Feds Unleash Short-Term Health Insurance From Obama-Era Limit

The Trump administration has now freed health insurers from a three-month cap on short-term health insurance terms that was imposed by the Obama administration. The change means that, in a state with welcoming laws and regulations, an insurer can sell short-term health insurance policies with a term of up to 364 days. A purchaser and insurer can use policy extensions to keep the coverage in place for as long as three years. The Internal Revenue Service, the Employee Benefits Security Administration and the U.S. Department of Health and Human Services published the final regulations that eliminated the three-month cap in August. (Related: 5 More Things to Know About the New Short-Term Medical Final Regs) The lifting of the cap officially took effect Tuesday.

How is short-term health insurance different from individual major medical?

Drafters of the Affordable Care Act included provisions exempting short-term health insurance from many of the ACA requirements that apply to major medical coverage, such as the ban on medical underwriting, the essential health benefit (EHB) benefits package requirements, and the ban on annual and lifetime benefits limits for EHB services. The result is that, for people who earn too much to qualify for ACA public exchange plan subsidies and are healthy enough to buy short-term health insurance, short-term health insurance is often much cheaper than individual major medical insurance Both critics and supporters of short-term health insurance have argued that, because short-term health insurance falls outside the ACA rules, it could pull younger, healthier customers away from the ACA-compliant individual major medical market.

What will the lifting of the three-month cap do to the size of short-term health insurance market?

Trump administration legislative impact analysts said when the final short-term health regulations came out that somewhere between 200,000 to 1 million people might have some kind of short-term health insurance today. The administration analysts predicted the lifting of three-month policy term limit might lead to insurers enrolling only about 100,000 to 200,000 more people in short-term health insurance. Analysts at the Urban Institute, who oppose the idea of people using short-term health insurance as an alternative of major medical coverage, predicted the lifting of the gap could lead to insurers enrolling about 4.1 million more people in short-term health insurance.

How are insurers and insurance distributors responding to the lifting of the three-month term cap?

Managers of Health Insurance Innovations Inc., the parent of the AgileHealthInsurance.com website, and eHealth Inc., the parent of eHealth.com, have told investors that the lifting of the three-month cap should lead to significant short-term health insurance sales opportunities. AgileHealthsurance.com, for example, put out a press release suggesting that the new products will benefit workers in the modern gig economy, by giving workers more coverage choices. Pivot Health, an affiliate of Jeff Smedsrud's HealthCare.com, said it has already started selling short-term health insurance with policy terms of 364 days in some states. Pivot Health, which designs and sells short-term health products that are written by Blue Cross and Blue Shield of South Carolina's Companion Life Insurance Company, noted that the 364-day term policies are not available in all states in Pivot Health's service area at this time.

How are skeptics reacting?

Some state regulators have given short-term health insurance the cold shoulder. In the past, for example, California has allowed the sale of short-term health insurance. Now, partly because of the fight over the three-month policy term limit, the state has become hostile to the product: Gov. Jerry Brown signed a bill last week that prohibits the sale of health insurance policies with terms that last for less than a year. Health Access California, an advocacy group, sent out a press release with the headline "California Consumers Protected from Junk Coverage As Trump Administration Proposal Takes Effect." Anthony Wright, the group's executive director, said in a statement in the release that, "In other states, insurers that sell these substandard plans will reap large profits by charging people premiums that may seem affordable, but then denying that person the care they may actually need. Thankfully, California consumers will be protected from this junk coverage that leaves people in a lurch when they actually need care."

How do you figure out what a specific state is doing about short-term health policy terms?

EHealth has published a state-by-state short-term health duration map here. As of Oct. 1, 26 states, including all of the Southeastern states, either had or were moving to a 364-day duration limit for short-term health policies. Another 10 states, including a number of Mountain states and Midwestern states, were moving toward a six-month duration limit. Five states were sticking with a 90-day limit. Montana was moving to a 123-day limit. Eight states had no short-term health options. In addition to California, the states without short-term health insurance were Massachusetts, North Dakota, New Hampshire, New Jersey, New York, Rhode Island and Vermont. — Read 10 Juicy Parts of the New Final Short-Term Medical Regs, for Agents, on ThinkAdvisor. — Connect with ThinkAdvisor Life/Health on LinkedIn and Twitter.