‘So long’ to limits on short-term plans

Consumers in many states can now purchase longer short-term plans, but a significant number of states have their own (shorter) limits

Millions of Americans seeking alternatives to the Affordable Care Act’s comprehensive (but in some cases cost-prohibitive) health coverage may gravitate 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 August 2018, individual plan buyers who are unable – or unwilling – to buy ACA-compliant plans may now have the option 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 varies from one area to another. Some states have much tighter restrictions on short-term plans, and insurers choose to offer different plans in different areas.

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 and others had regulations that didn’t allow for short-term plans at all. Short-term plans have always been 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. In February 2018, 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 in early August, and took effect on October 2, 2018.

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 is 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 could 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. It’s important to note that HHS clearly expected this to be challeged in court, as they included a severability clause for the part about 36-month total duration: If a court strikes down that provision, the rest of the rule would remain in place (a lawsuit was filed over the legality of the new short-term insurance rule in mid-September).

In the final rule, HHS noted 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 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; see page 51 of the final rule), 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 also must 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 (states cannot implement 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. California has passed legislation that will ban the sale or renewal of short-term plans altogether starting in January 2019. 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 (click on a state on this map to see more details about how it regulates short-term plans).

States are still allowed 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/regulations in 2018 to change the limits that apply to short-term plans

Several states worked in 2018 to restrict the sale of short-term plans, with varying degrees of success:

  • California enacted a bill in 2018 (SB910) that will prohibit the sale of short-term plans in the state as of January 1, 2019. The legislation was supported by the California Department of Insurance, and by Kaiser and Blue Shield of California. Anthem Blue Cross, however, opposed the measure.
  • 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 instead focused on HB2624, which passed in the legislature and was sent to the governor in late June. The amended version of HB2624 would have limited short-term plans to durations of less than 181 days and prohibited renewals. An enrollee would not have been allowed to purchase a new short-term plan from the same issuer within 60 days of the termination of a previous short-term plan. But in late August, Governor Rauner vetoed HB2624, so short-term plans in Illinois will be allowed to follow the federal guidelines.
  • 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. An outline of the proposed regulations was published in June 2018. The proposal 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). The official draft regulation notice was published on August 21, 2018. Regulators accepted public comments on it until September 24, 2018, and held a public hearing on September 26.
  • Delaware and New Mexico are also working on regulations that will limit short-term plans to three-month durations and prohibit renewals.

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 eliminated 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: More than half the states restrict initial terms and/or total duration of short-term plans

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

  • Arizona
  • California (185 days) California will ban the sale/renewal of short-term plans altogether after the end of 2018.
  • Colorado
  • Connecticut (plans are limited to six months, and are required to cover essential health benefits starting in 2019)
  • Hawaii (90 days)
  • Indiana
  • Louisiana
  • Maryland enacted legislation in 2018 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)
  • Nevada (185 days)
  • New Hampshire
  • North Dakota (185 days)
  • Oklahoma (six-month limit, and cannot be renewed)
  • 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, as is Delaware.

A handful of states allow short-term plans to have initial terms in line with the new federal rules (ie, up to 364 days, or close to it), but place more restrictive limits on renewals and total plan duration:

  • Idaho (renewals are not permitted)
  • Kansas (only one renewal permitted)
  • Maine (total duration cannot exceed 24 months)
  • South Carolina (11-month maximum initial term, and 33-month maximum duration)
  • Utah (363-day maximum initial term, and renewals are not permitted)
  • Wisconsin (total duration limited to 18 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:

California will join the list of states where there are no short-term plans available as of 2019.

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.)

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

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