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‘So long’ to limits on short-term plans

Consumers in many states will soon be able to purchase longer short-term plans

Millions of Americans seeking alternatives to the Affordable Care Act’s comprehensive (but in some cases cost-prohibitive) health coverage may soon be gravitating to short-term health plans, enticed by an attractive feature: coverage that they can hold on to longer.

Thanks to an executive order signed by President Donald Trump and the associated regulation changes that HHS finalized in July 2018, individual plan buyers who are unable – or unwilling – to buy ACA-compliant plans may soon be able to purchase a short-term insurance plan with an initial duration of nearly a year and renewal options that allow the plan to remain in force for three years.

But the availability of those plans will vary from one area to another. Some states have much tighter restrictions on short-term plans, and insurers will choose to offer different plans in different areas.

The new federal rules won’t take effect until October 2018, but some health carriers started offering longer coverage durations – up to 360 days – as early as 2017, with a series of back-to-back short-term plans that are available in some states.

New rule reverts to the previous definition of “short-term” and allows renewal for up to 36 months

Prior to 2017, long-standing federal regulations had limited the duration of short-term health plans to 364 days (though some states had capped duration at six months). Short-term plans continue to be exempt from ACA rules, but Obama Administration regulations that took effect in 2017 limited short-term plans to 90 days.

In October 2017, President Trump signed an executive order directing federal agencies to draft regulations aimed at rolling back those restrictions on short-term plans. On February 20, HHS proposed new rules for short-term plans. They accepted comments on the proposed rule until April 23, 2018, and about 12,000 comments were submitted. The final rule was issued on August 1, and was being prepared for publication in the federal register (with the new rules effective 60 days after publication in the federal register). So longer short-term plans could be available to consumers by October 2018, depending on how soon insurers opt to start offering the new plans.

The final rule does three things:

  • Allows short-term plans to be sold with initial terms of up to 364 days.
  • Allows short-term plans to be renewed as long as the total duration of the plan doesn’t exceed 36 months.
  • Requires short-term plan information to include a disclosure to help people understand how short-term plans differ from individual health insurance.

The new rule reverts to the previous definition of “short-term.” A plan will be considered “short-term” as long as it has an initial term of less than a year (ie, no more than 364 days). But HHS is also allowing short-term plans to offer enrollees the option to renew their plans without additional medical underwriting and use renewal to keep the same plan in force for up to 36 months (plans with renewability options would be more attractive to consumers, but they’d also be more expensive than a non-renewable short-term plan).

HHS justified this by noting that the coverage has long been called “short-term limited duration” health coverage, and pointing out that “short-term” and “limited duration” must mean different things, otherwise it would be a redundant name. So they’re saying that “short-term” refers to the initial term, which must be under 12 months. But they’re allowing the “limited duration” part to mean up to 36 months in total, under the same plan.

And they note that there is nothing in federal statute that would prevent a person from enrolling in a new short-term plan after the 36 months (or purchasing an option from the initial insurer that will allow them to buy a new plan at a later date, with the new plan allowed to start after the full 36-month duration of the prior plan). So technically, federal rules will allow people to string together multiple “short-term” plans indefinitely. But there are quite a few states with much stronger short-term plan regulations, and other states might join them in the coming years.

The disclosure notice required in the final rule is intended to inform consumers of several aspects of short-term coverage: That the plans are not required to comply with the ACA, may not cover certain medical costs, and may impose annual/lifetime benefit limits. The disclosure also notes that the termination of a short-term plan does not trigger a special enrollment period in the individual market (although it does for group health plans), and thus enrollees who develop health conditions while covered under a short-term plan (and thus aren’t eligible to buy another short-term plan) might find themselves uninsured and having to wait until the next open enrollment period to sign up for coverage.

The disclosure notice adopted in the final rule is more comprehensive than it was in the proposed rule, and includes specific examples of the services that might not be covered by short-term plans “such as hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental health and substance use disorder services.” HHS notes that there is little evidence for short-term plans excluding hospitalization or emergency services, but it’s fairly common to see short-term plans that don’t cover preventive care, maternity care, outpatient prescriptions, or mental health/substance use treatment.

For short-term plans that are sold with effective dates in 2018, the disclosure will also have to notify consumers that short-term plans are not considered minimum essential coverage under the ACA, and people who rely on them may be subject to the ACA’s individual mandate penalty (which is still in effect for all of 2018).

HHS makes it clear in the final regulations that states may continue to implement more restrictive rules, just as they did prior to 2017. (But states will not be allowed to have rules that are more lenient than the new federal regulations.) A few states – New York, New Jersey, Massachusetts, Rhode Island, and Vermont – don’t have short-term plans at all, generally due to state mandates and regulations that make it unprofitable for insurers to offer short-term plans. And several states already capped short-term plans at three or six months in duration, even before the Obama Administration took action to limit short-term plans to three months.

States will still be able to limit short-term plans as they see fit, and in all areas of short-term plan regulation other than the three provisions of the final rule, HHS notes that it’s up to each state to set rules applicable to short-term plans sold within the state.

States consider legislation in 2018 to change the limits that apply to short-term plans

Some states have worked in 2018 to restrict the sale of short-term plans, including:

  • California lawmakers are considering a bill in 2018 (SB910) that would prohibit the sale of short-term plans in the state as of January 1, 2019.
  • Hawaii lawmakers passed HB1520, and Governor Ige signed it into law in July 2018. The legislation prohibits the sale of a short-term plan to anyone who was eligible to purchase a plan in the exchange during the previous calendar year, either during open enrollment or during a special enrollment period. The only people who aren’t eligible to purchase coverage in the exchange are undocumented immigrants, incarcerated individuals, and people who are eligible for premium-free Medicare Part A. So HB1520 will essentially eliminate the short-term market in Hawaii, as virtually everyone is eligible to purchase coverage in the exchange in any given calendar year.
  • Maryland enacted HB1782 in 2018, which limits short-term plans to three months and prohibits renewal.
  • Vermont also enacted legislation to limit short-term plans to three months and prohibit renewal, but Vermont does not currently have any short-term plans for sale.
  • Lawmakers in Illinois considered legislation (HB1337 HA1, as amended by the House) to limit short-term plans to three months, and prevent renewals. But that limit was considered politically infeasible, so lawmakers have instead focused on HB2624, which had passed both chambers by the end of May, 2018 and was sent to the governor in late June. The amended version of HB2624 limits short-term plans to durations of less than 181 days and prohibits renewals. An enrollee would not be allowed to purchase a new short-term plan from the same issuer within 60 days of the termination of a previous short-term plan.
  • Washington‘s insurance commissioner, Mike Kriedler, who has called short-term plans “a poor solution for consumers,” announced in March 2018 that his office would begin the process of rule-making to define short-term plans at the state level, in response to the federal government’s proposal to expand the definition of short-term plans. The draft regulations were published in June 2018. They would limit short-term plans to three-months, would prevent renewal, and would prohibit insurers from selling short-term plans to anyone who had already had three months of short-term coverage in the prior 12 months. The new rules would also prohibit the sale of short-term plans during open enrollment, if the short-term coverage is to take effect in the coming year (ie, they couldn’t be sold in direct competition with ACA-compliant plans during open enrollment).

But other states have worked — unsuccessfully, thus far — to expand access to short-term plans, including:

  • Missouri lawmakers considered HB1685 (it passed the House, but not the Senate), which would have defined short-term coverage as a policy with a duration of less than one year. The House passed the bill, but it didn’t reach a full vote on the Senate floor before the session adjourned in mid-May. Missouri regulations currently limit short-term plans to no more than six months in duration.
  • In Minnesota, current rules restrict short-term plans to no more than 185 days in duration, and residents are limited to having short-term insurance for no more than 365 days out of a 555-day period. But HF3138 would have redefined a short-term plan as being less than a year in duration and eliminate the 365 out of 555 days cap. The bill passed the House, but did not advance to a vote on the Senate floor.
  • In Virginia, lawmakers passed SB844 in 2018, to allow short-term plans to have a term of up to 364 days, assuming the federal regulations were finalized. But Governor Northam vetoed this bill in May 2018, so Virginia will continue to have a six-month limit on short-term plans, even after the federal definition is extended to 364 days.

So states are taking varying approaches on short-term plans, with some clearly wanting to expand access, while others prefer to restrict or eliminate short-term plans in an effort to protect their ACA-compliant markets.

Short-term plans are not considered individual market coverage under federal rules, so they are not subject to the ACA’s regulations. That means there is a long list of things that they can do to make coverage less expensive than regular individual market plans, including the use of medical underwriting (pre-existing conditions aren’t covered, and applicants can be rejected based on their medical history), annual and lifetime benefit caps, and coverage that doesn’t include the ACA’s essential health benefits.

States can require short-term plans to adhere to state regulations that apply to the individual market, and some states have done so.

Current state regulations

As it stands now, several states limit short-term plans to six months or less:

  • Arizona
  • California (185 days)
  • Colorado
  • Connecticut (pre-existing condition coverage cannot be excluded on any plans with terms in excess of six months, or any short-term plans that are renewable; so for all intents and purposes, short-term plans have to be non-renewable and last no more than six months; all short-term plans in Connecticut must include coverage for essential health benefits)
  • Indiana
  • Maryland enacted legislation this year to limit STLDI plans to three months
  • Michigan (185 days)
  • Minnesota (185 days; legislation to extend this failed in 2018)
  • Missouri (legislation to extend short-term plans failed in 2018)
  • Montana
  • Nevada (185 days)
  • New Hampshire
  • North Dakota (185 days)
  • Oregon (90 days)
  • South Dakota (policies lasting longer than six months are required to be guaranteed renewable, which effectively limits the short-term market to plans with durations of six months or less)
  • Vermont (three months, effective May 2018 — but Vermont does not have any short-term plans available as of 2018).
  • Virginia (legislation to extend this was vetoed in 2018)
  • As noted above, Washington is working on regulations that would limit short-term plans to three months.

[It’s worth noting that some of these regulations may be out-dated. In late 2016, I got quotes for short-term health insurance in every state where plans were available. In Arizona, Nevada, and North Dakota, I found plans with durations in excess of six months, despite the fact that all three of those states seem to have regulations on the books that limit short-term plans to six months.]

Five states have no short-term plans. In some cases, this is because they ban them outright, in other cases because they have regulations that make those plans unappealing for insurers:
  • New York
  • New Jersey
  • Massachusetts
  • Rhode Island
  • Vermont (there are no short-term plans available in Vermont, but legislation was enacted in 2018 to limit short-term plans to three months and prohibit renewals)

Hawaii will likely be added to this list now that HB1520 has been enacted, and California may also join the list of states where there are no short-term plans available.

How many people will switch to short-term plans?

HHS projects that 500,000 people will shift from individual market plans to short-term plans in 2019 as a result of the proposed rule. They estimate that 200,000 of those people currently have on-exchange plans, and 300,000 currently have off-exchange plans. They estimate that another 100,000 people who are currently uninsured will enroll in short-term plans in 2019 as a result of the new regulations. So in 2019, HHS projects a total increase of 600,000 people covered under short-term health plans.

And by 2028, they expect the total increase in the short-term insurance population to reach 1.4 million, while the individual insurance market population is expected to decline by 1.3 million over that time.

But it’s difficult to know how all of the moving parts will affect the eventual outcome. Short-term plans existed before the ACA, but the individual market plans sold in most states were subject to medical underwriting that was similar to short-term plans. (That’s very different now, since individual market plans are no longer medically underwritten.)

And the ACA’s individual mandate penalty has been in place since 2014, likely suppressing enrollment in short-term plans. People who rely on short-term plans are subject to a penalty under the ACA’s individual mandate if they’re not otherwise exempt from it, because short-term plans are not considered minimum essential coverage. But in 2019, the individual mandate penalty will no longer exist, as it was repealed under the GOP tax bill that was enacted in late 2017. (The repeal of the individual mandate doesn’t take effect until 2019; people who switch to a short-term plan in 2018 will be subject to the mandate penalty.)

In addition, premiums have risen considerably in the individual market since 2016. For both 2017 and 2018, there were large double-digit average rate hikes for ACA-compliant plans. (For 2018, a significant portion of the rate increase was on silver plans, due to the Trump Administration’s decision to eliminate funding for cost-sharing reductions, but the rate hikes on plans at other metal levels was still considerable in many areas.) Premiums increase in the short-term market as well, to keep up with medical inflation. But since short-term plans don’t cover pre-existing conditions and can reject applicants based on medical history, their overall pool of insureds is much healthier than the general individual market. So the premium increases in the short-term market have been much more modest than the increases in the individual market.

With the sharply lower premiums and the elimination of the individual mandate penalty in 2019, short-term plans might be especially attractive to people who aren’t eligible for premium subsidies in the exchange. HHS has noted that the number of people with unsubsidized individual market coverage (including everyone enrolled off-exchange) dropped by 20 percent from 2016 to 2017. These people may be uninsured, they may have obtained employer-sponsored coverage, or they may have joined a health care sharing ministry – but they were no longer in the individual market as of 2017.

It’s possible that the influx of people to short-term plans might come in large part from this group, but it’s also possible that there may be some significant drain from the current unsubsidized individual market. And the revised projection that HHS included in the final rule indicates that the majority of the new short-term enrollees in 2019 are expected to be migrating from the individual market (500,000 out of 600,000 people, including both on- and off-exchange enrollees who are expected to transition to short-term plans).

HHS acknowledged that the people who are likely to switch to short-term plans will primarily be young and healthy. As a result of the sicker, older risk pool that will remain in the individual market, premiums will rise, which will in turn cause premium subsidies to grow.

HHS projects that total federal spending on premium subsidies over the coming decade will be $28.2 billion higher than it would have been if short-term plans hadn’t been expanded. But HHS also notes that another analysis, conducted by the Urban Institute, projects a net savings for the government, due to a reduction in the total number of people who will claim premium subsidies. (The study indicated that 70 percent of the people who would leave the individual market to buy short-term plans would have been paying full price, but that 30 percent would have been receiving premium subsidies, which the federal government would no longer have to pay after the person switches to a short-term plan.)

Current rules already offer flexibility that allows some insurers to offer longer short-term plans

If you’re a consumer who’s been reluctant to buy a short-term plans because of the 90-day limit (which is still in place until 60 days after the new rules are published in the federal register; longer plans won’t become available until October 2018 at the earliest), it may surprise you to know that it’s actually been possible for you to have short-term coverage for longer periods under current rules – as long as you’re willing and able to reapply for a new plan each time your coverage ends.

Some insurers have eliminated this requirement, however, by allowing applicants to purchase up to four 90-day plans at one time, with a single application. The plans take effect one after the other, so the enrollee can have up to 360 days of short-term coverage under four separate plans, but without the need to reapply (and qualify based on medical history) every 90 days.

These back-to-back plans generally have separate deductibles and out-of-pocket exposure, so your deductible resets to zero every 90 days. But – and this is where there’s an advantage to being able to purchase up to four plans at once – enrollees only have to qualify medically during the initial application, and medical conditions that arise during one of the initial plans continue to be covered under the subsequent plans in accordance with the terms of the policy (this is not the case if you manually purchase a second short-term plan after your first plan ends, instead of purchasing multiple plans in advance).

Under the new rules that HHS has finalized, longer short-term plans will likely be available in many states by late-2018. But until then, the option to purchase back-to-back short-term plans could prove useful to some buyers in states where those plans are available.

Will you be penalized?

People who buy short-term plans in 2018 could still be assessed ACA’s penalty for being uninsured, because the plans are not considered minimum essential coverage. That said, a short-term plan is really only an appropriate solution if you’re already exempt from the ACA’s penalty.

The IRS considers coverage officially unaffordable if the lowest-cost Bronze plan is more than 8.05 percent of your 2018 income. There’s also an automatic exemption for people who are in the Medicaid coverage gap, along with a variety of other exemptions that might apply depending on the situation).

If you qualify for an exemption, you don’t need to worry about the penalty, and having coverage under a short-term plan is absolutely a better option than being uninsured.

And as noted above, the penalty will no longer apply when people lack minimum essential coverage in 2019 or beyond.

Longer coverage? It’s still short-term.

It should go without saying that short-term plans with longer duration are still short-term health plans.  If you buy them as an Obamacare “replacement,” you’re fooling yourself – because they don’t closely resemble ACA-compliant coverage:

They don’t cover pre-existing conditions, aren’t available at all to people with serious pre-existing conditions, impose maximum benefit limits, and don’t cover all of the essential health benefits. (Maternity care, prescription drugs, preventive services, and mental health/substance abuse care are often not covered by short-term plans). And although all health insurance policies come with a list of things that aren’t covered, the exclusion list tends to be longer for short-term plans.

And the termination of a short-term plan does not trigger a special enrollment period in the individual market, so people who develop a pre-existing condition while covered under a short-term plan could find themselves out of luck if their short-term plan terminates at a time other than the end of the year (and doesn’t include a guaranteed renewability provision), since they won’t be able to get a replacement plan until open enrollment (with coverage effective January 1).

Some coverage beats no coverage.

Having the option to buy longer short-term plans will undoubtedly be welcome news to consumers who already feel as though short-term plans are their only affordable option.

These buyers include individuals and families who are trapped in the Medicaid coverage gap because their states have rejected federal funding to expand the ACA, as well as people who earn less than 400 percent of the poverty level but are denied subsidies due to the family glitch. They also include people who are healthy and who earn just a little bit too much to qualify for premium subsidies (here’s more about how some people miss out on subsidies due to ACA’s subsidy cliff).

But if you’re eligible for premium subsidies in the exchange (or even if you’re not but you feel like you can still manage the cost of a regular plan), an ACA-compliant plan will be your best choice. If you’re eligible for premium subsidies, you might find that you can get ACA-compliant coverage in the exchange for much less than you expect in terms of after-subsidy premiums, due to fact that the cost of CSR is now being added to silver plan premiums in most states, resulting in much larger premium subsidies (here’s an example of how this worked in Alabama for 2018, but similar scenarios apply in many states; this will still be the case in 2019 as well, in even more states).

But it’s also worth noting that short-term plans resemble in many ways the regular individual market plans that were available in many states before the ACA reformed the individual market. Those plans weren’t ideal, which is why the ACA was needed in the first place. But in most cases, they provided decent coverage to people who were healthy when they enrolled and then found themselves with unexpected medical costs.

If you’re uninsured (or planning to drop your coverage because you can’t afford the rate increase for next year) and you know that you’re not eligible for a premium subsidy, check to see what short-term plans are available in your area. Know that despite their drawbacks, coverage under a short-term plan is absolutely preferable to being uninsured.

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.