August 7, 2018

HHS Issues Final Rule Expanding Short-Term Health Plans

Holland & Knight Healthcare Blog
Miranda A. Franco

On Aug. 1, 2018, the Departments of Health and Human Services (HHS), Labor and Treasury jointly issued the Short-Term, Limited-Duration Insurance Final Rule. The rule is the second of three regulations resulting from President Donald Trump's October 2017 executive order seeking to reshape the Affordable Care Act (ACA) through the regulatory process. The administration released a final rule earlier this year to expand access to association health plans (AHPs), which allow employers to form groups to purchase health coverage for their employees collectively. The administration has yet to release the third proposal expected to expand the use of health reimbursement arrangements (HRAs).

This rule amends the definition of short-term, limited-duration insurance coverage. The policy permits insurers to sell such plans for an initial period of fewer than 12 months, thereby overturning the three-month maximum policy established by the Obama Administration. Before 2016, insurers were able to sell short-term plans that were valid for up to 364 days. However, HHS under former President Barack Obama shortened the use of such plans to just three months to curtail their use and encourage individuals to purchase ACA-compliant coverage.

The Trump Administration also finalized a new policy allowing consumers to renew their plans from year to year for up to 36 months, though they are not guaranteed continued access to their plan. These plans are exempt from the federal marketplace insurance rules, including the requirement to cover pre-existing conditions, age rating requirements and benefit mandates. This exemption allows short-term policies to have lower premiums than plans meeting ACA minimum coverage requirements; however, short-term policies also cover fewer healthcare services and have higher deductibles than plans sold on the ACA healthcare exchanges.

Notably, healthcare coverage under short-term policies varies among the states, and each state will retain the power to regulate short-term health plans. States have the flexibility to establish a different, shorter maximum initial contract term consistent with state law. Therefore, many key decisions now rest with state regulators. Individual states are beginning to take differing tracks, with some moving to prohibit such policies and others advancing the short-term plans.

The Final Rule will become effective 60 days following publication in the Federal Register, which means consumers should be able to purchase the expanded short-term policies by October, just before the November 1 start of Open Enrollment for 2019.

HHS projects that approximately 600,000 individuals will enroll in short-term plans in 2019. Of these enrollees, HHS estimates that 200,000 individuals will shift from the ACA insurance exchanges to short-term coverage, 300,000 will shift from off-exchange comprehensive insurance plans to short-term coverage, and the remaining 100,000 will be new consumers who were previously uninsured.

A group of Senate Democrats announced they will soon introduce legislation in accordance with the Congressional Review Act to overturn the administration's rule. The Congressional Review Act allows Congress to overturn regulatory action taken by federal agencies with a majority vote in both the House and Senate within 60 legislative days of a rule being published in the Federal Register.

Related Insights