On Wednesday, the Departments of Health and Human Services, Labor, and Treasury released a final rule and fact sheet regarding short-term limited duration insurance (STLDI), often referred to as short-term plans (STPs), which will take effect in early October. The rule was in response to an executive order issued by President Trump on October 12 directing federal agencies to expand the availability of Association Health Plans, STPs and Health Reimbursement Arrangements. The final rule effectively ends the policy established by the Obama Administration in 2016 restricting the length of time for STPs and instead extends eligibility for the plans from a maximum of three months to less than 12 months, with the ability to renew coverage at the end of that period. The proposed rule was released in February and NAHU submitted comments on the proposal in April.
The final rule restores the maximum term of STPs to up to 364 days as previously permitted, with the ability to renew for a duration up to 36 months at the carrier's discretion. Therefore, while insurers would not be required to offer guaranteed-renewable coverage of STPs, individuals could re-apply for coverage and resubmit to underwriting for that policy, with insurers also able to offer renewal without additional medical underwriting or experience rating. The rule’s 36-month maximum duration could also effectively be extended even further by consumers who move from one STP to another, after the 36-month duration has been exhausted under the first insurer. These individuals would still need to submit to any underwriting, as required by the plans.
NAHU stressed in our comments that consumers should be fully aware of the limitation of these policies. The final rule includes many of the consumer protections that NAHU requested, including requiring insurers to clearly disclose the type of policy the individual is choosing, the coverage’s limitations, that these plans do not offer the same coverage as individual plans under the ACA and they do not satisfy the requirement for minimum essential coverage. And while the tax-reform law passed in December 2017 effectively zeroed out the individual mandate penalties beginning on January 1, 2019, consumers obtaining coverage through these plans in the remaining months this year will not be in compliance with the individual mandate and may owe penalties for the current tax year.
The final rule also takes into account NAHU’s request to defer to and coordinate with state regulators on the implementation of the rule. States are permitted to adopt a definition with a shorter maximum initial duration, prohibit renewals or extensions of short-term plans, or require additional insurer disclosures. The final rule also does not preempt state laws that prohibit the sale of STPs. Therefore, many states may seek to adopt more stringent standards on STPs than the federal requirements, and may enact rules more akin to these established under the Obama Administration’s 2016 STP rule, or prohibit them altogether. NAHU will be monitoring actions by the states and any efforts taken to adopt rules that may differ from the final rule.
The Administration expects these plans to be 50% to 80% cheaper than plans in the individual market and that enrollees will likely skew relatively young or healthy, as they would be more likely to pass medical underwriting. They estimate that 100,000 and 200,000 individuals will shift from marketplace coverage to STPs, and that in so doing “could potentially weaken states’ individual market single risk pools,” which may prompt some insurers to leave the marketplace and “further reduce choices for individuals remaining in those individual market single risk pools.” The CMS chief actuary estimates that these plans will ultimately enroll 1.9 million by 2022 and lead to increased federal spending of $38.7 billion over 10 years, due to a greater concentration of risk in marketplace plans, which will in turn increase premiums and therefore the value of tax credits available to consumers.
HHS Deputy Secretary Eric Hargan hosted a call for stakeholders shortly after the release of the final rule. The Administration believes these plans will be welcomed by individuals who either do not currently have access to choices in the individual market or are left without employer-based coverage for a period of time. Hargan repeatedly noted that STPs will still be regulated by the states, and that state insurance commissioners have the ability to enforce rules that are stricter than the federal regulation.
Congressional Democrats are expected to begin an effort to overturn the STP rule through the Congressional Review Act (CRA), which allows Congress to overturn federal regulations with only a simple majority. However, given that Democrats are two votes short in the Senate and 22 votes short in the House to override President Trump, this effort is almost certain to fail. Rather, Democrats are hoping to use a vote on a CRA measure to put Republicans in tough reelection contests on the record of voting in favor of plans that can discriminate against people with pre-existing conditions. The CRA must be passed by both chambers within 60 days to successfully overturn the regulation.
Additionally, four major cities have filed a lawsuit against the federal government charging them with failing to faithfully execute the ACA. Baltimore, Chicago, Cincinnati and Columbus, Ohio, allege that President Trump’s actions are not in line with the Constitutional requirement to faithfully execute the laws of the nation and, as a result, the cities are being forced to spend additional funds on uncompensated care. They specifically mention the Administration’s efforts to expand non-marketplace insurance coverage, including AHPs and STPs, as part of their efforts to sabotage the law rather than implement it as directed by statute.
NAHU will continue to provide you with guidance on the implementation of this new rule, and will work with both state and federal policymakers as they oversee the offerings of these new STPs.