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‘So long’ to limits on short-term plans?

Consumers may soon be able to purchase longer short-term plans, but multiple back-to-back plans are already available in some states

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 proposed in February 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 a duration of nearly a year.

But some health carriers are already offering longer coverage durations – up to 360 days – with a series of back-to-back short-term plans that are available in some states.

Proposed rule would revert to the previous definition of “short-term”

Prior to 2017, federal law 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 the duration of 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. If and when they finalize the new rules, the changes for short-term plans will take effect 60 days after the final rule is published. So realistically, longer short-term plans could be available to consumers by July 2018.

The proposed rule would revert to the previous definition of “short-term.” A plan would be considered “short-term” with a duration of less than a year (ie, no more than 364 days). States would still be able to implement more restrictive rules, just as they did prior to 2017. 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, even if the new federal regulations are finalized.

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

Some states are working 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, although it has not yet been signed into law by Governor Ige. The legislation would prohibit 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 would essentially eliminate the short-term market in Hawaii, as virtually everyone is eligible to purchase coverage in the exchange in any given calendar year. HB1520 passed in May 2018, and is awaiting the governor’s signature.
  • 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. 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.

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 are 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 if 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 (six months)
  • 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)

[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 plan 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)

As noted above, California and Hawaii may soon join the list of states where short-term plans aren’t available, depending on the outcome of the legislation in those states.

How many people will switch to short-term plans?

HHS projects that 100,000 to 200,000 people will shift from individual market plans to short-term plans in 2019 as a result of the proposed rule, and they note that this projection is based on “enrollment trends prior to the October 2016 final rule” (the Obama Administration rule that limited short-term plan durations to three months).

But it’s important to keep in mind that the ACA’s individual mandate was in place in 2016, which may have suppressed 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 (but 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. In the proposed rule, HHS notes that the number of people with unsubsidized individual market coverage (including everyone enrolled off-exchange) fell by nearly 2 million people 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 aren’t in the individual market. 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.

Although HHS projects that fewer than 200,000 people will leave the individual market in favor of short-term plans, they do note that the people who do so 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 annual federal spending on premium subsidies will increase by between $96 million and $168 million.

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 if and when the newly-proposed rules are finalized), 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.

So for example, if you bought a short-term plan that took effect at the beginning of January, it would have a termination date at the end March. In most states, you’d be able to apply for another short-term plan in March, effective the day after your first policy terminated. Short-term plans can have effective dates as early as the day after you enroll, so they don’t require as much planning ahead as normal health insurance does. But you do still have to be healthy in order to obtain each new plan.

The states where Pivot Health offers back-to-back policies are indicated in blue.

The states where Pivot Health offers back-to-back policies are indicated in blue.

In some cases, however,  that reapplication process isn’t always necessary. One company – Pivot Health* – allows enrollees in some states to purchase up to four 90-day plans at one time, with one 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.

According to Pivot Health’s plan information, each of the four plans would have a separate deductible and out-of-pocket exposure, so your deductible would reset 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 would only have to qualify medically during the initial application, and medical conditions that arise during one of the initial plans would continue to be covered under the subsequent plans in accordance with the terms of the policy.

Option to pre-purchase multiple plans provides extra protection

If you manually purchase a series of short-term plans (i.e., without using a company that allows you to purchase multiple plans at one time), with each new plan taking effect the day after the previous one ends, there would be no continuity between the plans.

Not only would your deductible and other out-of-pocket costs reset to zero at the end of each plan, but you’d also have to qualify for each subsequent plan based on your current medical status – and medical conditions that crop up during one plan would be considered a pre-existing condition (and thus not covered) by subsequent short-term plans.

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

Exciting news … for some buyers

Having the option of stretching short-term coverage over a full year (via Pivot’s back-to-back plans, or new plans that will come to the market if and when the new rules for short-term plans are finalized) will undoubtedly be welcome news to consumers who already feel as though the coverage is their only viable 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 – but they also include people who are healthy and who earn just a little bit too much to qualify for premium subsidies. Learn about those who lose subsidies due to ACA’s subsidy cliff.

And some of these folks earn less than 400 percent of the poverty level but are denied subsidies due to the family glitch.

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 most states, and this will likely still be the case in 2019 as well).

Back-to-back short-term plans: Pitfalls to consider

Consumers should be aware that there are potential down-side to the back-to-back short-term approach:

  • If you purchase multiple short-term plans at once and you develop a medical condition during the time that you’re covered under one of the plans, you’ll likely need to purchase ACA-compliant coverage during the next open enrollment period. Your condition would be considered pre-existing if and when you were to apply for another short-term plan after your pre-purchased series of plans ends. (But the ability to maintain multiple short-term plans that provide up to 360 days of coverage will see you through to the next open enrollment period in most cases, depending on when you first apply.)
  • Having the deductible reset to zero after each 90 days (as opposed to once per year on an ACA-compliant plan) could end up being quite costly, so this is something to keep in mind. But it’s still far less expensive than being uninsured and having to pay out-of-pocket for all of your care.

Will you be penalized?

People who buy short-term plans 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, since they won’t be able to get a replacement plan until open enrollment (with coverage effective January 1).

Some coverage beats no coverage.

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 upcoming rate increase) 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.

If you have an option to purchase up to four short-term plans that will run back-to-back, you’ll be able to set yourself up for the rest of 2018 with one application, even before the proposed rule change on short-term plan durations is implemented.

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 healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

* EDITOR’S NOTE: Pivot Health is one of a handful of healthinsurance.org partners that offer plans in the individual health insurance market. As with all health insurance purchases, healthinsurance.org encourages consumers to carefully consider the pros and cons of buying short-term health plans.