended to have a maximum length of six months. So even in states where the new federal rules are applicable, short-term policies with 364-day terms (and the potential to renew the coverage) may not be universally available.

The GOP Senators who asked the Trump Administration to intervene claimed that the Obama Administration rules hurt consumers by eliminating the option for short-term plans with durations longer than three months. The Trump Administration agreed with the Senators, and the final rule highlights the fact that the three Departments believe that overall, consumers are better off with expanded access to short-term plans.

This is a controversial stance, though, since it hurts the ACA-compliant major medical risk pool when healthy consumers opt for short-term plans instead of regular major medical coverage. Since short-term plans don’t cover pre-existing conditions, they are really only an option for healthy people. And when fewer healthy people sign up for regular health insurance, the risk pool for that coverage tilts more towards the sick end, driving up costs for everyone.

In an effort to protect consumers and the insurance risk pools, Democratic lawmakers introduced resolutions in the House (H.J.Res.140) and Senate (S.J.Res.63), calling for the new short-term plan rules to be overturned, and garnered significant support from health care organizations. President Trump had threatened to veto the measure, but the Senate’s resolution did not pass. It needed a simple majority, but the final vote was 50-50, with all Republicans except Susan Collins (Maine) voting against in (ie, voting in favor of keeping the Trump Administration’s new rules for short-term plans).

Reverting to the pre-2017 definition of “short-term” will have a destabilizing effect on the ACA-compliant market

The Trump Administration has ostensibly rolled back the regulations on short-term plans in order to allow more consumer choice, but this action will have a destabilizing effect on the individual health insurance market — where about 17.6 million Americans get their coverage. This is especially true when you consider the fact that the ACA’s individual mandate penalty will be eliminated as of 2019, as a result of the GOP tax bill that was enacted in 2017. The penalty is still in place in 2018, and will apply to people who obtain coverage under a short-term plan in 2018 (assuming they aren’t eligible for an exemption from the penalty). But as of 2019, there will be no penalty, which will make it easier for healthy people to opt for a medically underwritten short-term plan instead of ACA-compliant coverage.

Now that short-term plans can again be purchased for up to 364 days, it will help healthy people avoid the ACA-compliant market in favor of a cheaper option. The coverage is less robust in the short-term market, but some healthy people see it as a valid trade-off for lower premiums. The problem is that those healthy people are the ones who are needed in the ACA-compliant market in order to keep the market stable. The final rule estimates that 600,000 people will newly enroll in short-term plans in 2019 as a result of the new rules; 200,000 of them from the existing on-exchange individual market, 300,000 from the off-exchange market, and 100,000 who are currently uninsured. So the majority of the people who will enroll in short-term plans as a result of the new rules will be transitioning away from the ACA-compliant individual market (both on- and off-exchange major medical plans are ACA-compliant).

The exodus of people from the individual market to the short-term market is likely to be comprised mostly of people who are relatively young and healthy, leaving sicker, older people in the ACA-compliant market. This will result in higher premiums in the ACA-compliant market, which will, in turn, result in larger premium subsidies.

This point has been reiterated time and again in the 2019 rate proposals that insurers have filed for ACA-compliant plans, with insurers in many states noting that they expect increased morbidity (ie, overall poorer health) in their risk pools in 2019 because healthy people will have access to medically underwritten short-term health plans.

For people who get premium subsidies, the higher premiums in the ACA-compliant market will be offset by larger subsidies. But for people who pay full price because they aren’t eligible for subsidies, the additional premiums necessary to cover an increasingly old and sick risk pool will be borne by the policy-holder alone.

Potential savings – short-term plans are cheaper because they provide less coverage

A lower monthly premium is the primary draw for short-term plans. Consider a family of four, living in northern Colorado and earning $99,000/year (just over the upper limit for premium subsidy eligibility in 2018, although this family would be eligible for premium subsidies starting in 2019). The parents are around age 40, with two young children. For 2018, the cheapest plan they can get in the exchange would cost $1,190 per month in premiums. And it would have a maximum out-of-pocket exposure of $14,700 for the family.

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But there are numerous short-term plans available to them, with premiums that range from a little more than $100/month to more than $600/month (and one outlier — a short-term plan with a $1,000 deductible and a premium of more than $1,000/month). The plans all have maximum terms of six months, since Colorado imposes that limit, but they could purchase a second plan after the first expired. There are several plan designs available, and although none of them are as comprehensive as ACA-compliant plans, the trade-off is that they have much lower premiums.

Short-term plans are not considered minimum essential coverage, which means that the ACA’s penalty applies to people who rely on short-term plans. However, there’s a penalty exemption if coverage is considered unaffordable. For 2018, if the cost of the cheapest bronze plan would be more than 8.05 percent of your household income, you’re exempt from the penalty. For the hypothetical family in Colorado, the penalty exemption would apply, since $1,190 per month would be more than 8.05 percent of their household income (the premiums would come to $14,280 for the year, and 8.05 percent of their income is only $7,970; the premiums would be well above the upper limit of what the IRS considers affordable for that family).

So that family would not be subject to the ACA’s individual mandate penalty in 2018, regardless of what type of coverage they purchased or didn’t purchase.

Other obvious advantages

If short-term coverage is available in your state, there are some features with obvious appeal for consumers who are in dire straits.

  • Immediacy. With short-term policies, healthy applicants can secure immediate individual and family coverage, with plans that can kick in as early as the next day. If you already know the number of days you will need to be covered, your insurer may allow you to make a single payment for the whole coverage period.
  • Costs. Short-term plans are typically offered with a selection of premiums, deductibles, and benefit maximums. The policies are considerably less expensive than ACA-compliant major medical plans, so you may find that you can afford to purchase a plan with a low deductible and a high-benefit maximum.
  • Flexibility. The policies also cover a range of physician services, surgery, outpatient and inpatient care. In addition, policyholders can sometimes choose their own doctor and hospital without restrictions, though there may be financial incentives for using in-network providers.
  • Enrollment / eligibility. The enrollment process is quick and easy, with just a handful of yes/no questions regarding major health concerns (even if your health conditions are not included, bear in mind that virtually all short-term plans have blanket exclusions that apply to any pre-existing condition, regardless of whether it’s one of the conditions that determines eligibility for coverage).
  • In states that allow it and where insurers offer the option, an applicant can buy a short-term policy and keep it for up to three years. The insurer may offer the option to lock in guaranteed renewability, without additional medical underwriting, when the policy is purchased, meaning that the applicant would only have to apply once and could be covered for up to three years.

A few important caveats to keep in mind

  • No coverage for pre-existing conditions. Even if you’re eligible for coverage based on the short list of questions asked on the application, you will generally not have coverage for any pre-existing medical conditions while you’re enrolled in the plan. Short-term plans exist solely to provide coverage for medical conditions that have not yet arisen – and will not be any help at all in terms of medical conditions you already have. Be sure to check the list of exclusions on any policy.
  • It’s not comprehensive coverage. These plans weren’t designed to cover everything, and they do not provide coverage for all of the ACA’s essential benefits. They typically won’t cover your routine office visits, maternity, mental health or preventative care, and most plans don’t cover prescription drugs unless you’re hospitalized. Again, be sure to check the list of exclusions on any policy.
  • You could still pay a penalty for 2018. This is a biggie. Unless you qualify for an exemption from the ACA’s individual mandate penalty, you will owe a penalty if you rely on short-term health insurance in 2018. (Everyone in the coverage gap is exempt from the penalty, as is anyone for whom the least-expensive plan in the exchange — after accounting for any available subsidies — is more than 8.05 percent of household income in 2018). The penalty is still in effect in 2018, although people who are uninsured in 2019 and beyond will no longer be subject to a penalty.
  • You could still end up facing a gap in coverage. When your short-term plan ends, you will not be eligible to purchase a regular plan in the individual market if it’s outside of open enrollment. Loss of minimum essential coverage is a qualifying event that triggers a special enrollment period, but a short-term plan is not considered minimum essential coverage. But if you’re buying short-term coverage to get you through to the end of the year, you’ll be able to purchase an ACA-compliant plan during open enrollment that will take effect the first of the coming year. And if you’re going to be starting a new job that offers health insurance, you’ll be able to enroll in your new employer’s plan as soon as you’re eligible. It’s also worth noting that the termination of a short-term plan does trigger a special enrollment period for group health coverage (see page 51 of the final rule for short-term plans). So if you have access to your employer’s plan but hadn’t enrolled (and had enrolled in a short-term plan instead), the termination of your short-term plan would allow you a special enrollment period during which you could enroll in your employer’s plan.Even now that the new rules have taken effect in many states, that last point is still important to keep in mind. If you purchase a 364-day plan in July and then suffer a serious illness or injury the following April, you could find yourself in a predicament if the plan you purchased was not guaranteed-renewable (under the new rules, insurers have the option to offer guaranteed renewability, but are not required to do so). Depending on your medical situation, you may not be able to purchase another short-term plan when yours expires in June. And you wouldn’t be eligible for a special enrollment period to buy an ACA-compliant plan, since the termination of a short-term plan is not a qualifying event. More than likely, you’d have to wait for open enrollment in order to sign up for a new plan, which would take effect January 1. So you could find yourself uninsured for several months (in this case, July through December), and it might be at a time when you have ongoing medical needs related to the illness or injury that made you uninsurable for a second short-term plan. This is complicated, and certainly requires more than a passing glance when you’re considering what coverage option to purchase.

How the Obama Administration rules have impacted availability, and what’s likely to change under the Trump Administration

The Obama Administration’s changes to the definition of short-term health insurance were aimed at “curbing abuse” of short-term plans, as these policies were never intended to serve as a long-term solution to coverage needs. HHS was trying to ensure that they couldn’t continue to be used as a replacement for regular health insurance.

So as of 2017, all new short-term policies were limited to a duration of no more than three months. But that wasn’t being enforced until April 1, 2017, so short-term plans were still being sold for the first three months of 2017 with durations that extend — in many states — to as late as December 31, 2017. That ceased as of April 2017, however, when the new rule enforcement took effect.

But insurers in some areas got around the restrictions by allowing people to purchase up to four short-term plans with one application. Each plan had a 90-day duration, and they ran consecutively, effectively providing up to 360 days of coverage without having to reapply.

The final rule that the Trump Administration published in August 2018 reverses the Obama Administration regulations and returns to defining short-term plans as durations of less than a year. And it goes even further, by allowing total duration, including renewals, of up to 36 months. 364-day plans were available in some areas prior to 2017, although it’s noteworthy that in some areas where they were technically allowed prior to 2017, no insurers were offering them. Availability of plans under the new rules also varies from one place to another, even in states that don’t place additional restrictions on short-term plans.

And states still have the authority to limit short-term plans — either prohibiting them altogether or capping their duration at something less than a year.

Keep your ACA-compliant coverage if you can

One other factor to keep in mind: If you’re healthy enough to enroll in a short-term plan and you drop your ACA-compliant coverage to do so, you’re inadvertently harming the ACA-compliant risk pool, leaving it with sicker enrollees, which results in higher premiums for everyone. If there’s any way you can remain in the ACA-compliant risk pool, we’ll all be better off in the long-run.

Obamacare has made it much easier for a lot of the previously uninsured population – including those who are temporarily uninsured – to obtain high-quality individual health insurance. The law has done a great job of providing considerable financial assistance in the form of cost-sharing subsidies and premium subsidies.

But there are still situations when a short-term policy makes a lot of sense. If you’re choosing between a short-term plan versus being uninsured, and those are your only two options, a short-term plan is absolutely better than being without coverage altogether.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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