On August 3, the Departments of Health and Human Services (HHS), Treasury (IRS), and Labor (DOL) issued the final rule on short-term limited duration insurance (STLDI) policies.
This is the second part of President Trump’s the three-tiered executive order aiming to improve choice and affordability in the insurance marketplace.
STLDI policies provide some benefits for individuals who find themselves without coverage. Many individuals use them to bridge the gap between different policies. For example, some use them for their first months with a new employer prior to being eligible for coverage, i.e., their waiting period, rather than taking COBRA continuation from their prior employer, which can be a very costly alternative. Others may miss their open enrollment window and need this coverage to carry them to the next open enrollment.
The Health Insurance Portability and Accountability Act (HIPAA) of 1997 clearly defines STLDI polices as health insurance that has a contract expiration date that is less than 12 months, including any renewal period. In 2010, the Affordable Care Act (ACA) created a new definition to sync to the individual mandate rules. Here, STLDI policies are those with durations of less than three months, including any renewal period.
The termination of the individual mandate penalty in 2019 along with the high cost of health care and health insurance premiums condition the marketplace to create the demand for more flexibility and options for the consumers. This new, final rule for STLDI policies addresses a variety of those concerns.
The final rule defines STLDI as policies with a policy expiration date that is less than 12 months after the original effective date, and taking into account renewals or extensions, has a duration of no longer than 36 months. The rule also requires that policies must display prominently, in both the contract and on the application materials, the following notice (only policies issued in 2018 require part 2 of the notice.
Part 1: This coverage is not required to comply with certain federal market requirements for health insurance, principally those contained in the affordable care act. Be sure to check your policy carefully to make sure you are aware of any exclusions or limitations regarding coverage of preexisting conditions or health benefits (such as hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental health and substance use disorder services). Your policy might also have lifetime and/or annual dollar limits on health benefits. If this coverage expires or you lose eligibility for this coverage, you might have to wait until an open enrollment period to get other health insurance coverage."
Part 2: Also, this coverage is not “minimum essential coverage.” If you don’t have minimum essential coverage for any month in 2018, you may have to make a payment when you file your tax return unless you qualify for an exemption from the requirement that you have health coverage for that month."
Since the publication of the rule, numerous groups and lawmakers are stepping forward with concerns. Many worry that consumers will purchase without the understanding of the limitations or temporary nature of this coverage. Others say that costs are so high that many cannot purchase the full coverage options that exist today and, absent the individual mandate penalty, may not elect any insurance coverage at all. They further argue that a limited policy is better than no policy and that consumers will be willing to trade some coverage for a lower price.