• Short-Term Insurance Coverage Periods Get Longer in October
  • October 22, 2018 | Authors: Timothy S. Klimpl; Charles A. Bruder
  • Law Firms: Norris McLaughlin, P.A. - Bridgewater Office; Norris McLaughlin, P.A. - New York Office
  • A new rule issued by the Trump administration will allow short-term health insurance plans to cover individuals for longer periods of time without complying with the consumer protections of the Affordable Care Act (“ACA”). The rule aims to provide greater temporary gap coverage at a potentially lower cost to certain eligible individuals.

    Effective October 2, 2018, “short-term, limited-duration insurance” (referred to here as “short-term insurance”) was made available to consumers under a final rule issued by the Secretaries of Treasury, Labor, and Health and Human Services (the “Final Rule”). Under this Final Rule, individuals may purchase short-term insurance policies of less than 12 months of coverage. In addition, these short-term insurance policies may be renewed for up to a 36-month period. Previously, short-term insurance policies were only permitted to cover individuals for up to a 3 month period under a rule issued by the Obama administration in October 2016.

    Short-term insurance is generally exempt from the federal market requirements under the ACA applicable to individual health insurance policies. For example, short-term insurance policies are not subject to the following ACA consumer protections:

    • Coverage of “essential health benefits” as defined by the ACA;
    • Prohibitions on preexisting condition exclusions;
    • Prohibitions on lifetime and annual dollar limits on essential health benefits; and
    • Guaranteed availability and guaranteed renewability.

    To protect the interests of individuals who purchase the short-term policies, the Final Rule requires the policies to reflect certain prominent language, informing the purchaser of the potential coverage limitations, exclusions, and lifetime or annual dollar limits applicable to such coverage. In addition, state insurance disclosure requirements generally apply to short-term insurance policies.

    Because short-term insurance does not meet the ACA requirements for “minimum essential coverage,” individuals who enroll in short-term insurance as their primary health insurance coverage in 2018 may be subject to an individual mandate penalty under the ACA for each month of coverage, unless an exemption otherwise applies. Commencing in 2019, however, the individual mandate penalty rate is reduced to zero.

    While the short-term insurance rules are directed toward individual insurance policies, sponsors of group health insurance plans should be aware of this transitional coverage option. Upon a loss of eligibility for short-term insurance coverage, an employee who otherwise meets the requirements for employer-sponsored group health insurance coverage will have a special right to enroll in the employer’s group health insurance plan. In addition, terminated employees of an employer may seek to enroll in these short-term insurance policies in lieu of employer-provided COBRA continuation coverage, which often carries a higher monthly premium cost. While short-term insurance policies may not be for everyone, their availability may permit both employers and employees an enhanced post-employment severance benefit opportunity, particularly if the terminated employee intends to be out of the workforce for a limited period of time.