HRB 140 - Short-Term Duration Policies - Final Rules (article)
HRB 140 - Short-Term Limited Durations Policies - Final Rules Released
Released August 3, 2018 I Download as a PDF
An Executive Order issued on October 12, 2017 directed the Affordable Care Act’s tri-governing agencies (Departments of Treasury, Labor and Health and Human Services) to issue regulations expanding the availability of short-term limited duration insurance policies.
Currently, the Affordable Care Act (ACA) limits short-term limited duration insurance policies to a period of no more than 3 months. To achieve the goal set forth in the Executive Order, regulations were issued on August 3, 2018 expanding the duration of these policies from 3 months to up to 364 days, with the ability to renew, not to exceed 36 months from the origination date.
Notably, these short-term limited duration policies do not qualify as minimum essential coverage. Further, these policies are not required to comply with the market provisions to which more comprehensive coverage is subject to, such as limitation on preexisting condition exclusions, maternity coverage, mental health coverage, the guaranteed issue and guaranteed renewal requirements, among others.
Proponents to these regulations believe that this change would allow a cost-effective option for individuals. Opponents to the proposal believe that it will diminish the risk pool, leaving only high risk claims individuals in the ACA marketplace.
Individuals contemplating enrolling in a short-term limited duration policy will need to be aware of the limitations on coverage offered, as well as the potential consequence that coverage could be cancelled. A possible adverse scenario could be where an individual develops a health condition while covered by one of these policies. If his/her policy were to lapse and not be renewed, the individual would not be able to enroll in the marketplace until the open enrollment period, potentially leaving a gap in coverage. Thus, the attractive cost of this type of coverage will need to be weighed against the potential risk.
Insurers issuing short-term limited duration insurance policies are required to prominently display one of two versions of a notice (model language below) in both the insurance contract and application materials. The notice language differs depending on whether coverage begins prior to January 1, 2019, or whether coverage begins on or after January 1, 2019. The reason for the two different types of notices relates to the repeal of the individual penalty for failure to maintain minimum essential coverage.
Model notice language for short-term limited duration policies where coverage begins before January 1, 2019:
Model notice language for short-term, limited duration policies where coverage begins on or after January 1, 2019:
It is important to note that a state can regulate the availability and scope of these policies; for example, a state could provide that a short term policy is limited to 90 days. Several states, such as Hawaii, Maryland, Massachusetts, New Jersey, New York and Vermont have recently enacted laws to limit the duration of these policies to 3 months, as well as prohibit renewals or extensions. California and Illinois are currently working through their legislative process to also restrict these policies.
These regulations take effect on October 2, 2018, and apply to policies sold on or after that date. In closing, there is a school of thought that the Administration will be challenged in that it may have exceeded its authority by expanding the definition of short-term limited duration insurance policies in this manner. Stay tuned for further developments.
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Kansas City office.
The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.