Short-Term, Limited-Duration Insurance, 38212-38243 [2018-16568]

Download as PDF 38212 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations Labor concerning employment-based health coverage laws may call the Employee Benefits Security Administration (EBSA) Toll-Free Hotline, at 1–866–444–EBSA (3272) or visit the Department of Labor’s website (https://www.dol.gov/ebsa). In addition, information from the Department of Health and Human Services (HHS) on private health insurance for consumers can be found on the Centers for Medicare & Medicaid Services (CMS) website (www.cms.gov/cciio) and information on health reform can be found at www.HealthCare.gov. SUPPLEMENTARY INFORMATION: DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 54 [TD 9837] RIN 1545–BO41 DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2590 RIN 1210–AB86 I. Background DEPARTMENT OF HEALTH AND HUMAN SERVICES This rule finalizes amendments to the definition of ‘‘short-term, limitedduration insurance’’ for purposes of its exclusion from the definition of ‘‘individual health insurance coverage’’ in 26 CFR part 54, 29 CFR part 2590, and 45 CFR part 144. 45 CFR Parts 144, 146, and 148 [CMS–9924–F] RIN 0938–AT48 Short-Term, Limited-Duration Insurance A. General Statutory Background and Enactment of PPACA Internal Revenue Service, Department of the Treasury; Employee Benefits Security Administration, Department of Labor; Centers for Medicare & Medicaid Services, Department of Health and Human Services. ACTION: Final rule. AGENCY: This final rule amends the definition of short-term, limitedduration insurance for purposes of its exclusion from the definition of individual health insurance coverage. This action is being taken to lengthen the maximum duration of short-term, limited-duration insurance, which will provide more affordable consumer choices for health coverage. DATES: Effective date: These final regulations are effective on October 2, 2018. Applicability date: Insurance policies sold on or after October 2, 2018 must meet the definition of short-term, limited-duration insurance contained in this final rule in order to be considered such insurance. FOR FURTHER INFORMATION CONTACT: Amber Rivers or Matthew Litton, Department of Labor, (202) 693–8335; Dara Alderman, Internal Revenue Service, Department of the Treasury, (202) 317–5500; David Mlawsky, Centers for Medicare & Medicaid Services, Department of Health and Human Services, (410) 786–1565. Customer Service Information: Individuals interested in obtaining information from the Department of amozie on DSK3GDR082PROD with RULES2 SUMMARY: VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 The Health Insurance Portability and Accountability Act of 1996 (HIPAA) 1 added title XXVII to the Public Health Service Act (PHS Act), part 7 to the Employee Retirement Income Security Act of 1974 (ERISA), and Chapter 100 to the Internal Revenue Code (the Code), providing portability and nondiscrimination rules with respect to health coverage. These provisions of the PHS Act, ERISA, and the Code were later augmented by other laws, including the Mental Health Parity Act of 1996,2 the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008,3 the Newborns’ and Mothers’ Health Protection Act,4 the Women’s Health and Cancer Rights Act,5 the Genetic Information Nondiscrimination Act of 2008,6 the Children’s Health Insurance Program Reauthorization Act of 2009,7 Michelle’s Law,8 and the Patient Protection and Affordable Care Act, as amended by the Health Care and 1 Public Law 104–191, 110 Stat. 1936 (August 21, 1996). 2 Public Law 104–204, 110 Stat. 2944 (September 26, 1996). 3 Public Law 110–343, 122 Stat. 3881 (October 3, 2008). 4 Public Law 104–204, 110 Stat. 2935 (September 26, 1996). 5 Public Law 105–277, 112 Stat. 2681–436 (October 21, 1998). 6 Public Law 110–233, 122 Stat. 881 (May 21, 2008). 7 Public Law 111–3, 123 Stat. 64 (February 4, 2009). 8 Public Law 110–381, 122 Stat. 4081 (October 9, 2008). PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 Education Reconciliation Act of 2010 (PPACA).9 PPACA reorganizes, amends, and adds to the provisions of Part A of title XXVII of the PHS Act relating to group health plans and health insurance issuers in the group and individual markets. PPACA added section 715 of ERISA and section 9815 of the Code to incorporate provisions of Part A of title XXVII of the PHS Act (generally, sections 2701 through 2728 of the PHS Act) into ERISA and the Code. B. President’s Executive Order On October 12, 2017, President Trump issued Executive Order 13813 entitled ‘‘Promoting Healthcare Choice and Competition Across the United States.’’ 10 This Executive Order states in relevant part: ‘‘Within 60 days of the date of this order, the Secretaries of the Treasury, Labor, and Health and Human Services shall consider proposing regulations or revising guidance, consistent with law, to expand the availability of [short-term, limitedduration insurance]. To the extent permitted by law and supported by sound policy, the Secretaries should consider allowing such insurance to cover longer periods and be renewed by the consumer.’’ C. 2017 Tax Legislation Section 5000A of the Code, added by PPACA, provides that all non-exempt applicable individuals must maintain minimum essential coverage (MEC) or pay the individual shared responsibility payment.11 On December 22, 2017, the President signed tax reform legislation into law.12 This legislation includes a provision under which the individual shared responsibility payment under section 5000A of the Code is reduced to 9 The Patient Protection and Affordable Care Act, Public Law 111–148, was enacted on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010, Public Law 111–152, was enacted on March 30, 2010. These statutes are collectively referred to as PPACA. 10 82 FR 48385. 11 The eligibility standards for exemptions can be found at 45 CFR 155.605. Section 5000A of the Code and Treasury regulations at 26 CFR 1.5000A– 3 provide exemptions from the requirement to maintain MEC for the following individuals: (1) Members of recognized religious sects; (2) members of health care sharing ministries; (3) exempt noncitizens; (4) incarcerated individuals; (5) individuals with no affordable coverage; (6) individuals with household income below the income tax filing threshold; (7) members of federally recognized Indian tribes; (8) individuals who qualify for a hardship exemption certification; and (9) individuals with a short coverage gap of a continuous period of less than 3 months in which the individual is not covered under MEC. 12 Public Law 115–97, 131 Stat. 2054. E:\FR\FM\03AUR2.SGM 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations $0, effective for months beginning after December 31, 2018. amozie on DSK3GDR082PROD with RULES2 D. Short-Term, Limited-Duration Insurance Short-term, limited-duration insurance is a type of health insurance coverage that was primarily designed to fill temporary gaps in coverage that may occur when an individual is transitioning from one plan or coverage to another plan or coverage. Section 2791(b)(5) of the PHS Act provides ‘‘[t]he term ‘individual health insurance coverage’ means health insurance coverage offered to individuals in the individual market, but does not include short-term limited duration insurance.’’ 13 However, the PHS Act does not define short-term, limitedduration insurance. In 1997, the Department of the Treasury, the Department of Labor, and the Department of Health and Human Services (together, the Departments), issued regulations implementing the portability and renewability requirements of HIPAA, which included definitions of individual health insurance coverage as well as shortterm, limited-duration insurance.14 Those regulations defined short-term, limited-duration insurance as ‘‘health insurance coverage provided pursuant to a contract with an issuer that has an expiration date specified in the contract (taking into account any extensions that 13 Sections 733(b)(4) of ERISA and 2791(b)(4) of the PHS Act provide that group health insurance coverage means ‘‘in connection with a group health plan, health insurance coverage offered in connection with such plan.’’ Sections 733(a)(1) of ERISA and 2791(a)(1) of the PHS Act provide that a group health plan is generally any plan, fund, or program established or maintained by an employer (or employee organization or both) for the purpose of providing medical care to employees or their dependents (as defined under the terms of the plan) directly, or through insurance, reimbursement, or otherwise. There is no corresponding provision excluding short-term, limited-duration insurance from the definition of group health insurance coverage. Thus, any health insurance that is sold in the group market and purports to be short-term, limited-duration insurance must comply with applicable group health insurance requirements established under Part A of title XXVII of the PHS Act, part 7 of ERISA, and Chapter 100 of the Code. 14 The definition of individual health insurance coverage (and its exclusion of short-term, limitedduration insurance) has some limited relevance with respect to certain provisions that apply to group health plans and group health insurance issuers over which the Departments of Labor and the Treasury have jurisdiction. For example, an individual who loses coverage due to moving out of an HMO service area in the individual market triggers a special enrollment right into a group health plan. See 26 CFR 54.9801–6(a)(3)(i)(B), 29 CFR 2590.701–6(a)(3)(i)(B), and 45 CFR 146.117(a)(3)(i)(B). Also, a group health plan that wraps around individual health insurance coverage is an excepted benefit if certain conditions are satisfied. See 26 CFR 54.9831–1(c)(3)(vii), 29 CFR 2590.732(c)(3)(vii), and 45 CFR 146.145(b)(3)(vii). VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 may be elected by the policyholder without the issuer’s consent) that is less than 12 months after the original effective date of the contract.’’ 15 Short-term, limited-duration insurance is generally exempt from the Federal market requirements applicable to health insurance sold in the individual market because it is not considered individual health insurance coverage. For example, short-term, limited-duration insurance is not subject to the requirement to provide essential health benefits and it is not subject to the prohibitions on preexisting condition exclusions or lifetime and annual dollar limits. It is also not subject to requirements regarding guaranteed availability and guaranteed renewability. To address the issue of short-term, limited-duration insurance being sold as a type of primary coverage, as well as concerns regarding possible adverse selection impacts on the risk pools for PPACA-compliant plans, the Departments published a proposed rule on June 10, 2016 in the Federal Register entitled ‘‘Expatriate Health Plans, Expatriate Health Plan Issuers, and Qualified Expatriates; Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited-Duration Insurance.’’ 16 The June 2016 proposed rule proposed changing the definition of short-term, limited-duration insurance that had been in place for nearly 20 years by revising the definition to specify that short-term, limited-duration insurance could not provide coverage for 3 months or longer taking into account any extensions that may be elected by the policyholder with or without the issuer’s consent.17 The June 2016 proposed rule also proposed to require that the following notice be prominently displayed in the contract and in any application materials provided in connection with enrollment in short-term, limitedduration insurance, in at least 14 point type: THIS IS NOT QUALIFYING HEALTH COVERAGE (‘‘MINIMUM ESSENTIAL COVERAGE’’) THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE AFFORDABLE CARE ACT. IF YOU DON’T HAVE MINIMUM ESSENTIAL COVERAGE, YOU MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES.18 After reviewing public comments and feedback received from stakeholders, on 15 62 FR 16894 at 16928, 16942, 16958 (April 8, 1997); see also 69 FR 78720 (December 30, 2004). 16 81 FR 38019. 17 81 FR 38019, 38032. 18 Id. at 38032. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 38213 October 31, 2016, the Departments finalized the June 2016 proposed rule without change in a final rule published in the Federal Register entitled ‘‘Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited-Duration Insurance.’’ 19 On June 12, 2017, HHS published a request for information in the Federal Register entitled ‘‘Reducing Regulatory Burdens Imposed by the Patient Protection and Affordable Care Act & Improving Healthcare Choices to Empower Patients,’’ 20 which solicited public comments about potential changes to existing regulations and guidance that could promote consumer choice, enhance affordability of coverage for individual consumers, and affirm the traditional regulatory authority of the states in regulating the business of health insurance, among other goals. Several commenters stated that changes to the October 2016 final rule may provide an opportunity to achieve these goals. Consistent with many comments submitted on the June 2016 proposed rule, commenters stated that shortening the permitted length of short-term, limited-duration insurance policies had deprived individuals of affordable coverage options. One commenter explained that due to the increased costs of PPACA-compliant major medical coverage, many financially-stressed individuals may be faced with a choice between short-term, limited-duration insurance coverage and going without any coverage at all. One commenter highlighted the need for short-term, limited-duration insurance coverage among individuals who are between jobs. Another commenter explained that states have the primary responsibility to regulate short-term, limited-duration insurance and opined that the October 2016 final rule was overreaching on the part of the federal government. In addition to considering these comments, the Departments also considered that, while individuals who qualify for premium tax credits (PTCs) under section 36B of the Code are largely insulated from premium increases for individual health insurance coverage (that is, the government, and thus federal taxpayers, largely bear the cost of the increases), individuals who are not eligible for PTCs are particularly harmed by increased premiums in the individual market due to a lack of other, more affordable alternative coverage options. Based on CMS data on Exchangeeffectuated enrollment and payment, 19 81 20 82 E:\FR\FM\03AUR2.SGM FR 75316 (October 31, 2016). FR 26885. 03AUR2 38214 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations amozie on DSK3GDR082PROD with RULES2 average monthly enrollment for individuals without PTCs declined by 1.3 million, or 20 percent, between 2016 and 2017.21 Some of this decline is likely a response to increased premiums.22 Further, in 2018, about 26 percent of enrollees (living in 52 percent of counties) have access to just one issuer in the Exchange.23 Such monopoly markets, which are more predominant in rural counties, do not provide meaningful choice for consumers and cause premiums to be higher than they would be in a competitive market. Additionally, although the October 2016 final rule was intended to boost enrollment in individual health insurance coverage by reducing the maximum duration of coverage in short-term, limited-duration plans, it did not succeed in that regard. Rather, average monthly enrollment in individual market plans decreased by 10 percent between 2016 and 2017, while premiums increased by 21 percent.24 Therefore, the Departments determined that the expansion of additional coverage options such as short-term, limited-duration insurance is necessary, as premiums have escalated and 21 Centers for Medicare and Medicaid Services, ‘‘Trends in Subsidized and Unsubsidized Individual Health Insurance Market Enrollment’’, July 2, 2018. Available at https://www.cms.gov/CCIIO/ Programs-and-Initiatives/Health-InsuranceMarketplaces/Downloads/2018-07-02-TrendsReport-2.pdf. 22 Note, however, that the reduction in the number of unsubsidized enrollees is due to several different effects. As implied in the main text, some of the reduction is attributable to unsubsidized enrollees dropping coverage due to premium increases. Unsubsidized enrollees might also have left the Exchange because the labor market has improved, which might have resulted in increased availability of employer-sponsored coverage. In addition, because Exchange enrollees pay a fixed share of income for premiums with PTC covering the remainder, when premiums rise some unsubsidized enrollees become subsidized, even if enrollment does not change at all. Between February 2017 and February 2018, effectuated enrollment fell by about 209,000 among the unsubsidized but rose by 522,000 for the subsidized, suggesting some movement from unsubsidized to subsidized status without a change in enrollment. See ‘‘2017 Effectuated Enrollment Snapshot’’, June 12, 2017, available at https:// downloads.cms.gov/files/effectuated-enrollmentsnapshot-report-06-12-17.pdf and ‘‘Early 2018 Effectuated Enrollment Snapshot’’, June 2, 2018, available at https://www.cms.gov/CCIIO/Programsand-Initiatives/Health-Insurance-Marketplaces/ Downloads/2018-07-02-Trends-Report-1.pdf. 23 Kaiser Family Foundation, ‘‘Insurer Participation on ACA Marketplaces, 2014–2018,’’ November 10, 2017. Available at https:// www.kff.org/health-reform/issue-brief/insurerparticipation-on-aca-marketplaces/. 24 Centers for Medicare and Medicaid Services, ‘‘Trends in Subsidized and Unsubsidized Individual Health Insurance Market Enrollment’’, July 2, 2018. Available at https://www.cms.gov/ CCIIO/Programs-and-Initiatives/Health-InsuranceMarketplaces/Downloads/2018-07-02-TrendsReport-2.pdf. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 affordable choices in the individual market have dwindled. Accordingly, in light of Executive Order 13813 directing the Departments to consider proposing regulations or revising guidance to expand the availability of short-term, limitedduration insurance, as well as in response to continued feedback from stakeholders expressing concerns about the October 2016 final rule, the Departments published a proposed rule on February 21, 2018 entitled ‘‘ShortTerm, Limited-Duration Insurance’’ under which the Departments proposed to amend the definition of short-term, limited-duration insurance to provide (as did the regulations implementing HIPAA) that such insurance may have a maximum coverage period of less than 12 months after the original effective date of the contract, taking into account any extensions that may be elected by the policyholder without the issuer’s consent.25 In addition, the Departments proposed to revise the content of the notice that must appear in the contract and any application materials provided in connection with enrollment in shortterm, limited-duration insurance, to be prominently displayed (in at least 14 point type), and to read as follows: THIS COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU UNDERSTAND WHAT THE POLICY DOES AND DOESN’T COVER. 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. 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. Under the proposed rule, the final two sentences of the notice would only be required for policies sold on or after the applicability date of the final rule, if finalized, that have a coverage start date before January 1, 2019, because the individual shared responsibility payment is reduced to $0 for months beginning after December 2018. The Departments proposed that the rule would be effective 60 days after publication of the final rule in the Federal Register, and with respect to 25 83 PO 00000 FR 7437 (February 21, 2018). Frm 00004 Fmt 4701 Sfmt 4700 the applicability date, the Departments proposed that policies sold on or after the 60th day following publication of the final rule would have to meet the definition of short-term, limitedduration insurance in the final rule in order to be considered short-term, limited-duration insurance. Further, the Departments proposed that group health plans and group health insurance issuers, to the extent they must distinguish between short-term, limitedduration insurance and individual health insurance coverage, must apply the definition of short-term, limitedduration insurance in the final rule as of the 60th day following publication of the final rule. Request for Comments The Departments requested comments on all aspects of the proposed rule, including whether the length of shortterm, limited-duration insurance should be some other duration. Also, the Departments requested comments on any regulations or other guidance or policy that limits issuers’ flexibility in designing short-term, limited-duration insurance or poses barriers to entry into the short-term, limited-duration insurance market. In addition, the Departments specifically sought comments on both the conditions under which issuers should be able to allow short-term, limited-duration insurance to continue for 12 months or longer with the issuer’s consent and the revised notice. The Departments requested comments on the economic impact analysis provided in the proposed rule, and welcomed other estimates of the increase in enrollment in short-term, limited-duration insurance under the proposal, and on the health status and age of individuals who would purchase these policies. The comment period on the proposed rule ended on April 23, 2018. The Departments received approximately 12,000 comments. After careful consideration of these comments, the Departments are issuing these final rules. II. Overview of the Final Regulations After considering the public comments, the Departments are finalizing the proposed rule with some modifications. Under this final rule, short-term, limited-duration insurance means health coverage provided pursuant to a contract with an issuer that has an expiration date specified in the contract that is less than 12 months after the original effective date of the contract and, taking into account E:\FR\FM\03AUR2.SGM 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations renewals or extensions, has a duration of no longer than 36 months in total. This final rule also retains the requirement that issuers of short-term, limited-duration insurance display one of two versions of a notice prominently in the contract and in any application materials provided in connection with enrollment in such coverage in at least 14-point type. However, the language of the notice in the final rule is revised to read as follows: amozie on DSK3GDR082PROD with RULES2 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. 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. As under the proposed rule, the last two sentences of the notice are only required for policies sold on or after the applicability date of this final rule that have a coverage start date before January 1, 2019. As explained in more detail later in this preamble, in response to comments, the notice in the final rule contains additional specificity, including a list of health benefits that might not be covered. However, the Departments do not have evidence that short-term, limited-duration insurance policies have not historically or are unlikely to cover hospitalization and emergency services. Further, this final rule provides that the notice may contain any additional information as required by applicable state law and that the notice typeface should be in sentence case, rather than all capital letters. Based on comments submitted, the Departments have also revised the estimates of the impact of short-term, limited-duration coverage on the individual health insurance market and the uninsured as explained further below. In addition, a severability clause has been added to this final rule. Finally, as was proposed in the proposed rule, this final rule is effective and applicable 60 days after publication in the Federal Register. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 Comments on Authority Several commenters questioned the Departments’ legal authority with regard to various aspects of the proposed rule. One commenter stated that because the PHS Act exempts short-term, limitedduration insurance from the definition of ‘‘health insurance coverage,’’ there is no delegation of Congressional authority giving HHS the power to define shortterm, limited-duration insurance. Several commenters questioned whether the Departments have legal authority to define short-term, limited-duration insurance as having a maximum contract term of less than 12 months. One commenter stated that allowing such coverage to last nearly as long as individual health insurance coverage would be arbitrary, capricious, and not in accordance with law. Another commenter stated that the Departments failed to provide any reasonable justification for the change and expressed concern that short-term, limited-duration insurance will harm consumers and the individual market, will increase premiums for individual market plans, and will increase PTC expenditures. The commenter noted that despite acknowledging these potential outcomes of the proposed rule, the Departments stated that they are proposing this action to provide more affordable consumer choice for health coverage. The commenter stated that this does not suffice to explain the decision for a rule change that is inconsistent with the Departments’ earlier position, cannot carry the force of law, and is not entitled to deference and therefore is arbitrary and capricious, and cannot stand. One commenter stated that none of the three preambles supporting the less-than-12month duration (the 1997 rules, the 2004 rules and the proposed rule that this rule finalizes) provide a ‘‘reasoned explanation’’ for this choice as the maximum length of coverage. Another commenter stated that 3 months is a reasonable, ordinary-English meaning of the word ‘‘short,’’ that the Departments’ adoption of it in 2016 was wellreasoned, and that neither the facts nor the statute have changed, only a policy agenda inimical to PPACA is new. Another commenter stated that the definition in the proposed rule is inconsistent with the statutory text of PHS Act section 2791(b)(5) because the proposed maximum duration for shortterm, limited-duration insurance coverage is not sufficiently shorter than individual health insurance coverage to be consistent with any reasonable reading of the statutory phrase ‘‘shortterm.’’ This commenter also asserted PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 38215 that the proposed definition is inconsistent with PPACA, because an issuer meeting the proposed definition could avoid all PPACA insurance reforms, which would deprive consumers of PPACA’s protections and damage individual market risk pools. Taking all this into consideration, the commenter asserted that the proposed definition is thus arbitrary and capricious. The Departments disagree with these commenters that questioned our legal authority. The Departments have clear statutory authority under the PHS Act to interpret undefined provisions of the PHS Act, ERISA, and the Code.26 In order to determine the scope of individual health insurance coverage, which is essential to allow enforcement of the rules that apply to individual health insurance coverage, the Departments must give meaning to the term shortterm, limited-duration insurance.27 Relatedly, Congress provided the Secretaries of HHS, Labor and the Treasury with explicit authority to promulgate regulations as may be necessary or appropriate to carry out the provisions of the PHS Act.28 Due to the absence of a statutory definition for the term short-term, limited-duration insurance, and the fact that the only reference to such coverage is as an exclusion from individual health insurance coverage, this includes the authority to issue regulations on shortterm, limited-duration insurance to define it and set standards that distinguish it from individual health insurance coverage. The Departments also disagree that the definition in the proposed rule and as revised in this final rule is inconsistent with PPACA. Both the proposed rule and the final rule establish federal standards for shortterm, limited-duration insurance in a manner that clearly distinguishes such insurance from the individual health insurance coverage that is subject to PPACA’s individual market requirements. Further, there are no explicit statutory standards governing 26 See section 715 of ERISA and section 9815 of the Code, which incorporate provisions of Part A of title XXVII of the PHS Act (generally, sections 2701 through 2728 of the PHS Act) into ERISA and the Code. See also, section 104 of HIPAA. See also, sections 505 and 734 of ERISA, sections 2761 and 2792 of the PHS Act, section 1321(a)(1) and (c) of PPACA and section 7805 of the Code. 27 As discussed in footnote 14, the definition of short-term, limited-duration insurance also has some relevance with respect to certain provisions that apply to group health plans and group health insurance issuers over which the Departments of Labor and the Treasury have jurisdiction. 28 See section 2792 of the PHS Act. E:\FR\FM\03AUR2.SGM 03AUR2 amozie on DSK3GDR082PROD with RULES2 38216 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations the degree to which short-term, limitedduration insurance must vary from individual health insurance coverage, leaving it to the Departments to use their interpretive authority to distinguish between the two terms. Indeed, when the federal regulations for short-term, limited-duration insurance were first implemented in 1997, shortterm, limited-duration insurance was considered to be health insurance coverage with a period of coverage that was less than 12 months, as under the proposed rule. That standard was in place for nearly two decades without objection. As demonstrated by the definition of short-term, limitedduration insurance in this final rule, short-term, limited-duration insurance and individual health insurance coverage are distinguished by the differences in their initial contract terms, the maximum duration of a policy itself, and the types of notice requirements applicable to each type of coverage. The two types of insurance are further distinguished with respect to whether the coverage is considered MEC. In the Departments’ view, these differences are significant and sufficient to distinguish short-term, limitedduration insurance from individual health insurance coverage, and the definition of short-term, limitedduration insurance in this final rule is consistent with PPACA, is well reasoned, is clearly within the Departments’ authority, and is therefore not arbitrary and capricious. Rather than deprive consumers of PPACA protections, this final rule expands access to additional, more affordable coverage options for individuals, including those who might otherwise be uninsured, as well as to those who do not qualify for PTCs or who otherwise find individual health insurance coverage unattractive. Consumers who want comprehensive, individual health insurance coverage as defined by PPACA will continue to be able to purchase such coverage on a guaranteed availability and guaranteed renewability basis in the individual market. As to the comment regarding whether the rule is justified, see the discussion in the Regulatory Impact Analysis in this final rule for updated estimates of the impact of enrollment in short-term, limitedduration insurance on consumers and the individual market. As stated above, some commenters challenged the legal authority of the Departments to set a less-than-12 month maximum contract term, including extensions that may be elected by the policyholder without the issuer’s consent. In this final rule, the VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 Departments instead set a less-than-12month maximum on the length of the initial contract term. The Departments would have had the authority to do the former (had we chosen to do so), and also have the authority to do the latter. As explained above, the Departments have authority to establish regulatory standards for short-term, limitedduration insurance, including setting a limit on the length of the initial contract term. The Departments have explained in the proposed rule and elsewhere in this final rule that this regulatory action is necessary and appropriate to remove federal barriers that inhibit consumer access to additional, more affordable coverage options and support state efforts to develop innovative solutions in response to market-specific needs. This final rule recognizes the role that short-term, limited-duration insurance can fulfill, while at the same time distinguishing it from individual health insurance coverage by interpreting ‘‘short-term’’ to mean an initial contract term of less than 12 months and implementing the ‘‘limited-duration’’ requirement by precluding renewals or extensions that extend a policy beyond a total of 36 months. See below for a discussion of the rationale for the interpretation of the ‘‘limited-duration’’ requirement to mean no longer than 36 months. States remain free to adopt a definition with a shorter maximum initial contract term or shorter maximum duration (including renewals and extensions) for a policy to meet their specific market needs, including the adoption of strategies to mitigate adverse selection in the individual market. One commenter stated that unlike health insurance products sold in the non-group market, short-term, limitedduration insurance is exempt from federal regulation and is subject only to state regulation and that the extent of CMS’s statutory authority is to define what short-term, limited-duration insurance is. The commenter stated that the Departments have no legal authority to impose regulatory burdens or limitations on short-term, limitedduration insurance, such as the notice requirement. The Departments agree with the commenter that short-term, limitedduration insurance is exempt from the PHS Act’s individual market rules and is generally subject to state regulation. However, the Departments also have limited authority under the PHS Act to establish federal regulatory standards for short-term, limited-duration insurance, including standards related to the maximum length of the initial contract term, the maximum duration PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 (including renewals and extensions) for a policy, and a consumer notice. This final rule establishes such federal standards for short-term, limitedduration insurance in a way that is necessary and appropriate to distinguish this coverage from individual health insurance coverage. As stated above, Congress provided the HHS, Labor, and Treasury Secretaries with explicit authority to promulgate regulations as may be necessary or appropriate to carry out the provisions of the PHS Act.29 The Departments believe that the federal regulatory definition of short-term, limited-duration insurance as set forth in this final rule, including the notice requirement, is necessary and appropriate to carry out the provisions of the PHS Act. As explained above, the Departments must give meaning to the undefined statutory term short-term, limited-duration insurance and the meaning must distinguish it from individual health insurance coverage. This is because the PHS Act imposes certain requirements on individual health insurance coverage, and does not impose those same requirements on short-term, limited-duration insurance. Further, the Departments believe it is necessary and appropriate for consumers considering the purchase of short-term, limited-duration insurance, and those actually purchasing such insurance, to be aware that such coverage is not subject to the federal individual market rules under the PHS Act. Therefore, one component of the federal standards for short-term, limited-duration insurance in this final rule is inclusion of the notice specified in this final rule, to inform applicants and enrollees that short-term, limitedduration insurance is not individual health insurance coverage and therefore is not required to meet the federal market requirements that apply to individual health insurance coverage. Defining short-term, limited-duration insurance in such a way that requires a short, standard description of how the coverage might vary from individual health insurance coverage allows for a clear determination by regulators that the policy is intended to be short-term, limited-duration insurance, facilitates compliance by issuers, and promotes ease of understanding by consumers. We further clarify that to the extent a health insurance policy sold to an individual in the non-group market includes the notice, and satisfies the other federal standards for short-term, limited-duration insurance in this final rule, it constitutes short-term, limitedduration insurance and is not subject to 29 See E:\FR\FM\03AUR2.SGM section 2792 of the PHS Act. 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations amozie on DSK3GDR082PROD with RULES2 the federal individual market rules under the PHS Act. As described elsewhere in this final rule, states can adopt a definition with a shorter maximum initial contract term and/or a shorter maximum duration of a policy, and can require issuers to provide additional information as part of the consumer notice. The proposed rule did not address whether any aspect (or standard) in the definition of short-term, limitedduration insurance should be considered independent of other provisions, and thus severable, if such part of the definition were to be determined invalid. Although there were no comments that directly addressed severability, from the comments received on the proposed rule, the Departments recognize there is a possibility that some stakeholders may challenge the 36-month maximum duration standard in court. The Departments expect to prevail in any such challenge, as this final rule and each of the federal standards for shortterm, limited-duration insurance finalized herein are legally sound. If a court should conclude that the 36month maximum duration standard for short-term, limited-duration insurance in this final rule is invalid, the Departments wish to emphasize our intent that the remaining standards of the final rule will take effect and be given the maximum effect as permitted by law. Thus, we have added a severability clause as a new paragraph (4) to the final rule, which addresses two situations—one where the 36month provision is invalidated ‘‘as applied,’’ and the other where it is invalidated ‘‘facially.’’ The severability provision reads as follows: ‘‘If a court holds the 36-month maximum duration provision set forth in paragraph (1) of this definition or its applicability to any person or circumstances invalid, the remaining provisions and their applicability to other people or circumstances shall continue in effect.’’ General Comments on the Proposed Rule Many commenters generally agreed that short-term, limited-duration insurance plays an important role in providing temporary health coverage to individuals who would otherwise go uninsured. Most commenters also stated that such plans are not meant to take the place of comprehensive health insurance coverage, and allowing them to be marketed as a viable alternative to comprehensive coverage would subject uninformed consumers to potentially severe financial risks, and would siphon off healthier individuals from the VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 market for individual health insurance coverage, thereby raising premiums for such coverage. Commenters who supported the proposed rule stated that it would allow purchasers of short-term, limited-duration insurance to obtain the coverage they want (excluding services they do not want) at a more affordable price for a longer period of time. These commenters explained that currently, enrollees have to reapply for short-term, limited-duration insurance every 3 months, have their deductibles reset every 3 months, and might lose coverage for conditions that develop during the initial 3 months. They also noted that many individuals may be unable to obtain more comprehensive coverage at the end of the 3-month coverage period because they may not qualify for a special enrollment period for individual health insurance coverage and might have a long time to wait for the next individual market open enrollment period. The Departments agree that shortterm, limited-duration insurance plays an important role in providing temporary valuable health coverage to individuals who would otherwise go uninsured. Short-term, limited-duration insurance can also provide a more affordable, and potentially desirable, coverage option for some consumers, such as those who cannot afford unsubsidized coverage in the individual market. This final rule balances the important role that short-term, limitedduration insurance plays in the market, while at the same distinguishing it from individual health insurance coverage and requiring issuers of short-term, limited-duration insurance to inform consumers of how coverage under the policy might differ from coverage under individual health insurance coverage. The rule does this by setting the maximum length of the initial contract term to less than 12 months, establishing the total maximum duration for a policy (including coverage during the initial contract term and renewals or extensions under the same insurance contract) of no longer than 36 months, and providing for a notice to inform consumers of how coverage under the policy might differ from coverage under individual health insurance coverage. Thus, under this final rule, issuers may offer coverage under a short-term, limited-duration insurance policy for up to a total of 36 months, without any medical underwriting or experience rating beyond that completed upon the initial sale of the policy (as long as the applicable notice is provided to PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 38217 consumers and the initial contract term is less than 12 months). The Departments acknowledge that making short-term, limited-duration insurance more available, and for longer initial contract terms and periods of duration than is currently permitted, could have an impact on the risk pools for individual health insurance coverage, and could therefore raise premiums for individual health insurance coverage (see the discussion in the Regulatory Impact Analysis section). However, as discussed more fully below, we believe the critical need for coverage options that are more affordable than individual health insurance coverage, combined with the general need for more coverage options and choice, substantially outweigh the estimated impact on individual health insurance premiums. Initial Contract Term for Short-Term, Limited-Duration Insurance The proposed rule would have set a maximum length of short-term, limitedduration coverage, including any extensions that may be elected by the policyholder without the issuer’s consent, of less than 12 months. Given that the proposed rule did not include a proposal to permit renewal periods in addition to or longer than the less-than12-month period, we are addressing all comments related to the ‘‘less-than-12month’’ aspect of the proposed rule as comments on the initial contract term. The Departments discuss and respond to comments related to renewals and extensions beyond the initial contract term, including comments on the permissible maximum duration for a policy (including renewals and extensions of the same insurance contract), later in this preamble. With respect to the maximum length of the initial contract term for short-term, limited-duration insurance, most comments suggested not extending the maximum duration beyond the current less-than-3-month maximum. Others suggested periods such as less than 6 or 8 months. Most commenters who supported extending the maximum initial contract term suggested it should be 364 days. A few commenters suggested more than 1 year. Other commenters stated that any short-term, limited-duration policy should end by December 31 of the calendar year in which the policy period commences, while others stated that the maximum duration should be 1 year or until December 31 of the calendar year in which the policy period commences, whichever occurs later. Other commenters stated that the maximum E:\FR\FM\03AUR2.SGM 03AUR2 amozie on DSK3GDR082PROD with RULES2 38218 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations length of the coverage should be left to the states. As explained in the proposed rule, we proposed to return to the less-than-12month standard in order to expand more affordable coverage options to consumers who desire and need them, to help individuals avoid paying for benefits provided in individual health insurance coverage that they believe are not worth the cost, to reduce the number of uninsured individuals, and to make available more coverage options with broader access to providers than certain individual health insurance coverage has. The Departments disagree with the commenters who supported a shorter maximum initial contract term. To the extent the initial contract term would be limited to a shorter duration, for example, 3 months, this would mean that every 3 months, absent renewability of the policy, an individual purchasing short-term, limited-duration insurance would be subject to re-underwriting if they did not have a renewal guarantee, and would possibly have his or her premium greatly increased as a result. The issuer could also decline to issue a new policy to the consumer based on preexisting medical conditions. Also, to the extent that the policy has a deductible, the individual would not get credit for money spent toward the deductible during the previous 3 months. In addition, to the extent that the policy excluded preexisting conditions for a specified period of time or imposed a waiting period on specific benefits, the individual might not get credit for the amount of the time he or she had the previous coverage, and thus the waiting period on preexisting conditions or on specific benefits would start over, leaving the consumer without coverage for the condition(s) or benefit(s) until the new waiting period expires. Although these circumstances would be somewhat mitigated if the maximum initial contract term was somewhat longer than less than 3 months, for example, less than 9 months, the Departments believe that mitigating these circumstances even further, by establishing a federal maximum initial contract term of less than 12 months, is preferable. The Departments find all of these to be compelling reasons in favor of permitting a maximum initial contract term of less than 12 months, rather than a shorter maximum initial contract term. With respect to the comment that any short-term, limited-duration policy should end by December 31 of the calendar year in which the policy period commences, this could result in many such policies having an initial contract term of far less than 12 months, VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 which for the reasons stated above, the Departments believe is not desirable. With respect to the comment that the maximum duration should be 1 year or until December 31 of the calendar year in which the policy period commences, the Departments do not believe that a policy with an initial contract term of 1 full year would satisfy the ‘‘short-term’’ component of short-term, limitedduration insurance, as it would have the same initial contract term as individual health insurance coverage. The Departments agree that states remain free to adopt a definition with a shorter maximum initial contract term. The maximum initial contract term of less than 12 months established in this final rule provides a uniform federal standard for the initial contract term for short-term, limited-duration insurance. As explained in the proposed rule and elsewhere in this final rule, this standard was selected in order to promote access to health coverage choices in addition to individual health insurance coverage, which, as stated above, may or may not be the most appropriate or affordable policies for some individuals. Therefore, this rule sets a federal standard for the maximum initial contract term for short-term, limited-duration insurance. This federal standard defines the ‘‘short-term’’ component of short-term, limitedduration insurance as less than 12 months. The federal maximum duration for a policy (including renewals and extensions of the same insurance contract), discussed further below, implements the ‘‘limited-duration’’ component of short-term, limitedduration insurance. Many commenters that opposed the extension of the maximum initial contract term for short-term, limitedduration insurance generally expressed concerns about the lack of protections for consumers who purchase short-term, limited-duration insurance. Some of these commenters stated that such insurance is not a viable option for people with serious or chronic medical conditions because of potential policy exclusions. Commenters also stated that short-term, limited-duration policies discriminate against those with serious illnesses and other preexisting conditions including mental health and substance abuse disorders, older consumers, women, transgender patients, persons with gender-identityrelated health concerns, and victims of rape and domestic violence. The commenters did not provide persuasive evidence for concluding that short-term, limited-duration policies discriminate against individuals. The Departments acknowledge that short- PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 term, limited-duration insurance may not be suitable coverage for all individuals in all circumstances and that in some instances it may not provide coverage that is as comprehensive as individual health insurance coverage. However, shortterm, limited-duration insurance can be a viable health insurance option for many people in many circumstances. Also, no individual is required to enroll in short-term, limited-duration insurance; rather, it is simply an additional, and likely more affordable, option that may be available to them. Individual health insurance coverage is unaffordable for many consumers, particularly those who do not qualify for PTCs. Of uninsured consumers visiting the HealthCare.gov website in the past year, 63 percent of those who did not purchase a plan cited high premiums as the primary reason not to purchase.30 Furthermore, the availability of shortterm, limited-duration insurance provides an additional choice for many consumers that exists side-by-side with individual market coverage, with the end result that individuals are provided with more choices and have the opportunity to purchase the type of coverage that is most desirable and suitable for the individual and/or her family. Additionally, many individuals who have health conditions for which they desire coverage that might be more comprehensive than what is available through short-term, limited-duration insurance, can access individual health insurance coverage on a guaranteed available and guaranteed renewable basis and, if enrollment is pursued through an Exchange and the individual is otherwise eligible, may qualify for the PTC to offset the cost of such coverage and, in some cases, cost-sharing reductions. PTCs and cost-sharing reductions generally are not available to purchasers of short-term, limitedduration insurance. However, states may be able to provide subsidies to purchasers of short-term, limitedduration insurance with funds provided under waivers authorized by section 1332 of PPACA 31 should they choose to do so and should the waiver satisfy all applicable requirements. Also, states have flexibility to establish a different, shorter maximum initial contract term consistent with state law. In addition, these final rules require the prominent display of a notice in the contract and any application materials provided in connection with enrollment in shortterm, limited-duration insurance to alert 30 CMS 31 42 E:\FR\FM\03AUR2.SGM Exchanges Trend Report, July 2, 2018. U.S.C. 18052. 03AUR2 amozie on DSK3GDR082PROD with RULES2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations consumers about how coverage under the policy might vary from coverage under individual health insurance coverage. See the discussion below for an explanation of the changes the Departments are making to the required notice in this final rule in response to commenters’ concerns about consumers’ potential misunderstanding of some of those variations. These changes include a clarification that states have the flexibility to require additional consumer disclosures. Many commenters who opposed the extension of the maximum initial contract term for short-term, limitedduration insurance expressed concern about what they viewed as a history of aggressive and deceptive marketing practices by individuals who market short-term, limited-duration insurance. One commenter stated that over the past 2 years, state regulators have seen an increase in complaints about such insurance, with consumers saying they were unaware their plan did not provide comprehensive coverage or that they could be refused a new policy at the end of the contract term. Many commenters provided examples of specific issues states were dealing with, such as issues with claims handling. In a 10-state survey conducted by the Commonwealth Fund 32 cited to by some commenters, state regulators noted an increase in complaints about brokers using deceptive practices to enroll people in short-term, limited-duration insurance over the phone. Some commenters also mentioned the low levels of health literacy, particularly among younger adults, and how this could exacerbate deceptive marketing practices by short-term, limitedduration insurance issuers and brokers. Several commenters stated that they did not want state laws prohibiting the sale of short-term, limited-duration insurance preempted. This final rule establishes federal standards for short-term, limitedduration insurance only with respect to the maximum length of the initial contract term, the maximum duration of a policy (including renewals and extensions under the same insurance contract), and a consumer notice. States are free to regulate such coverage in every other respect. This contrasts with the federal regulation of individual health insurance coverage under the PHS Act, which touches many aspects 32 Dania Palanker, Kevin Lucia, Sabrina Corlette, Maanasa Kona, ‘‘Proposed Federal Changes to ‘Short-Term Health Coverage Leave Regulation to States’’, Commonwealth Fund, February 20, 2018. Available at https://www.commonwealthfund.org/ blog/2018/proposed-federal-changes-short-termhealth-coverage-leave-regulation-state. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 of individual health insurance coverage, and therefore limits the degree to and areas in which states may regulate such coverage. This is yet another way in which the federal regulation of shortterm, limited-duration insurance in this rule is different from individual health insurance coverage. In fact, several commenters (both in favor of, and opposed to, the proposed rule) said that states should retain the authority to regulate short-term, limited-duration insurance, and that such authority should not be preempted by the PHS Act. Several commenters requested the Departments to coordinate with the states on the regulation of short-term, limited-duration insurance. The Departments have considered those comments, and we acknowledge and respect states’ authority to regulate the business of insurance. The Departments generally agree that states retain the authority to regulate short-term, limitedduration insurance and further note that this final rule does not change or otherwise modify the existing PHS Act preemption standard.33 As such, states may shorten the length of the maximum initial contract term, the 36-month total maximum duration (including renewals or extensions) discussed further below, or both, although they may not lengthen them. Relatedly, as discussed later in this preamble, in this final rule, the Departments added language to the notice to alert consumers to how the coverage they are purchasing might vary from individual health insurance coverage and also added a clarification to the regulation text that states may also impose additional requirements with respect to the language in the consumer notice. States remain free to regulate short-term, limited-duration insurance. We also clarify that this final rule does not preempt any state laws prohibiting the sale of short-term, limited-duration insurance. Renewability of Short-Term, LimitedDuration Insurance Coverage The proposed rule provided that in determining whether an insurance contract had a duration of less than 12 months, extensions that may be elected by the policyholder without the issuer’s consent were taken into account. The Departments solicited comments on the conditions under which issuers should be able to allow short-term, limitedduration insurance to continue 12 months or longer with the issuer’s consent. The Departments also solicited comments on whether any processes for 33 See section 2724 (formerly section 2723) of the PHS Act and 45 CFR 146.143 and 148.210. See also 62 FR 16894 at 16904 and 69 FR 78719 at 78739. PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 38219 expedited or streamlined reapplication for short-term, limited-duration insurance that would simplify the reapplication process and minimize the burden on consumers may be appropriate; whether federal standards are appropriate for such processes; and whether any clarifications are needed regarding the application of the proposed definition of short-term, limited-duration insurance to such practices. For example, the proposed rule preamble noted that an expedited process could involve setting minimum federal standards for what must be considered as part of the streamlined reapplication process while allowing issuers to consider additional factors in accordance with contract terms. The Departments were also interested in information on any state approaches (including any approaches that states are considering adopting) to minimize the burden of the reapplication process for issuers and consumers. Several commenters questioned the Departments’ authority to permit the duration of short-term, limited-duration insurance to extend to 12 months or longer through renewal or extension of such policies. One commenter stated that ‘‘limited-duration’’ means these policies cannot be made guaranteed renewable. Several commenters stated that establishing a guaranteed renewability requirement for short-term, limited-duration insurance would be contrary to the plain language of the statute since short-term, limitedduration insurance is excluded from the statutory definition of individual health insurance coverage. One commenter stated that short-term, limited-duration insurance issuers should be permitted to sell a policy with a duration of less than 12 months, with a separate guaranteed renewability rider, allowing the customer to buy a new policy without underwriting. The commenter stated that the Departments have no statutory authority to prohibit or otherwise regulate such arrangements, and that the Departments have no authority to require guaranteed renewability, or prohibit it. One commenter suggested that issuers be allowed to sell multiple consecutive policies at the initial point of sale and be allowed to sell renewal options with and without preexisting conditions exclusions. One commenter stated that the term ‘‘short-term, limited-duration insurance’’ provides authority to define the length of time within which such insurance contracts must expire, but does not provide authority to limit how many contracts consumers enter into, or to regulate renewal guarantees. The commenter E:\FR\FM\03AUR2.SGM 03AUR2 amozie on DSK3GDR082PROD with RULES2 38220 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations asserted that renewal guarantees are not ‘‘health insurance coverage,’’ explaining that such guarantees protect against premiums increasing, but do not provide benefits consisting of items and services paid for as medical care and therefore, the Departments cannot regulate these contracts. Since renewal guarantees are not ‘‘health insurance coverage,’’ the commenter asserted, it is reasonable to interpret the statute as not counting renewal guarantees against the time limit the Departments set for the contract for medical benefits. Another commenter stated that, should the final rule allow renewals, then changing the interpretation of this from the current rule, without support, would violate federal law. Other commenters commented on the renewal of short-term, limited-duration insurance coverage from a policy perspective. Most such commenters who supported the proposed rule stated that short-term, limited-duration insurance should be permitted to be renewable, while those who opposed the proposed rule and some who agreed with lengthening the maximum period were opposed to permitting such policies to be renewable. One commenter stated that a federal mandate for automatic renewability would limit the rights of states and the ability of state regulators to determine the design, length, and sales practices of short-term, limited-duration insurance plans in a manner that best protects their consumers and markets. A few commenters addressed the extent to which, and the circumstances under which, individuals should be permitted to reapply for coverage under an expedited application process. Some of these commenters opposed such an expedited process, while others favored permitting it. One commenter suggested that short-term, limited-duration insurance issuers could design a lessthan-12-month plan with an option to re-write at point of sale. This product would have a different set of underwriting questions at point of sale for the option. Upon expiration of the initial contract term, the issuer could elect to waive preexisting conditions and underwriting for the new less-than12-month period. One commenter stated that federal standards should regulate short-term, limited-duration insurance policies, including standards for reapplication, while one commenter asserted that states should maintain authority to regulate the application and reapplication process. Another commenter that supported the proposed rule suggested further expanding the proposed federal standards to permit VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 guaranteed renewals for short-term, limited-duration insurance. Although some commenters questioned whether the Departments have authority to impose a guaranteed renewability requirement on short-term, limited-duration insurance, this final rule does not impose such a requirement. Rather, it permits, but does not require, issuers to renew or extend a short-term, limited-duration policy up to a maximum total duration of 36 months and still have such coverage considered short-term, limited-duration insurance. This rule does so by establishing a maximum duration of a short-term, limited-duration insurance policy (inclusive of the initial contract term and renewals or extensions under the same insurance contract) of no longer than 36 months. Under this final rule, the total number of consecutive days of coverage under a single (that is, the same) insurance contract is the relevant metric to calculate the duration of the coverage to determine if it satisfies the 36-month maximum duration standard. In contrast, the total number of consecutive days of coverage under two or more (that is, separate) insurance contracts, even if one picks up where the last ended, is irrelevant to the 36month maximum duration standard. The number of days of coverage in separate contracts is considered separately and the relevant question is whether each individual contract satisfies the 36-month maximum duration standard. Nothing in this final rule precludes the purchase of separate insurance contracts that run consecutively, so long as each individual contract is separate and can last no longer than 36 months. With respect to the comment that, should the final rule allow renewals, then changing the interpretation of this from the current rule, without support, would violate federal law, the Departments note that the current rule (the October 2016 final rule) also allows renewals.34 Accordingly, with regard to permitting renewals, there is no change of interpretation. The only difference between the two rules with respect to renewals is that the current rule allows renewals to the extent the total duration of coverage, including the initial contract term and any extensions or 34 The 1997 HIPAA rule similarly addressed extensions for short-term, limited-duration insurance (that is, short-term, limited-duration insurance was defined as health insurance coverage provided pursuant to a contract with an issuer that has an expiration date specified in the contract (taking into account any extensions elected by the policyholder without the issuer’s consent) that is less than 12 months after the original effective date of the contract). 62 FR 16894 (April 8, 1997). PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 renewals, is less than 3 months, whereas this final rule allows renewals to the extent the maximum duration of a policy, including the initial contract term and renewals or extensions, is up to 36 months. The Departments have determined that the 36-month limit on coverage, including the initial contract term, plus renewals or extensions (without limiting consecutive periods of separate coverage, as explained above) satisfies the ‘‘limited-duration’’ component of the statutory term ‘‘short-term, limitedduration insurance’’ (while the lessthan-12-months limit on the initial contract term, discussed above, satisfies the ‘‘short-term’’ component of the term). The Departments note that Congress did not change the existing reference to short-term, limited-duration insurance as an exclusion from the PHS Act definition of ‘‘individual health insurance coverage’’ or otherwise address short-term, limited-duration insurance in PPACA, which indicates Congress was not concerned with shortterm, limited-duration insurance existing side-by-side, at least under the standard in place prior to the October 2016 rule, with individual health insurance coverage. The Departments believe that a maximum duration of 36 months for short-term, limited-duration insurance is consistent with these two insurance markets existing side-by-side, while still giving meaning and effect to the ‘‘limited-duration’’ component of short-term, limited-duration insurance. Likewise, the Departments’ interpretation is consistent with the canon of statutory construction that disfavors rendering one or more statutory words or phrases redundant. Here, Congress used two terms: ‘‘shortterm’’ and ‘‘limited-duration.’’ The Departments have concluded that these two terms are best interpreted to refer to periods of time of differing length; if they both referred to a time period of the same length (for example, if the Departments interpreted both words to refer to a time period of less than twelve months), then one of the terms would be rendered redundant, or nearly so. The Departments likewise conclude that the term ‘‘limited-duration’’ refers to a longer time period than ‘‘short-term,’’ because, while an insurance policy’s duration is (absent cancellation) never shorter than its term, a policy’s term can be shorter than its duration (if the policy is renewed or extended). Thus, the Departments conclude that the term ‘‘limited-duration’’ refers to a period of time that is longer than the time period contemplated by the term ‘‘short-term,’’ and contemplates renewal of a shortterm policy for a time period potentially E:\FR\FM\03AUR2.SGM 03AUR2 amozie on DSK3GDR082PROD with RULES2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations longer than the maximum term length for which a short-term policy can be acquired (under this final rule, less than 12 months). In determining the appropriate limits on the permissible range of renewals or extensions in giving meaning to the term ‘‘limited-duration,’’ the Departments were informed by the stakeholder comments and other circumstances under which Congress authorized temporary limited coverage options. In particular, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires certain group health plans to extend group health coverage to certain individuals otherwise losing that coverage.35 COBRA requires certain group health plan sponsors to provide a temporary continuation coverage option for a minimum of 18, 29, or 36 months, depending on the nature of the qualifying event that triggers the temporary coverage period. Under COBRA, the maximum period that COBRA coverage could extend is for a period of 36 months (where the qualifying event is employee enrollment in Medicare, divorce or legal separation, death of an employee, or loss of dependent child status (that is, ‘‘aging out’’ under the plan)). In certain circumstances, individuals experiencing a qualifying event such as job loss, which triggers an initial 18-month COBRA continuation coverage period, may experience a second qualifying event, making them eligible for a total maximum duration of 36 months of COBRA continuation coverage. Similar to COBRA, short-term, limited-duration insurance also serves as temporary coverage for individuals transitioning between other types of coverage, and accordingly the Departments believe that it is reasonable to look to COBRA in giving meaning to ‘‘limited-duration,’’ as both types of coverage serve an analogous purpose— that is, to provide temporary health coverage for individuals who are not currently eligible for or enrolled in comprehensive medical coverage, and are transitioning between types of coverage. Unlike COBRA, where Congress explicitly authorized a sliding scale of maximum duration periods, the Departments decline to adopt a sliding scale approach to the maximum duration period for short-term, limitedduration coverage. We adopt the approach outlined in this final rule for simplicity in the absence of explicit, staggered statutory maximums and because no party is required to renew or U.S.C. 4980B(f), 29 U.S.C. 1161–1168, 42 U.S.C. 300bb–1—300bb–8. extend coverage for the maximum duration with respect to a short-term, limited-duration insurance policy; instead whether to provide coverage for the maximum period is left to the states and/or contracting parties. Accordingly, in establishing federal standards for short-term, limited-duration insurance, the Departments interpret the term ‘‘limited-duration’’ in a manner consistent with the temporary continuation coverage maximums available through COBRA and the somewhat similar statutory temporary continuation of coverage provisions under the Federal Employees Health Benefits Program,36 which permit continuation of coverage for up to a maximum duration of 36 months. Individuals may choose to purchase short-term, limited-duration insurance for a variety of different reasons, which may align with various COBRA qualifying events or not. Further, whereas COBRA describes the minimum period that certain group health plan sponsors must offer COBRA continuation coverage, these regulations describe the maximum coverage period during which insurers may renew a short-term, limited-duration insurance policy. However, the Departments conclude that the 36-month maximum coverage period is a reasonable and appropriate benchmark for interpreting the term ‘‘limited-duration.’’ By allowing COBRA coverage to last up to 36 months in some circumstances, Congress recognized that 36 months qualifies as a temporary period of transition, during which coverage of limited duration may be useful. The Departments have strong policy considerations, as described elsewhere herein, for adopting an interpretation of the term ‘‘limited-duration’’ that provides a flexible period of insurance for individuals transitioning between other types of coverage, and COBRA’s 36-month maximum provides precedent for a 36-month coverage period that is designed to be of limited duration. Therefore, in looking to COBRA as a guidepost for determining the maximum duration of short-term, limited-duration insurance (that is, the length of coverage under the initial contract term, plus renewals or extensions), the Departments believe the 36-month COBRA period, rather than the 18month COBRA period, is more appropriate. The Departments also believe permitting renewal or extension of a short-term, limited-duration insurance policy, but only to the extent the maximum duration of coverage under a 35 26 VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 36 5 PO 00000 U.S.C. 8905(a). Frm 00011 Fmt 4701 Sfmt 4700 38221 policy is no longer than 36 months, serves to further distinguish such shortterm, limited-duration insurance from individual health insurance coverage, which must be guaranteed renewable indefinitely, except under certain limited circumstances.37 As noted earlier in this rule, states have flexibility to establish a different, shorter maximum duration for a short-term, limited-duration policy (including renewals or extensions) consistent with state law. While the Departments did not specifically propose the 36-month maximum duration period for shortterm, limited-duration insurance coverage in the proposed rule, comments were solicited on all aspects of the proposed rule, including whether the length of short-term, limitedduration insurance should be a different duration than less than 12 months, and the circumstances, if any, under which issuers should be allowed to continue (that is, renew) such coverage for 12 months or longer.38 Comments were also solicited on a potential reapplication process for short-term, limited-duration insurance, including whether there should be federal standards for such a process. In response, the Departments received a wide range of comments indicating that short-term, limited-duration insurance coverage should be required to be guaranteed renewable, should be permitted to be renewed or extended for a designated period of time, and also that it should not be allowed to be renewed or extended beyond the initial contract term. We also received a number of suggestions regarding the adoption of federal standards governing any reapplication processes. After consideration of all the comments related to the issue of renewability or extensions, and for the reasons stated above, this final rule permits a shortterm, limited-duration insurance policy to be renewed or extended so that the total duration of coverage under the policy may be up to 36 months. Renewal guarantees generally permit a policyholder, when purchasing his or her initial insurance contract, to pay an additional amount, in exchange for a guarantee that the policyholder can elect to purchase, for periods of time following expiration of the initial contract, another policy or policies at some future date, at a specific premium that would not reflect any additional underwriting. In 2009, shortly before enactment of PPACA, one of the 37 Section 2703 of the PHS Act; see also 42 U.S.C. 300gg–42. 38 See, for example, 83 FR 7440. E:\FR\FM\03AUR2.SGM 03AUR2 amozie on DSK3GDR082PROD with RULES2 38222 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations nation’s largest health insurance issuers received regulatory approval from 25 states to offer renewal guarantees as a standalone product, for an annual premium equal to 20 percent of the cost of a guaranteed renewable health insurance policy.39 With respect to the comments on renewal guarantees, to the extent a contract for health insurance coverage is extended or renewed, whether due to a renewal guarantee or otherwise, the period of health insurance coverage that is covered by the renewal or extension of the policy is counted toward the 36 month maximum duration, as to not do so would ignore the meaning of the statutory phrase ‘‘limited-duration.’’ However, to the extent a contract does not provide health insurance coverage 40 and instead consists of a separate transaction or other instrument under which the individual can, in advance, lock in a premium rate in the future or the ability to purchase a new, separate short-term, limited-duration insurance policy at a specified premium rate at a future date without re-underwriting, such subsequent periods of coverage under the new, separate short-term, limited-duration insurance policies would not count toward the 36-month maximum. Through these mechanisms, it may be possible for a consumer to maintain coverage under short-term, limited-duration insurance policies for extended periods of time to protect themselves against financial vulnerabilities, such as developing a costly medical condition. The ability to purchase such instruments, which are essentially options to buy new policies in the future, is at present permitted under federal law, and this rule does nothing to forbid or permit such transactions. Furthermore, the Departments note that anyone, not just policyholders of short-term, limitedinsurance, can purchase such instruments under current federal law (which this rule does not alter). Similarly, the Departments also have not, and do not in this final rule, prohibit issuers from offering a new short-term, limited-duration insurance policy to consumers who have previously purchased this type of coverage, or otherwise prevent consumers from stringing together coverage under separate policies offered by the same or different issuers, for total coverage periods that would exceed 36 39 Reed Abelson, ‘‘United Health to Insure the Right to Insurance,’’ New York Times, December 2, 2008, https://www.nytimes.com/2008/12/03/ business/03insure.html. 40 See section 2792(b)(1) of the PHS Act. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 months.41 The Departments are also significantly limited in their ability to take an enforcement action under the PHS Act market rules with respect to such transactions involving products or instruments that are not health insurance coverage.42 As commenters mentioned, we also recognize that the mechanisms and means by which coverage may be extended or renewed may vary from state to state. Further, states can shorten the maximum duration for a short-term, limitedduration insurance policy, but cannot extend the maximum duration beyond the 36-month federal standard. Therefore, as stated above, under this final rule, the total number of consecutive days of coverage under the same insurance contract is considered when calculating the duration of a policy for purposes of determining if the insurance satisfies the 36-month maximum duration federal standard. In contrast, the total number of consecutive days of coverage under separate insurance contracts is not considered when calculating the duration of coverage for such purpose. Rather, in such cases, the number of days of coverage under each contract of insurance is considered separately, to determine if the duration of the coverage under each contract satisfies the 36-month maximum duration standard, and coverage under each new contract commences a new period of coverage. The Departments generally defer to state law to determine the circumstances under which consecutive periods of coverage are under the same, or under separate, insurance contracts. In addition to having authority to allow renewals or extensions for a maximum duration of up to 36 months, the Departments also determined there are sound policy reasons to provide the ability for renewals and extensions as set forth in the final rule. Many of these reasons are discussed above with respect to the less-than-12-month initial contract term maximum finalized in this rule. As many commenters pointed out, to the extent that the maximum duration of short-term, limited-duration insurance is limited to a relatively short period of time, for example, less than 3 months, or even less than 12 months, without permitting renewals or extensions, this would mean that every 3 months or every 12 months, an individual purchasing short-term, limited-duration insurance would be subject to re-underwriting, and would 41 81 FR 75318. the Departments may have the authority to regulate health insurance coverage issued pursuant to such an instrument. 42 However, PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 possibly have his or her premium greatly increased as a result. Also, to the extent the policy excluded preexisting conditions for a specified period of time or imposed a waiting period on specific benefits, the individual might not get credit for the amount of time he or she had the previous coverage. The issuer could also decline to issue a new policy to the consumer based on preexisting medical conditions. The Departments find all of these to be compelling reasons in favor of permitting renewals and extensions as set forth in the final rule, such that the maximum duration of coverage under a single short-term, limited-duration insurance policy may be 36 months (including renewal or other extension periods), as opposed to less than 12 months. While the Departments anticipate that some issuers will choose to provide renewals without the restrictions described above (such as providing renewals without premium increases and without resetting preexisting condition exclusion waiting periods), we note that shortterm, limited-duration insurance issuers are not required to do so under this final rule and may determine the terms of the renewal in the short-term, limitedduration insurance contract, subject to the definition of short-term, limitedduration insurance in this final regulation and any permissible state law variations. Further, in consideration of Congress’ intent to exempt from the definition of individual health insurance coverage (and therefore, to exempt from the HIPAA and PPACA individual market requirements) shortterm, limited-duration insurance, the Departments are not imposing a guaranteed renewability requirement on short-term, limited-duration insurance. The Departments appreciate the comments and suggestions regarding simplified or expedited application and reapplication processes. The Departments decline to adopt or otherwise establish federal standards regarding such procedures at this time. Rather, the Departments defer to the states to define and regulate such practices. Notice In the proposed rule, the Departments proposed to revise the notice that must appear in the contract and any application materials provided in connection with enrollment in shortterm, limited-duration insurance. The Departments noted concerns that shortterm, limited-duration insurance policies that provide coverage lasting almost 12 months may be more difficult for some individuals to distinguish from coverage available in the individual E:\FR\FM\03AUR2.SGM 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations market, which is typically offered on a 12-month basis. Accordingly, under the proposed rule, one of two versions of the following notice was proposed to be required to be prominently displayed (in at least 14 point type) in the contract and in any application materials provided in connection with enrollment: amozie on DSK3GDR082PROD with RULES2 THIS COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU UNDERSTAND WHAT THE POLICY DOES AND DOESN’T COVER. 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. 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. Given that the individual shared responsibility payment is reduced to $0 for months beginning after December 2018, the Departments proposed that the final two sentences of the notice must appear only with respect to policies sold on or after the proposed applicability date of the rule, if finalized, that have a coverage start date before January 1, 2019. The Departments solicited comments on this revised notice, and whether its language or some other language would best ensure that it is understandable and sufficiently apprises individuals of the nature of the coverage. Many commenters generally supported the approach in the proposed rule that a short-term, limited-duration insurance policy must include such a notice. One commenter stated that the notice should not be part of the definition of short-term, limitedduration insurance, but should be a separate requirement that applies once a policy satisfies the short-term, limitedduration insurance definition. One commenter stated that requiring shortterm, limited-duration insurance issuers to use one of two different notices (depending on the year) is burdensome to issuers and state regulators with respect to filing policies, and suggested developing one notice that could be used for all years. A few other commenters also more generally supported the use of just one type of notice. One commenter stated that issuers should be permitted to modify VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 the notice to provide additional disclosures about their short-term, limited-duration insurance product, subject to state approval, while another commenter said that states should be permitted to prescribe their own notice language, with the federal language as a default for those states that fail to do so. The Departments believe it is important and appropriate for issuers of short-term, limited-duration insurance to disclose the key potential characteristics of such insurance to applicants and policyholders. Consumers need as complete and accurate information as possible in order to make informed coverage purchasing decisions—whether it be for comprehensive, major medical coverage in the individual market or for shortterm, limited-duration insurance, which can consist of a wide variety of coverage options. Therefore, the final rule retains the notice requirement, with some changes to content and style, as discussed below. The Departments decline to adopt the suggestion that the notice should not be part of the definition of short-term, limited-duration insurance, but instead should be a separate requirement, once a policy satisfies the definition of shortterm, limited-duration insurance. The Departments do not believe there is a compelling reason to so change the regulatory structure. The Departments also decline to adopt the suggestion that one disclosure notice be used, regardless of the year in which the policy is issued. As previously stated, the amount of the individual shared responsibility payment will be $0 for months beginning January 2019. For short-term, limited-duration policies covering any months before January 2019, the Departments believe it is critical that the disclosure notice inform applicants and policyholders that they could be liable for the individual shared responsibility payment, given the potential financial consequences for not maintaining MEC during that time. However, for policies not covering any such month, not only would such language be irrelevant, but the Departments believe it could be confusing. The Departments further note that the language in the two notices is verbatim with the exception of the final two sentences (which must not appear in notices provided with short-term, limited-duration insurance policies with a coverage start date on or after January 1, 2019). Therefore, the Departments believe any burden associated with the two notices applying to different periods are outweighed by the benefits of mitigating the potential for consumer confusion that could result from PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 38223 maintaining the last two sentences in the notice, when provided for policies with an effective date on or after January 1, 2019. With respect to additional flexibility to add language to the notices, the Departments have clarified as part of the final regulations that states may require additional language to be included in the notices, as discussed elsewhere in this rule. In addition, there is no prohibition on issuers including additional language in their notices, as long as the additional language accurately describes the coverage. Many commenters suggested specific changes to the content of the notices. Some commenters suggested expanding the notice to include details such as which benefits are not covered by the plan, whether preexisting conditions are covered, which PPACA protections will not be applicable, and more clearly state that loss of short-term, limited-duration insurance will not trigger a special enrollment period in the individual market. Several commenters stated that the notice should not only distinguish short-term, limited-duration insurance from available individual market plans, but should also distinguish the former from excepted benefits coverage. Some commenters suggested making the notice available in several languages. One commenter stated that the notice should illustrate how certain conditions would be covered. Several commenters stated that the notice should not be in capital letters. A few commenters stated that the notice should inform consumers that if they choose to purchase shortterm, limited-duration insurance following expiration of the policy, they will be underwritten again, while another commenter stated that the notice should state that, even if the consumer passes re-underwriting, he may not be covered for medical conditions that the previous policy covered. A few commenters stated that the notice should indicate that purchasers of short-term, limitedduration insurance cannot qualify for PTCs (although some purchasers of qualified health plans sold on the Exchange can). One commenter stated that the notice should say that the policy ‘‘does not comply,’’ as well as ‘‘is not required to comply,’’ with PPACA requirements. One commenter stated that the notice should have a CAUTION heading, be in bullet form, be written in dark-color type, be literacy-tested to a 6th grade reading level, and have the MEC language listed first. One commenter stated that the notice should appear on the first page of the policy, rather than be displayed ‘‘prominently.’’ One commenter stated that the E:\FR\FM\03AUR2.SGM 03AUR2 amozie on DSK3GDR082PROD with RULES2 38224 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations statement that short-term, limitedduration insurance may not comply with PPACA and may require additional payment with your taxes should be removed. One commenter noted that in addition to PPACA, short-term, limitedduration insurance is also exempt from other specific federal laws and that should be included in the notice as well. One other commenter recommended that the notice include a link to the applicable state-based Exchange website or HealthCare.gov. The Departments agree with some of the commenters who suggested providing additional specificity in the notice. Therefore, the notice in the final rule has been revised to add language to make consumers aware of potential 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). The notice in the final rule also contains new language informing consumers that the policy might have lifetime and/or annual dollar limits on health benefits. The Departments did not incorporate the other additional language suggested by other commenters. The Departments believe the language added in this final rule provides important new information to consumers, without lengthening the notice to such an extent that would make it cumbersome to read, or cause consumers to not read it at all. The Departments are also cognizant of the burdens and costs on issuers that would be associated with a longer notice. However, states may require additional language in the notice, consistent with their authority to regulate short-term, limited-duration insurance. The Departments also agree with the commenters who suggested that the notice not be in all capital letters, as the Departments believe the notice will be more readable in sentence case.43 Therefore, the notice in the final rule is in sentence case. Given the varying demographics of different states, the Departments disagree with the comment that this final rule should require the notice to be available in several languages. Although the Departments believe it is important for the disclosure notice to be useful and informative to individuals who are most literate in a language other than English, the Departments decline in this rule to require that the notice be 43 See also, for example, Bryan A. Garner, What’s Wrong With Initial-Caps Point Headings, https:// bit.ly/2uNHtNL (over use of capital letters may mean that ‘‘readers will probably skip over what you’re trying to make sink in.’’) VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 provided in additional languages. States as primary regulators of short-term, limited-duration insurance can impose additional requirements as may be necessary to meet local needs. The Departments disagree with the comment that the notice have a CAUTION heading, should be in bullet form, should be written in dark-color type, be literacy-tested to a 6th grade reading level, and should have the MEC language listed first. The Departments believe the form of this notice should be in straight text, which is the same form of most documents that individuals are accustomed to reading. The Departments also believe that a CAUTION heading might inappropriately bias the reader against short-term, limited-duration insurance; the Departments instead believe the notice should assist the consumer in making an informed choice about the type of coverage that is most appropriate for him or her. The Departments disagree with the comment that the MEC language should appear first in the notice. Although that language is important, the Departments believe most consumers would find the language that appears before the MEC language in the final notice to be more significant when deciding whether short-term, limited-duration insurance is the most appropriate type of coverage for their personal needs. In addition, the Departments believe the language in the notice in the proposed rule stating that ‘‘This coverage is not required to comply with federal requirements for health insurance’’ could be interpreted too broadly, as meaning that the issuer of such coverage is not required to comply with certain other federal requirements not related to health insurance market rules that apply generally to issuers as well as other entities. Therefore, the Departments revise that clause in the notice in this final rule to read: ‘‘This coverage is not required to comply with certain federal market requirements for health insurance.’’ In this final rule, the disclosure now reads as follows, with the first, second and third sentences differing from the proposal: 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 PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 eligibility for this coverage, you might have to wait until an open enrollment period to get other health insurance coverage. 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. Importantly, the Departments note that we do not have evidence that erm, limited-duration insurance has not historically covered or is unlikely to cover hospitalization and emergency services. These benefits are included in the notice, however, due to an abundance of caution. Several commenters stated that, in order to meet the definition of short-term, limitedduration insurance, the issuer should be required to provide information through other means in addition to the notice. One commenter stated that, in addition to the notice, to satisfy the definition of short-term, limited-duration insurance, issuers should be required to include a plain-language explanation of the general limits of such insurance in the application, and that the application should have a signature line indicating that the consumer received and understood it. Several commenters stated that the notice should require the purchaser to initial several discrete statements about the limitations of the policy at the time of application. Several commenters stated that the Summary of Benefits and Coverage (SBC) requirement, as set forth in section 2715 of the PHS Act, should apply to shortterm, limited-duration insurance. One commenter stated that the term ‘‘shortterm, limited-duration insurance’’ should display prominently in the footer on every page of the contract, and in any application, sales, and marketing materials, and the outline of coverage should include a ‘‘warning’’ that this is temporary coverage that provides limited benefits. Several commenters stated that the statement in the notice should also appear in marketing materials. One commenter stated that the notice should be read out loud to any prospective purchaser, particularly those with limited English proficiency. One commenter stated that, in addition to providing the notice, short-term, limited-duration issuers should be required to name their policies in such a way as to distinguish them from individual health insurance coverage, maybe by inserting the word ‘‘Limited’’ as part of the name of the policy. Several commenters stated that the notice should be accompanied by a list of network providers. E:\FR\FM\03AUR2.SGM 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations amozie on DSK3GDR082PROD with RULES2 The Departments believe that the requirements relating to both the content and delivery of the notice as set forth in this final rule strike the appropriate balance to help each consumer make an informed choice about the type of coverage that is most appropriate for him or her, while not being overly burdensome to issuers of short-term, limited-duration insurance or inappropriately biasing the reader against short-term, limited-duration insurance. The Departments therefore decline to adopt these suggestions by commenters. However, as previously noted, states may specify additional methods and forms of disclosure, as well as mandate additional disclosure requirements that issuers of short-term, limited-duration insurance must comply with, consistent with their authority to regulate such coverage. Because shortterm, limited-duration insurance is not individual health insurance coverage under the PHS Act, it is not subject to the SBC requirements established under section 2715 of the PHS Act. Finally, the Departments note that to the extent an issuer of short-term, limited-duration insurance provides a contract or application materials in connection with extension or renewal of a short-term, limited-duration policy, the notice must be displayed prominently in any such materials, just as it must be displayed prominently in the contract and in any materials provided in connection with enrollment in such coverage. Short-Term, Limited-Duration Insurance as Student Health Insurance Coverage Some commenters asked whether short-term, limited-duration insurance may be sold as ‘‘student health insurance coverage’’ within the meaning of HHS regulations. It may not. ‘‘Student health insurance coverage’’ is defined in HHS regulations at 45 CFR 147.145(a), which provides that ‘‘student health insurance coverage’’ is a type of individual health insurance coverage. Thus, ‘‘student health insurance coverage’’ under the definition of ‘‘student health insurance coverage’’ must satisfy the PHS Act requirements for individual health insurance coverage, except for those specified in 45 CFR 147.145(b). Accordingly, short-term, limitedduration insurance cannot be ‘‘student health insurance coverage’’ because it is by definition not individual health insurance coverage. However, to the extent permitted by state law, an issuer may sell short-term, limited-duration insurance to individual students in institutions of higher education (or to individual students in boarding or other VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 pre-higher-education institutions). Some higher education institutions may require their students to either purchase ‘‘student health insurance coverage,’’ or a type of coverage other than short-term, limited-duration insurance. Short-Term, Limited-Duration Insurance and Minimum Essential Coverage A few commenters asked whether, under the final rule, short-term, limitedduration insurance would be considered MEC. One commenter suggested that the Departments provide a special enrollment period to purchase individual health insurance coverage for individuals who lose short-term, limited-duration insurance coverage outside of the individual market open enrollment period, similar to how individuals who lose MEC are currently provided a special enrollment period. Short-term, limited-duration insurance is not individual health insurance coverage, nor is it MEC. This rule does not recognize short-term, limited-duration insurance as MEC. The Departments further note that the reduction of the individual shared responsibility payment to $0 beginning with coverage months after December 31, 2018, mitigates the need to designate short-term, limited-duration insurance as MEC, given that individuals who do not have MEC during any such coverage months, including individuals who have short-term, limited-duration coverage, will not be subject to the individual shared responsibility payment. Additionally, this rule does not create a special enrollment period to enroll in individual health insurance coverage for individuals whose shortterm, limited-duration insurance has ended. The disclosure notice puts purchasers of short-term, limitedduration insurance on notice that no such special enrollment period is available. The Departments acknowledge that the loss of eligibility for short-term, limited-duration insurance creates a special enrollment opportunity to enroll in a group health plan (as opposed to individual health insurance coverage), either insured or self-insured.44 Other Federal and State Requirements Several commenters were in favor of imposing various additional federal requirements on short-term, limitedduration insurance that were not included in the proposed rule. These included requiring additional training for agents and brokers who sell such insurance, minimum federal standards 44 See 26 CFR 54.9801–6, 29 CFR 2590.701–6, 45 CFR 146.117. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 38225 such as a minimum range of benefits to be offered equally in rural and urban areas, basing premiums on statewide markets, coverage of preexisting conditions and preventive services and network adequacy standards, federal regulation and oversight of short-term, limited-duration insurance policies sold through group trusts and associations, and requirements for websites marketing both short-term, limitedduration insurance and individual health insurance coverage. For purposes of establishing federal standards for short-term, limitedduration insurance, the Departments believe that setting the initial contract term to less than 12 months, a maximum duration for a policy (including renewals or extension under the same insurance contract) of 36 months, and a notice requirement, as set forth in this final rule, are the only necessary federal standards for shortterm, limited-duration insurance. In recognition of the states’ important, traditional role in regulating short-term, limited-duration insurance, the Departments decline to adopt any additional federal standards such as those suggested by the commenters. As discussed elsewhere in this final rule, states generally remain free to adopt these suggested standards, or other standards, as they see fit. In response to the Departments’ solicitation of comments on any regulations or other guidance or policy that limits issuers’ flexibility in designing short-term, limited-duration insurance or poses barriers to entry into the short-term, limited-duration insurance market, a few commenters mentioned section 1557 of PPACA as such a limitation. One commenter observed that the lack of standardized regulation of short-term, limitedduration insurance across state lines causes barriers to entry, and suggested the Departments encourage state insurance departments to participate in an interstate compact to create standard regulations that result in one policy form filing and approval that is effective in many states. Section 1557 of PPACA prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs or activities. This provision is administered by the HHS Office for Civil Rights, and it is beyond the scope of this rule to address the impact of section 1557 of PPACA on short-term, limited-duration insurance. With respect to the comment that state insurance departments should participate in an interstate compact to create standard regulations that result in E:\FR\FM\03AUR2.SGM 03AUR2 38226 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations one policy form filing and approval that is effective in many states, the Departments did not propose and are not adopting such federal standards and generally defer to state insurance departments on that issue. amozie on DSK3GDR082PROD with RULES2 Effective Date and Applicability Date The Departments proposed that this rule, if finalized, would be effective 60 days after publication of the final rule in the Federal Register. With respect to the applicability date, the Departments proposed that insurance policies sold on or after the 60th day following publication of the final rule, if finalized, would have to meet the definition of short-term, limited-duration insurance in the final rule in order to be considered such insurance. The Departments also proposed that group health plans and group health insurance issuers, to the extent they must distinguish between short-term, limitedduration insurance and individual health insurance coverage, must apply the definition of short-term, limitedduration insurance in the final rule as of the 60th day following publication of the final rule. The current regulations specify the applicability date for the definition of short-term, limitedduration insurance at 26 CFR 54.9833– 1, 29 CFR 2590.736, 45 CFR 146.125, and 45 CFR 148.102. Therefore, the Departments proposed conforming amendments to those rules as part of this rulemaking. The Departments also proposed a technical update in 26 CFR 54.9833–1, 29 CFR 2590.736, and 45 CFR 146.125 to delete the reference to the applicability date for amendments to 26 CFR 54.9831–1(c)(5)(i)(C), 29 CFR 2590.732(c)(5)(i)(C), and 45 CFR 146.145(c)(5)(i)(C) (regarding supplemental coverage excepted benefits).45 Given that the applicability date for the amendments to those sections has passed, the Departments explained that it is no longer necessary to mention the ‘‘future’’ applicability date.46 HHS similarly proposed to amend 45 CFR 148.102 to remove the reference to the applicability date for amendments to 45 CFR 148.220(b)(7) (regarding supplemental coverage excepted benefits).47 45 As explained in the proposed rule, the reference in current regulations at 45 CFR 146.125 to the applicability date of 45 CFR 146.145(c)(5)(i)(C) was a drafting error. It was intended to be a reference to 45 CFR 146.145(b)(5)(i)(C). 46 The applicability date for these amendments (policy years and plan years beginning on or after January 1, 2017) remains unchanged. 47 The applicability date for these amendments (policy years beginning on or after January 1, 2017) remains unchanged. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 Some commenters supported the proposed effective and applicability date, suggesting that the rule should be effective and applicable as soon as possible, while others stated that the rule should be applicable as of January 1, 2019. Others stated that it should be applicable January 1, 2020, to allow issuers time to plan and prepare new plan designs and regulatory filings and to allow states the chance to enact any legislation or promulgate regulations they felt necessary. One commenter asserted that if the rule were to become effective in 2018, it would disrupt the markets for 2018 and 2019 without providing a fair opportunity for health insurance issuers of individual market plans to adjust their rates to account for the potential impact on the individual market risk pool. This commenter also stated that a delayed effective date would allow states time to educate the public. Some states and the National Association of Insurance Commissioners (NAIC) expressed concerns about the timing of this rule, noting that some states may want to modify existing laws and regulations and asked the Departments to give such states time to review their rules and seek statutory or regulatory changes. These states asked for flexibility in overseeing short-term, limited-duration insurance plans according to market-specific needs, including the ability to postpone or otherwise delay the effective date to review existing state requirements to facilitate a smooth transition and educate the public about this coverage option. Another commenter asked for an effective date that would allow issuers to begin selling short-term, limitedduration insurance, as defined in this final rule, in 2019, stressing the collapse of its individual market. One commenter stated that, given that individual health insurance issuers have set their 2018 rates assuming that shortterm, limited-duration insurance is limited to less than 3 months, a change in the rule at this point would violate serious reliance interests. The Departments understand that an applicability date of 60 days following publication of this final rule might cause challenges for some states and issuers as they move to adopt, enforce, and comply with the final rule. However, as stated elsewhere in this final rule, the Departments believe there is a critical need to expand access to health coverage choices in addition to individual health insurance coverage, which, as stated above, may not be the most appropriate or affordable policies for many individuals. The Departments believe that a uniform federal standard PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 of less than 12 months for the initial contract term, with renewals or extensions permitted for a maximum duration of up to 36 months under a policy, and with the notice set forth in the final rule, is the appropriate federal standard for the reasons stated earlier, and must be applicable as soon as possible. Therefore, this final rule provides that the new definition of short-term, limited-duration insurance applies to insurance policies sold on or after October 2, 2018. This effective and applicability date, which is 60 days after the date this final rule was published in the Federal Register, is the effective and applicability date that was proposed in the proposed rule. The Departments realize that some states may wish to retain the less-than-3-month duration standard that was set forth in the October 2016 final rule, or some other standard that is narrower than the federal definition but for whom it might be difficult to enact legislation, or promulgate a regulation before the final rules goes into effect. Thus, the Departments reiterate that included in states’ ability and authority to define and regulate short-term, limitedduration insurance, is the ability and authority to define and regulate such coverage in such a way as to impose a shorter (but not longer) maximum initial contract term and a shorter (but not longer) maximum duration for a policy than those included in this final rule. In addition, issuers of short-term, limitedduration insurance must comply with the notice requirement in this final rule, with respect to policies sold on or after October 2, 2018, with states having flexibility to require additional disclosures. Group health plans, to the extent they must distinguish between short-term, limited-duration insurance and individual health insurance coverage for purposes of the federal requirements under the PHS Act, may apply the definition of short-term, limitedduration insurance contained in the final rule, as of October 2, 2018. The Departments believe this approach might substantially reduce burden for group health plan sponsors, particularly sponsors of large group health plans that operate in multiple states, as the Departments believe it could be burdensome for sponsors of such plans to have to familiarize themselves with the definition of short-term, limitedduration insurance that applies in each state in which the group health plan operates. However, to the extent an insurance contract is subject to state law that requires short-term, limitedduration insurance to have a maximum E:\FR\FM\03AUR2.SGM 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations initial contract term and/or total duration of coverage that is shorter than the maximum periods under the definition of short-term, limited insurance in this final rule, and that requires the notice specified in that definition, a plan or a health insurance issuer may, or, if permitted or required by applicable state insurance law, must, as applicable, determine whether a given insurance contract is individual health insurance coverage or is shortterm, limited-duration insurance by applying that state law to the coverage. The Departments received no comments on the proposed conforming amendments and technical updates with respect to the applicability date, and are finalizing them in this final rule. III. Economic Impact and Paperwork Burden A. Summary This rule amends the definition of short-term, limited-duration insurance coverage so that the coverage has a maximum initial contract term of less than 12 months and a maximum duration (including the initial contract term and renewals and extensions of the same insurance contract) of no longer than 36 months. The final rule also requires a notice be included in the contract and any application materials provided in connection with enrollment in such coverage. The Departments have examined the effects of this rule as required by Executive Order 13563 (76 FR 3821, January 18, 2011, Improving Regulation and Regulatory Review), Executive Order 12866 (58 FR 51735, September 30, 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (September 19, 1980, Pub. L. 96–354), section 1102(b) of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995, Pub. L. 104–4), Executive Order 13132 on Federalism (August 4, 1999), the Congressional Review Act (5 U.S.C. 804(2)) and Executive Order 13771 (January 30, 2017, Reducing Regulation and Controlling Regulatory Costs). B. Executive Orders 12866 and 13563 Executive Order 12866 (58 FR 51735) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 (76 FR 3821, January 21, 2011) is supplemental to and reaffirms the principles, structures, and definitions governing regulatory review as established in Executive Order 12866. Section 3(f) of Executive Order 12866 defines a ‘‘significant regulatory action’’ as an action that is likely to result in a rule: (1) Having an annual effect on the economy of $100 million or more in any 1 year, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local or tribal governments or communities (also referred to as ‘‘economically significant’’); (2) creating a serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order. A regulatory impact analysis must be prepared for major rules with economically significant effects (for example, $100 million or more in any 1 year), and a ‘‘significant’’ regulatory action is subject to review by the Office of Management and Budget (OMB). The Departments anticipate that this regulatory action is likely to have economic impacts of $100 million or more in at least 1 year, and therefore meets the definition of a ‘‘significant 38227 rule’’ under Executive Order 12866. Therefore, the Departments have provided an assessment of the potential costs, benefits, and transfers associated with this final rule. In accordance with the provisions of Executive Order 12866, this final rule was reviewed by OMB. 1. Need for Regulatory Action This rule contains amendments to the definition of short-term, limitedduration insurance for purposes of the exclusion from the definition of individual health insurance coverage under the PHS Act. This regulatory action is taken in light of Executive Order 13813 directing the Departments to consider proposing regulations or revising guidance to expand the availability of short-term, limitedduration insurance, as well as continued feedback from stakeholders expressing concerns about the October 2016 final rule. While individuals who qualify for PTCs are largely insulated from significant premium increases, individuals who are not eligible for subsidies are harmed by increased premiums in the individual market and the lack of other, more affordable, alternative coverage options. This final rule aims to increase insurance options for individuals unable or unwilling to purchase available individual market plans and provide more flexibility to states to pursue innovative solutions to meet their market-specific needs. 2. Summary of Impacts In accordance with OMB Circular A–4, Table 1 depicts an accounting statement summarizing the Departments’ assessment of the benefits, costs, and transfers associated with this regulatory action. The Departments believe the need for coverage options that are more affordable than individual health insurance coverage is critical, combined with the general need for more coverage options and choice. Therefore, the Departments believe that the benefits associated with this rule outweigh the costs. TABLE 1—ACCOUNTING TABLE amozie on DSK3GDR082PROD with RULES2 Benefits: Qualitative: • Increased access to affordable health insurance for consumers unable or unwilling to purchase available individual market plans, potentially decreasing the number of uninsured individuals and resulting in improved health outcomes for these individuals. • Increased choice at lower cost and increased financial protection (for consumers who are currently uninsured or face extremely high premiums and deductibles for PPACA coverage) from catastrophic health care expenses for consumers purchasing short-term, limited-duration insurance. • Potentially broader access to health care providers compared to available individual market plans for some consumers. • Increased profits for issuers and brokers of short-term, limited-duration insurance. • Economic efficiency gains from people buying unsubsidized coverage and minimizing overinsurance. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 E:\FR\FM\03AUR2.SGM 03AUR2 38228 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations TABLE 1—ACCOUNTING TABLE—Continued Costs: Qualitative: • Reduced access to some services and providers for some consumers who switch from available individual market plans and possibly reduced choice for individuals remaining in the individual market risk pools. • Potential increase in out-of-pocket costs for some consumers, possibly leading to financial hardship. Transfers: Qualitative: • Transfer from taxpayers (via the Federal government) to enrollees in individual market plans in the form of increased PTC payments. • Potentially higher premiums for some consumers remaining in the individual market as healthier than average individuals choose shortterm, limited-duration insurance to a greater degree. • Tax liability for consumers who replace available individual market plans and will thus no longer maintain minimum essential coverage in 2018. • Potential increase in uncompensated care by hospitals. amozie on DSK3GDR082PROD with RULES2 Short-term, limited-duration insurance represents a small fraction of the health insurance market. Based on data from the NAIC, in 2016, before the October 2016 final rule became effective, total premiums earned for policies designated short-term, limitedduration by carriers were approximately $146 million for approximately 1,279,500 member months and with approximately 160,600 covered lives at the end of the year. During the same period, total premiums for individual market (comprehensive major medical) coverage were approximately $63.25 billion for approximately 175,689,900 member months with approximately 13.6 million covered lives at the end of the year.48 One commenter stated, however, that the actual enrollment in short-term, limited-duration insurance was close to 500,000 covered lives in December 2016, once association based sales were taken into account. Another commenter cited a report 49 stating that enrollment in such coverage may be closer to one million. Based on data from the NAIC, in 2017, total premiums earned for policies designated shortterm, limited-duration by carriers were approximately $151 million for approximately 1,053,082 member months and with approximately 122,483 covered lives at the end of the year.50 While sales of short-term, limitedduration insurance declined after the October 2016 final rule was finalized, the sales of such coverage were 48 National Association of Insurance Commissioners, ‘‘2016 Accident and Health Policy Experience Report’’, July 2017. Available at https:// www.naic.org/prod_serv/AHP-LR-17.pdf. 49 Reed Abelson, ‘‘Without Obamacare Mandate, ‘You Open the Floodgates’ for Skimpy Health Plans’’, the New York Times, November 30, 2017. Available at https://www.nytimes.com/2017/11/30/ health/health-insurance-obamacare-mandate.html. 50 National Association of Insurance Commissioners, ‘‘2017 Accident and Health Policy Report’’, July 2018. Available at https://naic.org/ prod_serv/AHP-LR-18.pdf. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 increasing prior to the issuance of that rule. In part because under the October 2016 rule short-term, limited-duration plans may be offered only for periods of less than three months, fixed administrative costs for issuers, including underwriting, are likely to be high relative to premiums. In addition, the transactions costs of obtaining plans are high for consumers, relative to benefits claimed. Allowing plans to be sold for a longer period of time is expected to reduce these costs, making short-term, limited-duration plans more attractive for issuers and consumers. Given this and the trend we observed prior to issuance of the October 2016 rule, the Departments expect more issuers to offer a greater variety of shortterm, limited-duration plans, and more consumers to purchase such plans, as a result of this rule.51 a. Benefits This rule will benefit individuals who have been harmed by the increasing premiums, deductibles and cost-sharing associated with individual market plans and by limited choices. This rule empowers consumers to purchase the benefits they want and reduce overinsurance. Short-term, limitedduration insurance is likely to represent more efficient amounts of coverage since it lacks distortionary price controls and regulation that can greatly separate price from value and lead some people to overinsure and others to underinsure. Lengthening the term of short-term, limited-duration plans will help reduce the fraction of the population that is uninsured by giving the uninsured a greater variety of plan choices. Similarly 51 Other analysts also expect issuers to offer a greater variety of short-term limited-duration plans as a result of this rule. See Congressional Budget Office, ‘‘Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2018 to 2028,’’ May 23, 2018. Available at https://cbo.gov/ publication/53826. PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 this rule also offers additional choice to persons who would otherwise be limited to the products offered on their local Exchange. By reducing the permonth transactions and administrative costs on such plans, this rule confers an economic benefit to its members because the insurance market passes on some or all of the cost savings as premium savings. This rule also helps the economic burden of PPACA to be shared more equitably by shifting some of the premium costs to general revenue from individual-market customers who are induced to purchase short-term, limited-duration plans rather than Exchange plans. Consumers who purchase short-term, limited-duration insurance for longer periods than currently permitted will benefit from increased insurance options at lower premiums, as the average monthly premium for an individual in the fourth quarter of 2016 for a short-term, limited-duration policy was approximately $124 compared to $393 for an unsubsidized individual market plan—a premium savings of 70 percent.52 This disparity may be wider given that unsubsidized premiums significantly increased from 2016 to 2018. A recent study concluded that the least expensive short-term, limitedduration insurance policy often costs 20 percent or less of the premium for the lowest-cost individual market bronze plan in the area.53 While there is a significant difference in the premiums for short-term, limited-duration 52 Michelle Andrews, ‘‘Sales Of Short-Term Insurance Plans Could Surge If Health Law Is Relaxed’’, NPR, January 31, 2017. Available at https://www.npr.org/sections/health-shots/2017/01/ 31/512518502/sales-of-short-term-insurance-planscould-surge-if-health-law-is-relaxed. 53 Karen Pollitz, Michelle Long, Ashley Semanskee, and Rabah Kamal, ‘‘Understanding Short-Term Limited Duration Health Insurance’’, Kaiser Family Foundation, April 23, 2018. Available at https://www.kff.org/health-reform/ issue-brief/understanding-short-term-limitedduration-health-insurance/. E:\FR\FM\03AUR2.SGM 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations amozie on DSK3GDR082PROD with RULES2 insurance and unsubsidized individual market plans, individuals qualifying for PTCs may not find the difference in premiums as appealing, as the difference in their out-of-pocket premium costs is likely relatively small. A recent study estimated that in 2016 the consumer portion of the premium, after the tax credit, for a 40 year old non-smoker making $30,000 per year ranged from $163 to $206 per month in most of the country.54 However, the premium cost for a 40 year old nonsmoker making $30,000, before accounting for any tax credit, ranged from $183 to $719 per month depending on location.55 This rule will provide an affordable alternative to individuals who do not qualify for PTCs and have been harmed by rising premiums in the individual market. This final rule will also benefit individuals who need coverage for longer periods, such as those who need more than 3 months to find new employment, or who find available individual market plans to be unaffordable. Individuals who purchase short-term, limited-duration insurance as opposed to being uninsured will potentially experience improved health outcomes and have greater financial protection from catastrophic health care expenses. Individuals purchasing shortterm, limited-duration policies may obtain broader access to health care providers compared to what they would obtain through individual market plans that have narrow provider networks.56 Issuers of short-term, limited-duration insurance will benefit from higher enrollment. They are likely to experience an increase in premium revenues and profits because such policies can be priced in an actuarially fair manner (by which the Departments mean the policies are priced so that the premium paid by an individual reflects the risks associated with insuring the particular individual or individuals covered by that policy) and issuers have experience pricing in this manner. In addition, the fixed costs of issuing plans 54 Cynthia Cox, Selena Gonzales, Rabah Kamal, Gary Claxton and Larry Levitt, ‘‘Analysis of 2016 Premium Changes in the Affordable Care Act’s Health Insurance Marketplaces’’, Kaiser Family Foundation, October 26, 2015. Available at https:// www.kff.org/health-reform/fact-sheet/analysis-of2016-premium-changes-in-the-affordable-care-actshealth-insurance-marketplaces/. 55 Id. 56 Anna Wilde Mathews, ‘‘Sales of Short-Term Health Policies Surge: Some consumers opt for limited coverage, saying it is cheaper than conventional plans’’, Wall Street Journal, April 10, 2016. Available at https://www.wsj.com/articles/ sales-of-short-term-health-policies-surge1460328539. The ability of short-term, limitedduration plans to provide broad provider networks has been touted by some in the insurance community. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 will be reduced relative to premiums as issuers will not need to reissue plans every 3 months in order to cover consumers for a year or more. In response to the Departments’ request for comments on the benefits of having short-term, limited-duration insurance, many commenters stated that short-term, limited-duration insurance has served a critical role in providing temporary limited health coverage to individuals who would otherwise go uninsured. Some commenters also stated that the proposed changes would allow potential purchasers of shortterm, limited-duration insurance, especially those who find individual market plans to be unaffordable, to obtain the coverage they want (and exclude services they do not want) at a more affordable price for a longer period of time. Other benefits commenters stated would flow from extending the maximum duration for short-term, limited-duration insurance include the facts that deductibles will not be reset every 3 months and that health conditions that develop during this coverage period will continue to be covered for a longer period of time. Commenters also stated that increasing the length of coverage would expand access to affordable coverage options for those who otherwise would lose coverage and could not pass underwriting and would not qualify for a special enrollment period because they would not be forced to go without coverage until the next open enrollment period. One commenter cited Bureau of Labor Statistics data that the average length of unemployment in the United States (U.S.) is 24.1 weeks, or about 5.5 months, as of March 2018; further stating that in 20.3 percent of cases the period of unemployment lasts 27 weeks or more, which means that 6 months is often not long enough to secure gainful employment.57 Therefore, limiting the duration of short-term, limited-duration insurance policies to 3 months, or even 6 months, harms those Americans who find themselves unemployed for the average length of time or longer. The Departments agree with the commenters that increasing the maximum duration of a short-term, limited-duration insurance policy will benefit consumers who have been most harmed by PPACA (for example, those who cannot afford or do not want individual health insurance coverage) or who want to purchase such coverage for 57 The Departments note that the average duration of unemployment as reported by the Bureau of Labor Statistics is an arithmetic mean based on observed incomplete spells of unemployment. The actual average duration of completed spells of unemployment could be longer or shorter. PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 38229 longer than 3 months; it also will provide states with additional flexibility to pursue innovative approaches to expand access to coverage options in addition to individual health insurance coverage. The final rule increases the maximum duration of the initial contract term, under the federal definition, to less than 12 months and permits such policies to be renewed or extended such that the maximum duration of a policy, including the initial contract term specified in the contract and renewals and extensions, is no longer than 36 months. One commenter asserted that shortterm, limited-duration insurance plans typically provide coverage for all major benefits such as: Doctor and specialist visits, preventive/wellness care, emergency care, x-rays, lab tests, transplants, intensive care, and hospitalization. In addition, the commenter noted, short-term, limitedduration insurance policies can include benefits for mental health disorders, substance abuse, physical therapy, speech therapy, home health care, ambulance, and other covered medical expenses. The commenter also claimed that these policies generally provide coverage for prescription drugs that are administered by a doctor in a setting covered by the policy and there is typically outpatient prescription coverage for drugs that require a written prescription and are necessary to treat a condition covered by the policy. One commenter stated that a key feature of typical short-term, limitedduration insurance is that the plan benefits are paid for covered expenses incurred from any provider in the U.S. and there is no referral required if a member would like to see a specialist. According to the commenter, members have the added benefit of receiving discounted network rates if they choose to use an in-network provider. The Departments agree that shortterm, limited-duration insurance could be a desirable and affordable option for many consumers. The Departments are therefore finalizing a definition in this final rule to remove federal barriers that inhibit consumer access to additional, more affordable coverage options while, at the same time, distinguishing it from individual market health insurance coverage. States remain free to regulate these products as set forth elsewhere in this final rule. Some commenters stated that the potential risks of high copayments and severely limited health coverage associated with short-term, limitedduration insurance significantly outweigh the cost savings from enrollment in such plans. A commenter E:\FR\FM\03AUR2.SGM 03AUR2 amozie on DSK3GDR082PROD with RULES2 38230 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations stated that the analysis in the proposed rule does not sufficiently explain how the benefits of expanding short-term, limited-duration insurance could possibly outweigh the disruption and consumer harm caused by the proposed changes. Some commenters stated that some of the benefits are mischaracterized; for example, people with short-term, limited-duration insurance don’t have broader access to health care providers, when many benefits and health conditions are entirely excluded from short-term, limited-duration plans. Commenters suggested that other purported benefits of the proposed rule (such as lower premiums for some healthier people) would be erased by its harmful impacts (higher premiums in the individual market as a whole). One commenter stated that potential increases in access to health care and choice are ‘‘illusory’’. The commenter provided an example where an issuer of short-term, limited-duration insurance claims not to restrict enrollees to a network, but in reality pays claims up to a fixed percentage of Medicare reimbursement rates, leaving enrollees responsible for any amounts above that threshold. The commenter explained that this essentially is equivalent to being enrolled in a PPO plan with an empty network that leaves enrollees faced with high out-of-pocket expenses after receiving care. With regard to the claim that shortterm, limited-duration insurance can offer broader network coverage, a commenter expressed concerns that the Departments relied on promotional material provided by an issuer. Another commenter stated that the coverage may have a very limited network of providers and may not provide any coverage for out-of-network providers, while others stated that the exclusion of services effectively limits the actual networks by excluding providers, and this could particularly affect rural areas. One commenter stated that while premiums for short-term, limitedduration insurance policies will likely be lower relative to individual market plans, using premiums as the sole measure of a benefit to consumers provides an incomplete analysis. This commenter noted that short-term, limited-duration insurance policies fail to provide comprehensive coverage and thus expose consumers who have a serious medical condition, such as cancer, to significant out-of-pocket costs. The commenter also suggested that the analysis fails to take into account that due to underwriting, premiums for short-term, limitedduration insurance policies can expose VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 even relatively healthy older individuals to significant premiums, and could also result in individuals with preexisting conditions being denied coverage or charged significantly higher premiums due to their health conditions. A few commenters stated that shortterm, limited-duration insurance plans should also not be compared with being uninsured, rather they should be compared to individual market plans. Many commenters stated that the Departments should look at the benefits to all consumers and not just young and healthy individuals. This rule will benefit individuals who have been harmed by the increasing premiums, deductibles and cost sharing associated with individual market plans and limited choices—both in terms of coverage options and in terms of narrowing provider networks. The Departments’ judgment is that individuals are in the best position to evaluate the tradeoffs between the benefits and costs of various coverage alternatives. This rule empowers consumers to make decisions on the benefits they want and reduce the potential for overinsurance and underinsurance while expanding access to more affordable coverage options. As acknowledged previously, short-term, limited-duration insurance may not be the most suitable coverage for everyone. Individuals who desire comprehensive coverage subject to PPACA rules will continue to have the option of purchasing individual market health insurance coverage on a guaranteed available and guaranteed renewal basis. Also, individuals who receive PTCs generally will not experience an increase in out-of-pocket costs for premiums if they continue to purchase Exchange coverage. However, this final rule provides another choice in addition to individual health insurance coverage for consumers to consider, based on their own personal circumstances and needs. In many cases, short-term, limited-duration insurance will provide a more desirable option for individuals, especially those who would otherwise be uninsured, those not eligible for PTCs, those who have lost their employment and are unable to afford individual market coverage, and those with objections to purchasing coverage of certain services or products that are mandated to be covered by PPACA. In that regard, the Departments believe it is appropriate to compare having shortterm, limited-duration insurance to both being uninsured as well as having individual health insurance coverage. Uninsured individuals who purchase short-term, limited-duration insurance PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 will experience an increase in financial protection and may gain greater access to certain health care providers. Moreover, individual market plan networks may also be quite restrictive, and short-term, limited-duration plan networks may very well cover a broader array of providers. For most individuals who switch to short-term, limitedduration insurance from individual market plans, lower premiums will provide the biggest benefit. Short-term, limited-duration insurance may also provide consumers with benefits that are more tailored to their individual or familial needs or circumstances. Commenters have valid concerns about the potential for misleading information about provider networks, which can also be a concern with individual market plans,58 and we generally defer to the states to address such concerns as part of their regulation and oversight of health insurance. Many commenters stated that issuers and brokers will receive higher profits and commissions for these plans, as issuers have made moves to reduce broker commissions for individual market plans. One commenter mentioned that according to available data from the NAIC, in 2015 the industry-wide average MLR for ‘‘ShortTerm Medical’’ was 69.76 percent, with smaller companies falling below 50 percent MLR for the vast majority of the total market share. The commenter stated that health insurance products with an MLR at or below 50 percent raise a red flag because when a majority of the company’s revenue is not spent on medical services, consumer health becomes a secondary part of its business. The Departments acknowledge that issuers and brokers of short-term, limited-duration insurance will benefit from the changes finalized in this rule to varying degrees depending on state regulations of short-term, limitedduration insurance. Short-term, limited duration insurance is not subject to the federal MLR standards under section 2718 of the PHS Act and this final rule does not establish a federal MLR threshold for short-term, limitedduration insurance. There is also a large variation in the reported MLR for shortterm, limited-duration insurance. Average MLR for short-term, limitedduration coverage was approximately 67 percent in 2016.59 For the top 10 issuers 58 Chad Terhune, ‘‘Top insurers overstated doctor networks, California regulators charge’’, Los Angeles Times, November 18, 2014. Available at https://www.latimes.com/business/la-fi-obamacarenetwork-probe-20141119-story.html. 59 National Association of Insurance Commissioners, ‘‘2016 Accident and Health Policy E:\FR\FM\03AUR2.SGM 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations amozie on DSK3GDR082PROD with RULES2 that accounted for almost 94 percent of the national short-term, limitedduration insurance market their MLRs ranged from 47.46 percent to 219.61 percent in 2016.60 MLR may be of limited utility in evaluating the efficiency of insurance coverage and may result in higher medical costs and premiums, less innovation in plan design, less consumer choice, and increased market concentration.61 As previously mentioned, the majority of short-term, limited-duration insurance policies were sold as transitional coverage in 2016, and the duration of such policies typically was less than 3 months. Increased administrative costs due to underwriting and the short duration may also explain the lower-end reported MLRs for short-term, limitedduration insurance policies in 2016. As the short-term, limited-duration insurance market grows, the Departments anticipate that in the long term more issuers will sell such coverage, increasing competition and limiting excessive profits. b. Costs and Transfers Short-term, limited-duration insurance policies are unlikely to include all the requirements applicable to individual market plans, such as the preexisting condition exclusion prohibition, coverage of essential health benefits without annual or lifetime dollar limits, preventive care, maternity and prescription drug coverage, rating restrictions, and guaranteed renewability. Therefore, consumers who switch to such policies from individual market plans will experience loss of third-party payments for some services and providers and potentially an increase in out-of-pocket expenditures related to such excluded services, as well as an exclusion of benefits that in many cases consumers do not believe are worth their cost (which could be one reason why many consumers, possibly even those receiving subsidies for Exchange plans, may switch to shortterm, limited-duration policies rather than remain in individual market plans). Depending on state regulation, issuer plan design, and whether consumers decline to purchase a separate renewal guarantee product, consumers who purchase short-term, limited-duration insurance policies and then develop chronic conditions may face financial hardship as a result, until Experience Report’’, July 2017. Available at https:// www.naic.org/prod_serv/AHP-LR-17.pdf. 60 Id. 61 Scott E. Harrington, ‘‘Medical Loss Ratio Regulation under the Affordable Care Act’’, Inquiry, 2013. Available at https://www.jstor.org/stable/ 23480894. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 they are able to enroll in individual market plans that will provide coverage for such conditions. Since short-term, limited-duration insurance is not MEC, any individual enrolled in short-term, limited-duration coverage that lasts 3 months or longer in 2018 will potentially incur a tax liability for not having MEC during that year. Starting in 2019, the individual shared responsibility payment included in section 5000A of the Code is reduced to $0, as provided under Public Law 115– 97, and thus no tax liability could accrue in that year and thereafter for not having MEC. However, the tax liability is not the sole consequence of not having MEC. Because short-term, limited-duration insurance does not qualify as MEC, those individuals who lose coverage in these plans may not qualify for a special enrollment period in the individual market and may face a period of time in which they have no medical coverage, and this will continue to be the case even after 2018. Purchasing a renewal guarantee, however, may eliminate the need for a special enrollment period. The Departments requested and received many comments on the potential costs of the proposed changes. Many commenters pointed out the possible negative impacts and costs associated with the proposed changes, especially the effect on consumers’ outof-pocket costs. Many commenters stated that consumers considering purchasing short-term, limited-duration insurance policies are unlikely to know the limitations of the policies and the non-applicability of the numerous PPACA consumer protections to these policies. Many commenters also stated that the comprehensiveness of items and services covered by short-term, limited-duration insurance coverage can be misleading; individuals who are expected to need expensive services because of preexisting conditions would likely either have services for those conditions excluded from coverage or be denied coverage altogether. Thus, consumer expectations for short-term, limited-duration insurance policies may be significantly different from the realities of these policies. Commenters are concerned that the differences between short-term, limited-duration insurance policies and plans offered in individual and group markets may not be clear to consumers. As a result they may be exposed to excessive out-ofpocket costs. This final rule requires issuers to provide a notice in application materials and the contract to alert consumers to the potential limitations of short-term, limited-duration insurance. States also PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 38231 have the flexibility to mandate the disclosure of additional information. This will help inform consumers about the limitations of short-term, limitedduration insurance and their choice of the coverage that best suit their needs. The notice language in the final rule provides more detail on the potential limitations of short-term, limitedduration insurance coverage than what was in the proposed rule to support informed coverage purchasing decisions by consumers, while those who are concerned about potential excessive out-of-pocket costs will continue to have the option to purchase individual market coverage that includes PPACA requirements. Many commenters noted that shortterm, limited-duration insurance often lacks consumer safeguards, generally excludes coverage for preexisting conditions, does not provide coverage for essential health benefits, often applies high deductibles and costsharing requirements, has lifetime and annual dollar caps on reimbursement for medical expenses, has no maximum limits on out-of-pocket costs, may be rescinded, and is generally available only for healthy consumers. As a result, consumers who purchase short-term, limited-duration insurance can experience significant financial hardship, especially if they require access to health care services not covered by their plan. These commenters noted that this is particularly problematic for people who have chronic or life-threatening conditions that require costly treatment, close monitoring and ongoing medication. Commenters also stated that the potential risks of unreasonable copayments and severely limited health coverage associated with short-term, limited-duration insurance significantly outweigh the cost savings from enrollment in such plans. For example, according to one commenter, out-ofpocket costs for short-term, limitedduration insurance policies may be excessive in many markets: In Phoenix, AZ, the out-of-pocket cost-sharing limit for a 40-year-old male can be as high as $30,000 for a 3-month period. While another commenter pointed out that in Georgia, a plan had a 3-month out-ofpocket limit of $10,000, but did not include the deductible of $10,000, resulting in an effective 3-month out-ofpocket maximum of $20,000. Some commenters are concerned about the lack of network adequacy requirements for short-term, limitedduration insurance. One commenter expressed concern that misleading claims related to provider networks E:\FR\FM\03AUR2.SGM 03AUR2 amozie on DSK3GDR082PROD with RULES2 38232 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations could result in consumers purchasing plans later finding that the provider networks may be non-existent in their specific market, as short-term, limitedduration plans are not subject to the network adequacy protections, leading to higher out-of-pocket costs. Many commenters stated that these policies could subject patients to catastrophic medical bills and medical bankruptcy. For example, short-term, limited-duration insurance enrollees suffering acute health emergencies, debilitating injuries that lead to permanent disabilities, or the onset of chronic conditions could end up facing financial hardship until they can enroll in an individual (or group) market plan that provides the coverage they need. Many commenters shared their past experience with short-term, limitedduration insurance (as well as prePPACA individual market coverage) and provided numerous examples of how annual and lifetime dollar limits resulted in consumers being left responsible for large medical bills and high out-of-pocket costs and concluded that short-term, limited-duration insurance is not really an affordable alternative to available individual market plans. Many commenters stated that the proposed changes would reduce access to maternity care, treatment for illnesses such as cancer, cystic fibrosis, multiple sclerosis, arthritis, eating disorders, visions and hearing loss and mental health and substance use disorders. Many commenters shared personal stories of struggles with illnesses such as cancer and the financial and emotional toll of such illnesses. These commenters expressed deep fears that as a result of this rule, they would lose coverage because issuers would stop offering individual market plans or because those plans would become too expensive. These commenters expressed fear of becoming bankrupt and losing their lives because of reduced access to the necessary health care. Commenters expressed concern that this would reverse the health coverage gains over the last few years, especially in minority communities and amongst women. One commenter stated that the design of short-term, limited-duration insurance in the proposed rule will discourage the pursuit of preventive services, so the public health will suffer. This rule will benefit individuals who have been harmed by the increasing premiums, deductibles, and cost-sharing associated with individual market plans and by limited choices. Individual market premiums increased 105 percent from 2013 to 2017, in the 39 states using VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 Healthcare.gov in 2017,62 while the average monthly premium for the second-lowest cost silver plan for a 27year-old increased by 37 percent from 2017 to 2018.63 Individual market plans will continue to be available to individual consumers on a guaranteed availability basis and many individuals will have the opportunity to purchase the type of coverage that is most desirable and suitable for them and their families’ health care and budget needs, unless states take actions to restrict the short-term, limited-duration market. Also, individuals who receive PTCs generally will not experience an increase in out-of-pocket costs for premiums. However, consumer expectations for individual market plans have often not been met due to high deductibles,64 and short-term, limitedduration insurance provides an additional choice for individuals to consider, based on their own personal circumstances. In addition to dramatically higher premiums, high outof-pocket costs have harmed many individual market plan enrollees, with deductibles that average nearly $6,000 a year for bronze single coverage and more than $12,000 a year for bronze family coverage in 2018 as well as more than $4,000 a year for silver single coverage and more than $8,000 a year for silver family coverage in 2018.65 In addition, out-of-pocket maximums for individual market plans are only applicable to in-network care and thus actual out-of-pocket costs may be much higher for individuals who need to obtain care out of network. High deductibles may also be a deterrent to obtaining care for some individuals. In some cases, short-term, limited-duration insurance will provide a more desirable option for individuals and may be the only affordable alternative to being uninsured. To help consumers make informed coverage decisions, issuers of short-term, limited-duration insurance are required under this final rule to 62 ASPE ‘‘Data Point—Individual Market Premium Changes: 2013–2017’’, May 23, 2017. Available at https://aspe.hhs.gov/system/files/pdf/ 256751/IndividualMarketPremiumChanges.pdf. 63 ASPE ‘‘Health Plan Choice and Premiums in the 2018 Federal Health Insurance Exchange’’, October 30, 2017. Available at https://aspe.hhs.gov/ pdf-report/health-plan-choice-and-premiums-2018federal-health-insurance-exchange. 64 Robert Pear, ‘‘Many Say High Deductibles Make Their Health Law Insurance All but Useless’’, The New York Times, November 14, 2015. Available at https://www.nytimes.com/2015/11/15/us/politics/ many-say-high-deductibles-make-their-health-lawinsurance-all-but-useless.html. 65 HealthPocket, ‘‘Average Market Premiums Spike Across Obamacare Plans in 2018’’, October 27, 2017. Available at https:// www.healthpocket.com/healthcare-research/ infostat/2018-obamacare-premiums-deductibles. PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 provide a notice to alert consumers to the potential limitations of the coverage. The Departments’ judgment is that individuals are in the best position to evaluate the tradeoffs between lower premiums and limitations of short-term, limited-duration insurance. This rule empowers consumers to make decisions on the benefits they want and to reduce potential overinsurance and underinsurance. As discussed below, rather than increase the number of individuals who are uninsured the total number of individuals purchasing either individual market or short-term, limited-duration insurance coverage is expected to increase, perhaps significantly. Uninsured individuals who purchase short-term, limitedduration insurance will experience an increase in financial protection and potentially an increase in access to health care. As previously mentioned, individual market plan networks may also be quite restrictive, and short-term, limited-duration plan networks may very well cover a broader or superior set of providers. State regulators have also taken compliance action against misleading claims regarding benefits and provider networks, which should act as a disincentive to such practices. In response to the concern raised regarding bankruptcy, the rule makes clear that individuals are free to purchase separate products that may provide protection against the possibility of getting sick in the future and facing higher premiums as a result. A few commenters also mentioned the potential increase in uncompensated care and the financial burdens that the increased use of short-term, limitedduration insurance could place on hospitals. Commenters stated that the proposed changes could have a devastating impact on hospital emergency rooms, since they are required to provide care regardless of coverage status or one’s ability to pay. If more consumers enroll in short-term, limited-duration policies that do not cover treatments received in emergency departments, it will result in an increase in uncompensated care. In addition, the lack of coverage of essential health benefits may also lead to an increased reliance on emergency departments as consumers delay or do not seek primary care, exacerbating existing acute and chronic conditions. One commenter stated that this may also lead to increased boarding of mental health patients in emergency departments, where mental health patients presenting to an emergency department have an average stay of 18 hours, compared to an E:\FR\FM\03AUR2.SGM 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations amozie on DSK3GDR082PROD with RULES2 average of only four hours for all emergency department patients. The Departments acknowledge that if a short-term, limited-duration insurance policy excludes treatment in hospital emergency rooms, there is the possibility that there could be increases in uncompensated care provided by hospitals. However, the Departments have no reason to believe that all shortterm, limited-duration insurance policies will exclude such coverage. The Departments note that individuals enrolled in individual market plans also frequently experience unexpected high out-of-pocket costs due to balance billing (charges arising when an insured individual receives care from an out-ofnetwork provider, the balance bill being the difference between the total charges incurred and what the issuer ultimately pays), when obtaining care at emergency departments and when treating providers are not part of in-network hospitals.66 Very few states have laws that protect consumers from this practice; 15 states offer limited balance billing protections, while only six provide comprehensive balance billing protections for consumers.67 In addition, for people who would otherwise have been uninsured and now purchase short-term, limited-duration insurance, the final rule will likely result in a decrease in uncompensated care. The Departments have no evidence that this rule will lead to increased emergency department boarding times for mental health patients in emergency departments. A few commenters stated that shortterm, limited-duration insurance coverage also poses a threat to the student health insurance market. Students may buy the cheaper, shortterm, limited-duration insurance erroneously thinking that it is comprehensive coverage. Commenters believe that losses to this insurance pool would result in increased premiums for student health coverage for those students that choose or need to stay on their campus student health insurance plan and this could also place considerable stress on the institutions’ 66 Karen Pollitz, ‘‘Surprise Medical Bills’’, Kaiser Family Foundation, March 17, 2016. Available at https://www.kff.org/private-insurance/issue-brief/ surprise-medical-bills/. 67 Kevin Lucia, Jack Hoadley, and Ashley Williams, ‘‘Balance Billing by Health Care Providers: Assessing Consumer Protections Across States’ ’’, The Commonwealth Fund, June 13, 2017. Available at: https://www.commonwealthfund.org/ publications/issue-briefs/2017/jun/balance-billinghealth-care-providers-assessing-consumer and Berta Alicia Bustamante, ‘‘Most States Still Don’t Have Comprehensive Balance Billing Legislation’’, insideARM, October 3, 2017. Available at: https:// www.insidearm.com/news/00043325-most-statesstill-dont-have-comprehensive/. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 student health and wellness departments. The Departments believe that all consumers, including but not limited to students, should have access to additional, more affordable coverage options. In fact, these policies may significantly benefit students since premiums for the young have risen most dramatically as a result of PPACA. However, since most educational institutions require students to obtain insurance through individual market plans or group coverage and often provide relatively inexpensive options to students, the Departments believe that losses to this insurance pool will be limited. As previously stated, the Departments believe that the notice, provided at the time of application and in the contract with the language specified in this final rule, will help consumers understand what they are purchasing. Consumers may also be able to obtain additional guidance and assistance from brokers and agents as well as additional plan documents in order to understand the products they seek to purchase. The Departments generally defer to the states’ authority over agents and brokers licensed in their respective jurisdictions, including taking appropriate action in response to unfair or deceptive practices, which should act as a disincentive to such practices. Some commenters stated that the proposed changes would be harmful for solo entrepreneurs and small business employees by raising rates for individuals dependent on the individual market Exchanges, which is where many small business employees and solo entrepreneurs purchase health coverage. These commenters asserted that in order for employees of small businesses to be able to receive affordable coverage, individual market risk pools must be robust and well balanced. The Departments acknowledge that the changes finalized in this rule may lead to a small increase in premiums for individual market plans and possibly a reduction in net premiums for Exchange plans. The CMS Office of the Actuary (OACT) estimated that the average net premium paid by Exchange enrollees is expected to decline by 14 percent as a result of the rule.68 The Departments note, however, that other regulations, such as this rule and the recently finalized rule titled ‘‘Definition of ‘‘Employer’’ under Section 3(5) of ERISA—Association Health Plans’’,69 issued by the Department of Labor, will increase access to other alternative, less expensive options for small businesses and solo entrepreneurs. Moreover, many small business employees and solo entrepreneurs stand to benefit from this rule. States also maintain flexibility under this final rule to pursue innovative strategies to strengthen and protect their respective risk pools. Some commenters stated that these changes could result in counties with no Exchange plans available, otherwise known as bare counties. Many commenters stated that these changes would increase the number of uninsured. The Departments acknowledge that due to the potential increase in risk segmentation, in which healthier individuals choose products outside the individual market may result in an individual market risk pool with higher medical expenses, it is possible that fewer issuers may offer plans in the individual market. However, the impact on issuer participation in the individual market will vary depending on a number of different factors, such as the unique demographic and other characteristics of a state’s population, regulatory environment and insurance markets. Further, as a result of silver loading 70 and dramatically higher premiums as well as pricing power from markets with limited competition from other issuers, issuers have begun to turn a profit in the individual market and some issuers are looking to enter the individual market. Further, many enrollees already had access to just one issuer for Exchange coverage. In addition, as discussed below, it is expected that the total number of individuals with some type of health insurance coverage will increase, perhaps significantly. In response to the request for comments on the value of excluded services to individuals who switch from individual market coverage to shortterm, limited-duration coverage, one commenter expressed concern about the suggestion that consumers would be willing to switch from individual market plans that provide more robust coverage to short-term, limited-duration insurance policies that provide less generous coverage because consumers do not believe the more generous benefits are worth the cost. The commenter stated that the Departments 69 83 68 The net premium reduction is a result of unsubsidized and less-subsidized enrollees exiting the market, leaving the remaining population receiving more premium tax credit, on average. Net premiums for individual enrollees do not fall. PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 38233 FR 28912. loading refers to issuers including the entire cost of un-funded cost sharing reduction (CSR) payments on silver metal tier plans which offer CSR plan variants, rather than spread the cost over all metal tier plans. 70 Silver E:\FR\FM\03AUR2.SGM 03AUR2 38234 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations amozie on DSK3GDR082PROD with RULES2 have not offered any evidence to support such a suggestion and the commenter stated that recent polling indicates the opposite. The commenter referred to a poll 71 where 84 percent of respondents in the individual market stated that they would prefer to stay with their current plan rather than enroll in short-term, limited-duration insurance coverage, when asked if they would like to enroll in coverage that was less generous but with a lower premium. The commenter was also concerned that consumers, when faced with cost concerns, new plan choices, non-transparent plan information, and a confusing enrollment process will not be able to tell whether they are enrolling in a comprehensive plan or not—and consequently will end up with far less coverage than they thought they had. Many commenters stated that the negative consequences of short-term, limited-duration insurance are not limited to individuals with preexisting conditions; even healthy individuals may be harmed by choosing cheaper, skimpier coverage. If individuals are unable to receive or pay for care solely on the basis of having a less comprehensive health plan, they may put off needed care, and may lose the ability to have cost-effective choice over their health care decisions. Many commenters also stated that enrollees in short-term, limited-duration insurance will face financial hardship if they have an accident or become sick and find out that these policies do not cover benefits such as prescription drugs or some surgeries and that the policies can deny claims that should have been covered or that the enrollees were lead to believe were covered. One commenter stated that individuals who want the services that are excluded in short-term, limitedduration insurance have the choice to buy individual market plans. If they cannot afford those policies, however, the commenter stated that they would not be able to get the excluded services in the first instance. One commenter suggested that the proposed changes fail to address (and will likely exacerbate) the most critical needs in the health care and health insurance markets to put downward pressure on the rapidly rising costs of health care in the U.S. and to spread 71 Kaiser Family Foundation. Poll: ‘‘Survey of the Non-Group Market Finds Most Say the Individual Mandate Was Not a Major Reason They Got Coverage in 2018, And Most Plan to Continue Buying Insurance Despite Recent Repeal of the Mandate Penalty’’, April 3, 2018. Available at https://www.kff.org/health-reform/press-release/ poll-most-non-group-enrollees-plan-to-buyinsurance-despite-repeal-of-individual-mandatepenalty/. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 risk across larger, more diverse populations. One commenter stated that the proposals would worsen the inequality between the low and moderate income populations in the individual insurance market. This rule makes no changes to the federal individual market requirements. The Departments acknowledge that individuals will be able to continue to purchase and renew individual market plans, instead of switching to shortterm, limited-duration insurance. Of note, the turbulence of the first several years of the Exchanges with persistent issuer exit resulted in many individuals being unable to renew their individual market plans. Under this final rule, individuals who prefer less expensive coverage, or those that do not qualify for PTCs or otherwise find individual market coverage unattractive, will generally have greater flexibility to purchase short-term, limited-duration insurance and obtain coverage for services they want and exclude services they determine they do not need. The Departments believe that individuals reveal their preferences with their actions and consumers who switch to short-term, limited-duration insurance from individual market plans will do so because they do not value the individual market coverage at the cost. In addition, allowing people to purchase what they view as an efficient amount of coverage leads to less third-party payments, and third-party payments can drive up health care spending as consumers and producers are insensitive to price when third-party payers are paying the bill. Consumers can use their savings from lower premiums toward buying health care services when they are active, informed consumers, looking for the best possible deals. Because short-term, limited-duration insurance policies can, subject to state law, be priced in an actuarially fair manner (by which the Departments mean that is the policies are priced so that the premium paid by an individual reflects the risks associated with insuring the particular individual or individuals covered by that policy) individuals who purchase such coverage are likely to be relatively young or relatively healthy. Allowing such individuals to purchase a policy that does not comply with PPACA, but with an initial contract term of less than 12-months with renewals or extensions up to maximum duration of 36 months, may weaken states’ individual market single risk pools. The degree to which individuals purchase separate renewal guarantee products will serve to strengthen individual market pools and PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 could reduce Exchange premiums and spending—as at least one commenter pointed out. If the individual market deteriorates because of people choosing other types of coverage, individual market issuers could experience higher than expected costs of care and suffer financial losses, which might prompt them to leave the individual market. Although choices of plans available in the individual market have already been reduced to plans from a single issuer in roughly half of all counties, this final rule may further reduce choices for individuals remaining in those individual market single risk pools. However, as a result of silver loading and the tightening of special enrollment periods, some issuers, aware of the Association Health Plan rule and the short-term, limited-duration insurance proposals, have indicated they will expand their presence in the individual market next year. Impact on Individual Market Risk Pool This final rule allows short-term, limited-duration insurance policies to be renewed or extended such that the maximum duration of a policy, including the initial term specified in the contract and renewals or extensions under the same insurance contract, is no longer than 36 months. Depending on state rating requirements, issuers of such coverage may be able to introduce new plans every year at low rates that only healthy individuals would be able to purchase, while imposing large renewal rate increases for less healthy enrollees in existing plans. This could lead to further worsening of the risk pool by keeping healthy individuals out of the individual market for longer periods of time, increasing premiums for individual market plans and may cause an increase in the number of individuals who are uninsured. Previous academic research on the prePPACA individual market suggests this is unlikely to happen, however, as premium increases generally reflect the entire pool’s experience with less healthy individuals effectively subsidized by healthier individuals through market forces.72 This impact may be further mitigated by the degree that individuals purchase separate renewal guarantee products which may provide another mechanism for consumers to continue coverage under separate short-term, limited-duration 72 Michael F. Cannon, ‘‘Short-Term Plans Would Increase Coverage, Protect Conscience Rights & Improve ObamaCare Risk Pools’’, Cato Institute, July 2, 2018. Available at https://www.cato.org/ blog/short-term-plans-reducing-uninsuredprotecting-conscience-rights-improvingobamacares-risk. E:\FR\FM\03AUR2.SGM 03AUR2 amozie on DSK3GDR082PROD with RULES2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations insurance policies for a longer period of time.73 Further, as detailed elsewhere in this rule, the Departments are finalizing a notice requirement to inform consumers about the limitations of short-term, limited-duration insurance to help individuals make informed coverage purchasing decisions that best suits their needs—whether that is comprehensive individual market coverage or short-term, limited-duration insurance. This notice will also assist consumers of short-term, limitedduration insurance in further understanding the products being offered and can be used to combat misleading marketing and aggressive sales tactics that some brokers, agents, or issuers may employ as a result of potentially higher profits and commissions for short-term, limitedduration insurance. In response to the request for comments on any impacts on PPACA individual market single risk pools, some commenters who supported the proposed rule expressed confidence that the rule would not adversely impact the single risk pools. One commenter stated that the short-term, limited-duration insurance market has been in existence for over three decades and was not accused in the pre-PPACA market of being a destabilizing influence. According to the commenter, the market’s modest size, which they estimated to be between 650,000 and 850,000 enrollees before the October 2016 final rule became effective, represents a niche within the broader private health insurance market. Many commenters, however, expressed concern that extending the maximum duration of short-term, limited-duration coverage would weaken the single risk pools and destabilize the individual market by syphoning young, healthy individuals to the short-term, limited-duration insurance market, leaving only those with higher expected health costs and those receiving subsidies in the individual market. Commenters suggested that the resulting market segmentation and adverse selection would increase premiums for individual market plans and may decrease the number of plans available as issuers exit the individual market, potentially leading to ‘‘bare counties’’. Commenters also suggested that this would transform individual markets into high risk pools and would create a parallel insurance market, undercutting the comprehensive, major medical policies offered to individuals and families. 73 Id. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 38235 Many commenters stated that the combination of increased availability of short-term, limited-duration insurance and the reduction of the individual shared responsibility payment to $0, in conjunction with the proposed Association Health Plan rule,74 could exacerbate adverse selection in the individual market. One commenter stated that premium and cost-sharing subsidies are available only for individual market plans sold on Exchanges, providing incentives for healthy lower-income individuals to remain in such plans and therefore limiting the deterioration of the individual market risk pool. Individuals eligible for premium subsidies would generally be shielded from the premium increases as federal premium subsidies would increase. For unsubsidized individuals who are healthy, higher premiums for individual market plans would increase the attractiveness of lower-premium short-term, limitedduration insurance. A few commenters stated that these effects on the individual market risk pool could be limited in states that implement additional regulations limiting the length and availability of short-term, limited-duration policies or requiring that they meet rules governing individual market plans. One commenter stated that if shortterm, limited-duration issuers are allowed to increase premiums at renewal based on an individual’s health conditions, individuals with new conditions will receive higher rate increases than enrollees without new conditions. The commenter further stated that if there are no limits on the allowable rate increases, premiums for some individuals could exceed those in the individual market. In such a case, the enrollee may move back to the individual market risk pool, increasing the health care costs of the pool. Many commenters stated that a key element of any healthy, sustainable insurance market is that a broad pool of enrollees share in the spreading of risk. The effect of the proposed rule would be to undercut the individual market risk pool as more individuals leave their current health plans and purchase shortterm, limited-duration insurance. This would further destabilize an already difficult market for individual and family coverage. One commenter suggested the proposed rule assumed that consumers who purchase short-term, limited- duration insurance and then find the insurance inadequate for a health problem that occurs during the term of this insurance will switch to more adequate coverage in the individual market. The commenter noted that the proposed rule fundamentally conceded that it will adversely affect the individual market that is a last resort for those with serious health issues at the same time ‘‘the agencies tout the fail safe function of those markets’’. Some commenters gave examples where state policies allowing segmentation of the risk pool has led to higher premiums and problems with issuer participation. These commenters mentioned continuation of transitional plans in Iowa, Nebraska, North Carolina and large enrollment numbers in the Tennessee Farm Bureau as examples. A commenter noted that in 2016, the average plan liability risk scores for PPACA-compliant individual market plans in states that allowed the sale of transitional plans were 12.3 percent higher than risk scores for PPACAcompliant individual market plans in states that prohibited transitional policies. The Departments acknowledge that relatively young, relatively healthy individuals in the middle-class and upper middle-class whose income disqualifies them from obtaining PTCs are more likely to purchase short-term, limited-duration insurance. As people choose these plans rather than individual market coverage, this could lead to adverse selection and the worsening of the individual market risk pool. As discussed below, the Departments estimate that the proportion of healthier individuals in the individual market Exchanges will decrease and by 2028 premiums for unsubsidized enrollees in the Exchanges will increase by 5 percent. The Congressional Budget Office (CBO) projects only a 2 percent to 3 percent impact on premiums in the small group and individual markets from the combined Association Health Plan and short-term, limited-duration insurance rules, even while projecting more people will exit the individual market for these alternatives.75 Compared to CBO, the OACT analysis thereby represents a more conservative analysis. However, premium and cost-sharing subsidies are available only for individual market plans offered on Exchanges, which makes it likely that healthy lower-income individuals will 74 The proposed rule, published in the Federal Register on January 5, 2018 (83 FR 614) was subsequently finalized and published in the Federal Register on July 12, 2018 (83 FR 28912). 75 Congressional Budget Office, ‘‘Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2018 to 2028,’’ May 23, 2018. Available at https://cbo.gov/publication/53826. PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 E:\FR\FM\03AUR2.SGM 03AUR2 38236 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations remain in individual market plans even if they place a relatively low value on this coverage because the individual subsidized premium is so low, limiting the extent of adverse selection. To the extent that individuals purchase separate renewal guarantee products, and continue to use short-term, limitedduration insurance, they very well may not return to the individual market risk pool if they get sick. This will limit the adverse effect on the individual market risk pool. In addition, as discussed below, the total number of individuals with coverage (including short-term, limited-duration insurance) is expected to increase. The impact on individual states’ single risk pools will vary depending on state regulations, the current state of the individual market, and the unique demographic and other characteristics of a state’s population and insurance markets. The Departments anticipate that most of the individuals who switch from individual market plans to short-term, limited-duration insurance will be relatively young or relatively healthy and have an annual income—about $48,000 for a single household and $98,000 for a family-of-four—that makes them ineligible to receive PTCs. If the individual market single risk pools change, the change will result in an increase in gross premiums for the individuals remaining in those risk pools. An increase in premiums for individual market single risk pool coverage is expected to result in an increase in federal outlays for PTCs. However, individuals who receive PTCs will be largely insulated from these increases in premiums because a consumer’s PTC amount generally increases as the price of the relevant benchmark plan increases. As discussed above, OACT’s analysis projects that net premiums in PPACA-compliant markets will decline.76 Impact Estimates The economic impact analysis in the proposed rule provided that because short-term, limited-duration insurance can, subject to state law, be priced in an actuarially fair manner (by which the Departments meant that it is priced so that the premium paid by an individual reflects the risks associated with insuring the particular individual or individuals covered by that policy) individuals who are likely to purchase short-term, limited-duration insurance are likely to obtain a better value than they receive from individual health insurance coverage. The economic impact analysis of the proposed rule also provided that allowing individuals greater choice of policies that do not comply with all of the PPACA market requirements would impact the individual market single risk pools. The Departments 77 estimated that in 2019, between 100,000 and 200,000 individuals previously enrolled in individual market coverage would purchase short-term, limited-duration insurance policies instead. The Departments estimated that this would cause the average monthly individual market premiums and average monthly PTCs to increase, leading to an increase in total annual advance payments of the PTC 78 in the range of $96 million to $168 million in 2019. Other entities project greater enrollment and have different views on whether or not this increases the deficit. The Departments also noted that enrollment in short-term, limited-duration insurance and the resulting reductions in individual market enrollment and increases in individual market premiums in future years are uncertain. OACT performed an analysis of the financial effects of the proposed rule on April 6, 2018.79 An updated estimate has been performed by OACT where the baseline was updated to the President’s Fiscal Year 2019 Mid-Session Review. As stated in the April 6th estimate, the assumptions and methods used in the updated estimate are the same as those used in OACT’s previous health reform modelling.80 The updated estimate includes the policy to allow renewability up to 36 months. This policy was estimated to have a negligible impact. In addition, consideration was given to some states taking action to prohibit or limit the sale of short-term, limited-duration insurance policies. The original estimate also assumed a 4-year transition to short-term, limited-duration insurance policies with roughly two-thirds of the impact occurring in 2019, while the new estimate assumes a 3-year transition with one-third of the impact occurring in 2019. Using these updated assumptions yields an estimate that 2019 enrollment in short-term, limited-duration insurance will increase by 600,000. Exchange enrollment in 2019 is expected to decrease by 200,000, while enrollment in off-Exchange plans is expected to decrease by 300,000. The remaining 100,000 increase in shortterm, limited-duration enrollment is largely accounted for by new consumers who were previously uninsured. By 2028, enrollment in individual market plans is projected to decrease by 1.3 million, while enrollment in short-term, limited-duration insurance will increase by 1.4 million. The net result will be an increase in the total number of people with some type of coverage by 0.1 million in 2020 and by 0.2 million by 2028. Premiums for unsubsidized enrollees in the Exchanges are expected to increase by 1 percent in 2019 and by 5 percent in 2028. Individuals who choose to purchase short-term, limitedduration insurance are expected to pay a premium that is approximately half of the average unsubsidized premium in the Exchange. Since individual market plan premiums are expected to increase the study estimates that PTCs will increase by $0.2 billion in 2019 and by a net total of $28.2 billion for fiscal years 2019–2028. TABLE 2—ESTIMATED EFFECT OF SHORT-TERM, LIMITED-DURATION INSURANCE POLICY CHANGES 2019–2028 Calendar year 2019 amozie on DSK3GDR082PROD with RULES2 Enrollment Impact: Exchange ................................................................... Off-Exchange 1 ........................................................... 76 The net premium reduction is a result of unsubsidized and less-subsidized enrollees exiting the market, leaving the remaining population receiving more premium tax credit, on average. Net premiums for individual enrollees do not fall. 77 For purposes of the economic impact analysis in the proposed rule, the term ‘‘the Departments’’ was used to refer to HHS and the Department of Labor. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 ¥0.2 ¥0.3 2020 ¥0.4 ¥0.7 2021 ¥0.6 ¥0.8 2022 2023 ¥0.6 ¥0.8 ¥0.6 ¥0.8 78 The Departments used data on Advance PTC as an approximation of PTC since this is the data that is available for 2017. 79 CMS Office of the Actuary, ‘‘Estimated Financial Effects of the Short-Term, LimitedDuration Policy Proposed Rule,’’ April 6, 2018. Available at https://www.cms.gov/ResearchStatistics-Data-and-Systems/Research/ ActuarialStudies/Downloads/STLD20180406.pdf. PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 2024 ¥0.6 ¥0.8 2025 ¥0.6 ¥0.7 2026 ¥0.6 ¥0.7 2027 ¥0.6 ¥0.7 2028 ¥0.6 ¥0.7 2019– 28 ............ ............ 80 CMS Office of the Actuary, ‘‘Estimated Financial Effect of the ‘‘American Health Care Act of 2017’’’ June 13, 2017. Available at https:// www.cms.gov/Research-Statistics-Data-andSystems/Research/ActuarialStudies/Downloads/ AHCA20170613.pdf. E:\FR\FM\03AUR2.SGM 03AUR2 38237 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations TABLE 2—ESTIMATED EFFECT OF SHORT-TERM, LIMITED-DURATION INSURANCE POLICY CHANGES 2019–2028— Continued Calendar year 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019– 28 Short-term, limited-duration ....................................... 0.6 1.3 1.6 1.6 1.5 1.5 1.5 1.5 1.5 1.4 Total .................................................................... 0.0 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Premium Impact: Marketplace. Gross Premium .......................................................... Net Premium 2 ............................................................ Short-term, limited-duration. Gross Premium 3 ........................................................ 1% ¥6% 3% ¥11% 5% ¥14% 5% ¥14% 5% ¥14% 5% ¥14% 5% ¥14% 5% ¥14% 5% ¥14% 5% ¥14% ............ ............ ¥41% ¥45% ¥49% ¥49% ¥49% ¥49% ¥49% ¥49% ¥49% ¥49% ............ Fiscal year 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019– 28 Federal Impact [$ Billions]: Premium Tax Credits ................................................. $0.2 $1.2 $2.5 $3.0 $3.1 $3.3 $3.4 $3.6 $3.8 $4.0 ............ $28.2 1 Off-Exchange coverage includes enrollment in plans that we assume would meet the definition of insurance coverage. Most of these individuals are assumed to be enrolled in individual market plans. 2 Net premium is the actual premium paid by the consumer after accounting for any subsidies such as premium tax credits. The net premium reduction is a result of unsubsidized and less-subsidized enrollees exiting the market, leaving the remaining population receiving more premium tax credit, on average. Net premiums for individual enrollees do not fall. 3 The change in gross premium for those choosing a short-term, limited-duration policy is measured relative to the average gross premium in the Exchange. Note: Impact on Exchange enrollment in 2018 is expected to be minimal. There is significant uncertainty regarding these estimates, because changes in enrollment and premiums will depend on a variety of economic and regulatory factors and it is difficult to predict how consumers and issuers will react to the changes finalized in this rule. In addition, the impact in any given state will vary depending on state regulations and the characteristics of that state’s markets and risk pools. OACT was not the only entity to model the impacts of the proposed regulation. CBO, along with the Joint Committee on Taxation (CBO and JCT), the Urban Institute, and the Commonwealth Fund also looked at the impact. CBO and JCT estimated the impacts of the proposed regulation in their May 2018 report on ‘‘Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2018 to 2028’’.81 CBO and JCT found that 2 million people would be covered by short-term, limited-duration insurance in 2023, and that ‘‘65 percent of the 2 million purchasing [short-term, limitedduration] plans would have been insured in the absence of the proposed rules’’. This estimate projected higher uptake of short-term, limited-duration insurance among those that were not previously insured than OACT estimated.82 Additionally, CBO amozie on DSK3GDR082PROD with RULES2 81 Congressional Budget Office, ‘‘Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2018 to 2028,’’ May 23, 2018. Available at https://cbo.gov/publication/53826. 82 CBO noted that, ‘‘of the 2 million additional enrollees in STLDI plans, fewer than 500,000 would purchase products not providing comprehensive financial protection against high-cost, lowprobability medical events. CBO considers such people uninsured.’’ VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 projected higher overall enrollment in short-term, limited-duration coverage, 2 million people in 2023 compared to OACTs estimate of 1.5 million in 2023. Notably, CBO assumed an increase in short-term, limited-duration insurance policy duration to less than 12 months, but did not analyze the impacts of allowing extensions up to 36 months, which would have presumably increased their take-up rates even further. Also, notable is that when estimating the combined effects of this regulation and the recently finalized Association Health Plan rule, CBO found that ‘‘premiums are projected to be 2 percent to 3 percent higher in those markets [small group and individual market] in most years.’’ Despite higher take-up rates, CBO and JCT expect lower premium increases for coverage that complies with all of the PPACA market requirements than OACT. CBO and JCT also found that in combination, ‘‘the proposed rules [short term limited duration insurance and association health plans] would reduce the federal deficit by roughly $1 billion over the 2019–2028 period if implemented as proposed.’’ They stated that, ‘‘over the 2019–2028 period, outlays for marketplace subsidies would increase on net by $2 billion, and revenues would increase by $3 billion. The net increase in marketplace subsidies reflects an increase in subsidies stemming from higher premiums, mostly offset by a reduction in the number of people receiving those subsidies.’’ CBO and JCT further stated that ‘‘On the basis of information obtained from stakeholders, CBO and JCT project that the rule on AHPs would PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 primarily affect the small-group market and that the rule on STLDI plans would primarily affect the non-group market.’’ Relative to OACT’s estimates, CBO and JCT estimated the impacts of this rule to result in more short-term, limitedduration plan take-up with a larger share of the take-up coming from people who were not previously insured, lower premium impacts for PPACA-compliant coverage, and a lower cost to the federal government.83 CBO and JCT were not the only entities to analyze the quantitative impacts of the proposed rule. The Urban Institute ran a state-level microsimulation model (taking into account market conditions in each state as well as regulatory differences) and also estimated that an extension of short-term, limited-duration insurance to less than 12 months would result in greater take-up of the plans than OACT estimated, as well as savings for the federal government.84 Specifically the Urban Institute found that in 2019 ‘‘4.3 million would enroll in expanded shortterm limited-duration plans.’’ 85 ‘‘About 1.7 million of the people buying [shortterm, limited-duration insurance] policies would have been uninsured (in the traditional sense) under current law, and 2.6 million [short-term, limited83 CBO and JCT did not separately break out the budget effects of the AHP rule and the short-term, limited-duration rule. 84 L.J. Blumberg, M. Buettgens, R. Wang, ‘‘The Potential Impact of Short-Term Limited-Duration Policies on Insurance Coverage, Premiums, and Federal Spending,’’ Urban Institute, March 2018. Available at: https://www.urban.org/sites/default/ files/publication/96781/2001727_updated_ finalized.pdf. 85 Id. E:\FR\FM\03AUR2.SGM 03AUR2 38238 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations amozie on DSK3GDR082PROD with RULES2 duration] policy holders would otherwise have had insurance of some type.’’ They further found that ‘‘ACAcompliant non-group coverage would decrease by another 2.2 million people. About 70 percent of that decrease (1.6 million people) comes from fewer people buying PPACA-compliant coverage without a tax credit, and about 30 percent of the decrease (about 600,000 people) comes from fewer people buying non-group insurance with a tax credit.’’ As a result of their estimate of the decrease in the number of people receiving tax credits they estimated the policy to result in net savings to the federal government of $721 million in 2019. The Urban Institute grouped the individual mandate penalty being reduced to $0 and the short-term, limited-duration proposal to estimate the premium effects on individual market single risk pools, so it is difficult to know what just the policy impact of short term changes would have been to premiums in their analysis. In sum, relative to OACT’s analysis, Urban estimates savings to the federal government (rather than costs), as well as materially higher take-up (4.3 million in 2019 versus 1.4 million in 2028), including among those that previously did not have insurance (1.7 million in 2019 versus 0.2 million in 2028). While CBO and the Urban Institute appear to have done robust work on the issue, other entities also provided estimates of the impact. The Commonwealth Fund concluded that if there are no behavioral barriers to enrollment in short-term, limitedduration plans, and under a baseline of no individual shared responsibility payment, extending the duration of short-term, limited-duration insurance would result in about 5.2 million people enrolled.86 The Commonwealth Fund estimated that the average premium for a short-term, limited-duration insurance policy will be roughly 80 percent cheaper than silver plans and about 70 percent cheaper than bronze plans for a 40-year old.87 The Commonwealth Fund 86 Preethi Rao, Sarah A. Nowak, Christine Eibner, ‘‘What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Health Insurance Plans Is Increased?’’, Commonwealth Fund, June 5 2018. Available at https:// www.commonwealthfund.org/publications/fundreports/2018/jun/what-impact-enrollment-andpremiums-if-duration-short-term. Examples the Commonwealth Fund cited of behavioral barriers to enrollment include ‘‘increased marketing of plans to increase awareness, streamlining the application process, lack of concern over facing the mandate penalty.’’ 87 Preethi Rao, Sarah A. Nowak, Christine Eibner, ‘‘What Is the Impact on Enrollment and Premiums if the Duration of Short-Term Health Insurance Plans Is Increased?’’, Commonwealth Fund, June 5 VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 estimated that ‘‘the age-specific premium for a silver plan increases by 0.9 percent (from $7,308 to $7,377) relative to current law when the individual mandate is lifted, and by 3.6 percent (from $7,308 to $7,568) when the mandate is lifted and behavioral barriers are removed’’ (implying the marginal effect of adding short term plans in a scenario with limited behavior barriers was roughly 2.7 percent). The Commonwealth Fund did not provide estimates of cost impacts to the federal government. In response to the Departments’ request for comments on how many consumers may choose to purchase short-term, limited-duration insurance, rather than being uninsured or purchasing individual market plans, many commenters submitted or referred to studies that estimated the impact of the proposed changes. Some of these studies and findings have been described above. Another study conducted by the Wakely Consulting Group 88 estimated that, as a result of the proposed changes and the reduction of the individual shared responsibility payment to $0, premiums would increase by 0.7 percent to 1.7 percent and enrollment would decrease by 2.7 percent to 6.4 percent in the individual market in 2019. In addition, the study estimated that premiums for individual market plans would increase 2.2 percent to 6.6 percent and enrollment would decrease by 8.2 percent to 15 percent in 4 to 5 years, when the full impact of the proposed changes can be felt. A study by Oliver Wyman,89 focusing on the District of Columbia’s individual and small group markets, estimated that the 2018. Available at https:// www.commonwealthfund.org/publications/fundreports/2018/jun/what-impact-enrollment-andpremiums-if-duration-short-term. In a scenario with behavioral barriers in place, they estimated a materially lower number of 0.3 million in take-up. Examples the Commonwealth Fund cited of behavioral barriers to enrollment include ‘‘increased marketing of plans to increase awareness, streamlining the application process, lack of concern over facing the mandate penalty.’’ Market forces may well come up with ways of addressing these behavioral barriers—such as by marketing the plans aggressively, providing a high quality customer experience in a streamlined application process, and clarifying the applicability of the mandate penalty. 88 Michael Cohen, Michelle Anderson, Ross Winkelman, ‘‘Effects of Short-Term Limited Duration Plans on the ACA-Compliant Individual Market,’’ Wakely Consulting Group, April, 2018. Available at: https://www.communityplans.net/wpcontent/uploads/2018/04/Wakely-Short-TermLimited-Duration-Plans-Report.pdf. 89 Oliver Wyman, ‘‘Potential Impact of ShortTerm Limited Duration Plans,’’ April 11, 2018. Available at: https://hbx.dc.gov/sites/default/files/ dc/sites/hbx/publication/attachments/ OWReview%20of%20Impact%20of%20Short%20 Term%20Duration%20Plans%204.11.2018%20 %28002%29.pdf. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 combined effect of the proposed changes and the reduction of the individual shared responsibility payment to $0 would be an increase in claims costs by 11.7 percent to 21.4 percent and a decrease in enrollment in individual and small group plans of 3,800 to 6,100 in Washington, DC. Notably Washington DC’s individual market is highly idiosyncratic in terms of the number of people in it not receiving subsidies, so the effects on that market are unlikely to be comparable with other states. A study by Covered California 90 concluded that the combined effect of the proposed Association Health Plan rule and the short-term, limited-duration rule would increase premiums by 0.3 percent to 1.3 percent in the individual market in California in 2019. Many commenters stated that the proposed rule likely underestimates the number of people who would enroll in short-term, limited-duration insurance and thus underestimates the premium and risk pool impact of the proposed changes. Commenters suggested that it is insufficient to look at prior data on short-term, limited-duration insurance enrollment to predict what would happen as a result of the proposed change in federal rules, since conditions for the short-term, limited-duration insurance market are poised to differ markedly from recent years. Commenters noted that in 2019, the individual shared responsibility payment will be reduced to $0, removing one factor that has likely kept more people from enrolling in shortterm, limited-duration insurance. Commenters also noted that the federal government is actively promoting shortterm, limited-duration insurance and pulling back on its outreach efforts for individual market plans, a reversal of prior policy that is likely to increase short-term, limited-duration insurance enrollment, and that major issuers have already expressed interest in offering or expanding offerings of short-term, limited-duration plans. One commenter stated that the total enrollment in short-term, limitedduration insurance was actually close to 500,000 covered lives in December 2016 after accounting for association-based sales. The commenter further noted that as a result of the reduction of the individual shared responsibility payment to $0 beginning in 2019, the cost differential between short-term, 90 Covered California, ‘‘Individual Markets Nationally Face High Premium Increases in Coming Years Absent Federal or State Action, With Wide Variation Among States,’’ March 8, 2018. Available at https://hbex.coveredca.com/data-research/library/ CoveredCA_High_Premium_Increases_3-8-18.pdf. E:\FR\FM\03AUR2.SGM 03AUR2 amozie on DSK3GDR082PROD with RULES2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations limited-duration insurance and individual market plans will increase, and enrollment in short-term, limitedduration insurance is likely to grow beyond what it was in 2016. The commenter estimated that each percentage point increase in premiums for individual market plans as a result of the policies in the proposed rule would increase federal spending on PTCs by $800 million in 2019. Another commenter cited a report stating that enrollment in short-term, limitedduration coverage may be closer to one million. One commenter expected that the mostly uninsured or off-Exchange insured group of consumers who may purchase short-term, limited-duration insurance policies will follow the age distribution of those who currently purchase short-term, limited-duration insurance, which is an average of approximately 41.3 years of age. The Departments are unable to verify the conclusions of the different studies submitted and referred to by commenters. However, the studies, in sum suggest that the rule may significantly reduce the number of people without any type of health insurance and will likely only result in a small average increase to premiums in the individual and group markets. Enrollment in short-term, limitedduration insurance will depend in large part on how issuers respond to this final rule and to external factors such as the reduction to $0 of the individual shared responsibility payment starting in 2019. If issuers respond by offering a substantially greater range of plan designs than those currently available in the market for short-term, limitedduration insurance in order to attract consumers with a wide range of medical needs, then total enrollment is more likely to align with high-end estimates. Alternatively, if states impose restrictions on short-term, limitedduration insurance or issuers do not substantially alter existing short-term, limited-duration insurance plan designs, then consumers may experience only a moderate increase in convenience as a result of this final rule since short-term, limited-duration insurance is already available and can be purchased as four separate less than 3-month insurance policies 91—and in 91 Karen Pollitz, Michelle Long, Ashley Semanskee, and Rabah Kamal, ‘‘Understanding Short-Term Limited Duration Health Insurance’’, Kaiser Family Foundation, April 23, 2018. Available at https://www.kff.org/health-reform/ issue-brief/understanding-short-term-limitedduration-health-insurance/. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 such a scenario, high-end enrollment estimates would be less likely. As discussed earlier in this rule, there is significant uncertainly regarding all of these estimates, because changes in enrollment and premiums will depend on a variety of factors and it is difficult to predict how consumers and issuers will react to the policy changes finalized in this rule. In addition, the impact in any given state will vary depending on state regulations and the characteristics of that state’s markets and risk pools. In addition, some of these studies estimate the impacts of the proposed rule and some of them present combined effects of the Association Health Plan proposed rule or the reduction of the shared responsibility payment to $0. The study by Oliver Wyman may not be generally applicable to the rest of the country, because the District of Columbia is not representative of other markets insofar as it is very small and because a very small percentage of the District’s enrollees receive PTCs. C. Regulatory Alternatives The Departments considered not changing the federal standards for shortterm, limited-duration insurance or increasing the initial contact term to 6 or 8 months, as suggested by some commenters. However, this alternative would not adequately increase choices for individuals unable or unwilling to purchase individual market health insurance coverage. Extending the maximum initial contract term to less than 12 months ensures that deductibles are not reset and premiums do not increase every 3 (or 6, or 8) months for consumers who purchase short-term, limited-duration insurance and conditions that develop during the coverage period continue to be covered for a longer period of time until the consumer can switch to an individual market plan, if needed The Departments considered finalizing the notice language as proposed. The Departments decided to revise the notice language based on commenter feedback to include more details regarding what the policy may or may not cover. States also have the option to require more information than what is included in the federal notice. The Departments considered not allowing renewals or extensions of short-term, limited-duration insurance policies beyond 12 months, as well as not permitting renewals or extensions. However, upon review of comments, the Departments determined that allowing renewals or extensions of a policy up to a maximum duration of 36 months increases consumer choices, provides additional protection, and ensures that PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 38239 consumers can maintain coverage under their short-term, limited-duration insurance policy after the expiration of the initial contract term if it is the most desirable option. As many commenters pointed out, to the extent that the maximum duration of short-term, limited-duration insurance is limited to a relatively short period of time, for example, less than 3 months, or even less than 12 months, without permitting renewals or extensions, this would mean that every 3 months or every 12 months, an individual purchasing shortterm, limited-duration insurance would be subject to re-underwriting, and would possibly have his or her premium greatly increased as a result. Also, to the extent the policy excluded preexisting conditions for a specified period of time or imposed a waiting period on specific benefits, the individual would not get credit for the amount of time he or she had the previous coverage. The issuer could also decline to issue a new policy to the consumer based on preexisting medical conditions. The Departments find all of these to be compelling reasons in favor of permitting renewals and extensions as set forth in the final rule, such that the maximum duration under a single short-term, limitedduration insurance policy may be 36 months (including renewal or other extension periods), as opposed to less than 12 months. As mentioned earlier in the preamble, in determining the appropriate limits on the permissible range of renewals or extensions in giving meaning to the term ‘‘limitedduration,’’ the Departments were informed by other circumstances under which Congress authorized temporary limited coverage options. In addition to the applicability date set forth in the proposed rule, the Departments also considered an applicability date of January 1, 2020, as suggested by some commenters. The Departments chose the applicability date of 60 days after the date the rule was published in the Federal Register to ensure that states that want to expand access to short-term, limited-duration insurance and individuals who wish to purchase such coverage can begin to benefit from the changes as soon as possible. Some commenters criticized the Departments for not adequately, or failing to, consider other alternatives. Some commenters stated that the Departments failed to explore the options presented in the regulatory alternatives section and should engage in a more robust discussion of regulatory alternatives. One commenter stated that the Departments indicated that the only alternatives to this E:\FR\FM\03AUR2.SGM 03AUR2 38240 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations amozie on DSK3GDR082PROD with RULES2 proposal would be to lengthen the duration of short-term, limited-duration plans to either 6 or 9 months and dismissed both options without any explanation. This suggested, the commenter stated, that the Departments did not adequately consider other options. The commenter suggested that there are other options that will actually lead to expanded access and will not destabilize the private health insurance market, such as to fund cost-sharing reductions. Another option suggested by a commenter was to take no action since, in the commenter’s view, the proposed action would not expand access to comprehensive coverage, would lead to more discrimination against people with preexisting conditions, and would destabilize private health insurance markets. The Departments disagree. In addition to considering maintaining the less than 3 month (including renewals) standard in the October 2016 final rule, as well as the proposed less than 12 month standard in the proposed rule, the Departments also considered maximum durations of 6 months or 8 months. Recognizing the myriad number of potential approaches the Departments could consider to establish federal standards for short-term, limitedduration insurance, the Departments also solicited comments on all aspects of the proposed rule. In addition, we have added a more detailed discussion of regulatory alternatives considered for this final regulation. The Departments have chosen the alternatives that we believe will benefit individuals who have been harmed by the increasing premiums, deductibles and cost-sharing associated with individual market plans and limited choices. As discussed previously, this rule will also increase the number of people with some type of coverage by 0.2 million by 2028. D. Paperwork Reduction Act— Department of Health and Human Services This final rule revises the required notice that must be prominently displayed in the contract and in any application materials for short-term, limited-duration insurance. The Departments are providing the exact text for this notice requirement and the language will not need to be customized. The burden associated with these notices is not subject to the Paperwork Reduction Act of 1995 in accordance with 5 CFR 1320.3(c)(2) because they do not contain a ‘‘collection of information’’ as defined in 44 U.S.C. 3502(3). Consequently, this document need not be reviewed by the Office of Management and Budget under VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). E. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes certain requirements with respect to federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely to have a significant economic impact on a substantial number of small entities. Unless an agency certifies that a final rule is not likely to have a significant economic impact on a substantial number of small entities, section 604 of the RFA requires that the agency prepare a final regulatory flexibility analysis describing the impact of the rule on small entities. Small entities include small businesses, organizations and governmental jurisdictions. The RFA generally defines a ‘‘small entity’’ as—(1) a proprietary firm meeting the size standards of the Small Business Administration (13 CFR 121.201); (2) a nonprofit organization that is not dominant in its field; or (3) a small government jurisdiction with a population of less than 50,000. (States and individuals are not included in the definition of ‘‘small entity’’). The Departments use as their measure of significant economic impact on a substantial number of small entities a change in costs or revenues of more than 3 to 5 percent. This final rule will impact health insurance issuers, especially those in the individual market. The Departments believe that health insurance issuers will be classified under the North American Industry Classification System code 524114 (Direct Health and Medical Insurance Carriers). According to SBA size standards, entities with average annual receipts of $38.5 million or less are considered small entities for this North American Industry Classification System codes. Some issuers could possibly be classified in 621491 (Health Maintenance Organization Medical Centers) and, if this is the case, the SBA size standard is $32.5 million or less.92 The Departments believe that few, if any, insurance companies selling comprehensive health insurance policies (in contrast, for example, to travel insurance policies or dental 92 U.S. Small Business Administration, ‘‘Table of Small Business Size Standards Matched to North American Industry Classification System Codes’’, Effective October 1, 2017. Available at https:// www.sba.gov/sites/default/files/files/Size_ Standards_Table_2017.pdf. PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 discount policies) fall below these size thresholds. Based on data from MLR annual report submissions for the 2016 MLR reporting year,93 approximately 85 out of over 520 issuers of health insurance coverage nationwide had total premium revenue of $38.5 million or less, of which 51 issuers offer plans in the individual market. This estimate may overstate the actual number of small health insurance companies that may be affected, since almost 79 percent of these small companies belong to larger holding groups, and many if not all of these small companies are likely to have non-health lines of business that will result in their revenues exceeding $38.5 million. Therefore, the Departments certify that this final rule will not have a significant impact on a substantial number of small entities. In addition, section 1102(b) of the Social Security Act requires agencies to prepare a regulatory impact analysis if a rule may have a significant economic impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. This final rule will not have a direct effect on rural hospitals, though there might be an indirect impact. However, as discussed below, there are mitigating factors. Therefore, the Departments have determined that this final rule will not have a significant impact on the operations of a substantial number of small rural hospitals. One commenter disagreed with the statement in the proposed rule that ‘‘[t]his proposed rule will not affect small rural hospitals.’’ The commenter stated that issuer withdrawal from the individual market caused by the proposed changes would especially have a catastrophic impact on rural families who already have limited plan choices, as well as on the rural hospitals and other providers who ‘‘rely on razorthin financial margins to deliver care.’’ The commenter urged the Departments to prioritize market stabilization and to pay special attention to the impacts in rural communities. The total number of individuals purchasing either individual market plans or short-term, limited-duration insurance coverage is expected to increase, which will limit or reduce the amount of uncompensated care provided by hospitals. Moreover, people in rural areas have generally been most harmed by the reduction in choice that as resulted from PPACA and likely stand to disproportionately receive benefit from this rule. The Departments 93 Available at https://www.cms.gov/CCIIO/ Resources/Data-Resources/mlr.html. E:\FR\FM\03AUR2.SGM 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations acknowledge there is a possibility that due to adverse selection and changes to the individual market risk pool, fewer issuers may offer individual market plans in certain states, leading to reduced choices for consumers remaining in the individual market risk pools. However, individuals in rural areas are more likely to be low-income and less likely to receive employer sponsored coverage compared to those living in other areas and a large percentage of rural individuals (24 percent of the nonelderly population) are covered by Medicaid.94 Individuals in rural areas enrolled in individual market plans are more likely to receive PTC 95 because, generally, incomes in these areas are typically lower than 400% of the Federal Poverty Line and therefore relatively young or healthy individuals are less likely to leave the individual market risk pool in these areas, thereby limiting the effects on the risk pool. State regulations may also limit the impact on the individual market risk pools. F. Impact of Regulations on Small Business—Department of the Treasury Pursuant to section 7805(f) of the Code, the proposed rule that preceded this final rule was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received. G. Unfunded Mandates Reform Act amozie on DSK3GDR082PROD with RULES2 Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any 1 year by a state, local, or Tribal governments, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. In 2018, that threshold is approximately $150 million. This final rule does not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold. 94 Julia Foutz, Samantha Artiga, and Rachel Garfield, ‘‘The Role of Medicaid in Rural America’’, Kaiser Family Foundation, April 25, 2017. Available at: https://www.kff.org/medicaid/issuebrief/the-role-of-medicaid-in-rural-america/. 95 Analysis of data on Exchange plan selections (non-canceled plan selections at a point-in-time) for the most recent open enrollment period shows that consumers in rural areas are 5 percent more likely to receive PTC compared to those who live in nonrural areas. VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 H. Federalism Executive Order 13132 outlines fundamental principles of federalism. It requires adherence to specific criteria by Federal agencies in formulating and implementing policies that have ‘‘substantial direct effects’’ on the states, the relationship between the national government and states, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have these federalism implications must consult with state and local officials, and describe the extent of their consultation and the nature of the concerns of state and local officials in the preamble to the final regulation. Federal officials have discussed the issues related to short-term, limitedduration insurance with state regulatory officials. This final rule has no federalism implications to the extent that current state law requirements for short-term, limited-duration insurance are the same as or more restrictive than the Federal standard in this final rule. States may continue to apply such state law requirements. States also have the flexibility to require additional consumer disclosures and to establish a different, shorter initial contact term and maximum duration (including renewals and extensions) under state law in response to market-specific needs or concerns. I. Congressional Review Act This final rule is subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and will be transmitted to the Congress and to the Comptroller General for review in accordance with such provisions. J. Reducing Regulation and Controlling Regulatory Costs Executive Order 13771, titled Reducing Regulation and Controlling Regulatory Costs, was issued on January 30, 2017 and requires that the costs associated with significant new regulations ‘‘shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.’’ This final rule is an Executive Order 13771 deregulatory action. IV. Statutory Authority The Department of the Treasury regulations are adopted pursuant to the authority contained in sections 7805 and 9833 of the Code. The Department of Labor regulations are adopted pursuant to the authority PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 38241 contained in 29 U.S.C. 1135 and 1191c; and Secretary of Labor’s Order 1–2011, 77 FR 1088 (Jan. 9, 2012). The Department of Health and Human Services regulations are adopted pursuant to the authority contained in sections 2701 through 2763, 2791, 2792 and 2794 of the PHS Act (42 U.S.C. 300gg through 300gg–63, 300gg–91, 300gg–92 and 300gg–94), as amended. List of Subjects 26 CFR Part 54 Pension excise taxes. 29 CFR Part 2590 Continuation coverage, Disclosure, Employee benefit plans, Group health plans, Health care, Health insurance, Medical child support, Reporting and recordkeeping requirements. 45 CFR Parts 144 and 146 Health care, Health insurance, Reporting and recordkeeping requirements. 45 CFR Part 148 Administrative practice and procedure, Health care, Health insurance, Penalties, Reporting and recordkeeping requirements. Douglas W. O’Donnell, Acting Deputy Commissioner for Services and Enforcement, Internal Revenue Service. Approved: July 26, 2018. David J. Kautter, Assistant Secretary of the Treasury (Tax Policy). Signed this 26th day of July 2018. Preston Rutledge, Assistant Secretary, Employee Benefits Security Administration, Department of Labor. Dated: July 24, 2018. Seema Verma, Administrator, Centers for Medicare & Medicaid Services. Dated: July 25, 2018. Alex M. Azar II, Secretary, Department of Health and Human Services. DEPARTMENT OF THE TREASURY Internal Revenue Service For the reasons stated in the preamble, 26 CFR part 54 is amended as follows: PART 54—PENSION AND EXCISE TAX Paragraph 1. The authority citation for part 54 continues to read in part as follows: ■ Authority: 26 U.S.C. 7805 * * *. Par. 2. Section 54.9801–2 is amended by revising the definition of ‘‘Short- ■ E:\FR\FM\03AUR2.SGM 03AUR2 38242 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations term, limited-duration insurance’’ to read as follows: § 54.9801–2 Definitions. * * * * * Short-term, limited-duration insurance means health insurance coverage provided pursuant to a contract with an issuer that: (1) Has an expiration date specified in the contract that is less than 12 months after the original effective date of the contract and, taking into account renewals or extensions, has a duration of no longer than 36 months in total; (2) With respect to policies having a coverage start date before January 1, 2019, displays prominently in the contract and in any application materials provided in connection with enrollment in such coverage in at least 14 point type the language in the following Notice 1, excluding the heading ‘‘Notice 1,’’ with any additional information required by applicable state law: Notice 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. 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. amozie on DSK3GDR082PROD with RULES2 (3) With respect to policies having a coverage start date on or after January 1, 2019, displays prominently in the contract and in any application materials provided in connection with enrollment in such coverage in at least 14 point type the language in the following Notice 2, excluding the heading ‘‘Notice 2,’’ with any additional information required by applicable state law: Notice 2: 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 VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 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. (4) If a court holds the 36-month maximum duration provision set forth in paragraph (1) of this definition or its applicability to any person or circumstances invalid, the remaining provisions and their applicability to other people or circumstances shall continue in effect. * * * * * ■ Par. 3. Section 54.9833–1 is amended by revising the section heading and the last sentence to read as follows: § 54.9833–1 Applicability dates. * * * Notwithstanding the previous sentence, the definition of ‘‘short-term, limited-duration insurance’’ in § 54.9801–2 applies October 2, 2018. DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Chapter XXV For the reasons stated in the preamble, the Department of Labor amends 29 CFR part 2590 as set forth below: PART 2590—RULES AND REGULATIONS FOR GROUP HEALTH PLANS 4. The authority citation for part 2590 continues to read as follows: ■ Authority: 29 U.S.C. 1027, 1059, 1135, 1161–1168, 1169, 1181–1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; sec. 101(g), Pub. L. 104–191, 110 Stat. 1936; sec. 401(b), Pub. L. 105–200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 110–343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111–148, 124 Stat. 119, as amended by Pub. L. 111–152, 124 Stat. 1029; Division M, Pub. L. 113–235, 128 Stat. 2130; Secretary of Labor’s Order 1–2011, 77 FR 1088 (Jan. 9, 2012). 5. Section 2590.701–2 is amended by revising the definition of ‘‘Short-term, limited-duration insurance’’ to read as follows: ■ § 2590.701–2 Definitions. * * * * * Short-term, limited-duration insurance means health insurance coverage provided pursuant to a contract with an issuer that: (1) Has an expiration date specified in the contract that is less than 12 months after the original effective date of the PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 contract and, taking into account renewals or extensions, has a duration of no longer than 36 months in total; (2) With respect to policies having a coverage start date before January 1, 2019, displays prominently in the contract and in any application materials provided in connection with enrollment in such coverage in at least 14 point type the language in the following Notice 1, excluding the heading ‘‘Notice 1,’’ with any additional information required by applicable state law: Notice 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. 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. (3) With respect to policies having a coverage start date on or after January 1, 2019, displays prominently in the contract and in any application materials provided in connection with enrollment in such coverage in at least 14 point type the language in the following Notice 2, excluding the heading ‘‘Notice 2,’’ with any additional information required by applicable state law: Notice 2: 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. (4) If a court holds the 36-month maximum duration provision set forth in paragraph (1) of this definition or its E:\FR\FM\03AUR2.SGM 03AUR2 Federal Register / Vol. 83, No. 150 / Friday, August 3, 2018 / Rules and Regulations following Notice 1, excluding the heading ‘‘Notice 1,’’ with any additional information required by applicable state law: applicability to any person or circumstances invalid, the remaining provisions and their applicability to other people or circumstances shall continue in effect. * * * * * ■ 6. Section 2590.736 is amended by revising the last sentence to read as follows: § 2590.736 Applicability dates. * * * Notwithstanding the previous sentence, the definition of ‘‘short-term, limited-duration insurance’’ in § 2590.701–2 applies October 2, 2018. DEPARTMENT OF HEALTH AND HUMAN SERVICES For the reasons stated in the preamble, the Department of Health and Human Services amends 45 CFR parts 144, 146, and 148 as set forth below: PART 144—REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE 7. The authority citation for part 144 continues to read as follows: ■ Authority: 42 U.S.C. 300gg through 300gg– 63, 300gg–91, and 300gg–92. 8. Section 144.103 is amended by revising the definition of ‘‘Short-term, limited-duration insurance’’ to read as follows: ■ § 144.103 Definitions. * * * * Short-term, limited-duration insurance means health insurance coverage provided pursuant to a contract with an issuer that: (1) Has an expiration date specified in the contract that is less than 12 months after the original effective date of the contract and, taking into account renewals or extensions, has a duration of no longer than 36 months in total; (2) With respect to policies having a coverage start date before January 1, 2019, displays prominently in the contract and in any application materials provided in connection with enrollment in such coverage in at least 14 point type the language in the amozie on DSK3GDR082PROD with RULES2 * VerDate Sep<11>2014 19:47 Aug 02, 2018 Jkt 244001 Notice 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. 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. (3) With respect to policies having a coverage start date on or after January 1, 2019, displays prominently in the contract and in any application materials provided in connection with enrollment in such coverage in at least 14 point type the language in the following Notice 2, excluding the heading ‘‘Notice 2,’’ with any additional information required by applicable state law: Notice 2: 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. PO 00000 Frm 00033 Fmt 4701 Sfmt 9990 38243 (4) If a court holds the 36-month maximum duration provision set forth in paragraph (1) of this definition or its applicability to any person or circumstances invalid, the remaining provisions and their applicability to other people or circumstances shall continue in effect. * * * * * PART 146—REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET 9. The authority citation for part 146 is revised to read as follows: ■ Authority: 42 U.S.C. 300gg–1 through 300gg–5, 300gg–11 through 300gg–23, 300gg– 91, and 300gg–92. 10. Section 146.125 is amended by revising the last sentence to read as follows. ■ § 146.125 Applicability dates. * * * Notwithstanding the previous sentence, the definition of ‘‘short-term, limited-duration insurance’’ in § 144.103 of this subchapter applies October 2, 2018. PART 148—REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET 11. The authority citation for part 148 continues to read as follows: ■ Authority: 42 U.S.C. 300gg through 300gg– 63, 300gg–91, and 300gg–92), as amended. 12. Section 148.102 is amended by revising the section heading and the last sentence of paragraph (b) to read as follows: ■ § 148.102 Scope and applicability date. * * * * * (b) * * * Notwithstanding the previous sentence, the definition of ‘‘short-term, limited-duration insurance’’ in § 144.103 of this subchapter is applicable October 2, 2018. [FR Doc. 2018–16568 Filed 8–1–18; 8:45 am] BILLING CODE 4150–29–P 4830–01–P 4120–01–P 6325– 64–P E:\FR\FM\03AUR2.SGM 03AUR2

Agencies

[Federal Register Volume 83, Number 150 (Friday, August 3, 2018)]
[Rules and Regulations]
[Pages 38212-38243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16568]



[[Page 38211]]

Vol. 83

Friday,

No. 150

August 3, 2018

Part II





Department of the Treasury





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Internal Revenue Service





Department of Labor





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Employee Benefits Security Administration





Department of Health and Human Services





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26 CFR Part 54

29 CFR Part 2590

45 CFR Parts 144, 146, and 148





 Short-Term, Limited-Duration Insurance; Final Rule

Federal Register / Vol. 83 , No. 150 / Friday, August 3, 2018 / Rules 
and Regulations

[[Page 38212]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9837]
RIN 1545-BO41

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB86

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 146, and 148

[CMS-9924-F]
RIN 0938-AT48


Short-Term, Limited-Duration Insurance

AGENCY: Internal Revenue Service, Department of the Treasury; Employee 
Benefits Security Administration, Department of Labor; Centers for 
Medicare & Medicaid Services, Department of Health and Human Services.

ACTION: Final rule.

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SUMMARY: This final rule amends the definition of short-term, limited-
duration insurance for purposes of its exclusion from the definition of 
individual health insurance coverage. This action is being taken to 
lengthen the maximum duration of short-term, limited-duration 
insurance, which will provide more affordable consumer choices for 
health coverage.

DATES: 
    Effective date: These final regulations are effective on October 2, 
2018.
    Applicability date: Insurance policies sold on or after October 2, 
2018 must meet the definition of short-term, limited-duration insurance 
contained in this final rule in order to be considered such insurance.

FOR FURTHER INFORMATION CONTACT: Amber Rivers or Matthew Litton, 
Department of Labor, (202) 693-8335; Dara Alderman, Internal Revenue 
Service, Department of the Treasury, (202) 317-5500; David Mlawsky, 
Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, (410) 786-1565.
    Customer Service Information: Individuals interested in obtaining 
information from the Department of Labor concerning employment-based 
health coverage laws may call the Employee Benefits Security 
Administration (EBSA) Toll-Free Hotline, at 1-866-444-EBSA (3272) or 
visit the Department of Labor's website (https://www.dol.gov/ebsa). In 
addition, information from the Department of Health and Human Services 
(HHS) on private health insurance for consumers can be found on the 
Centers for Medicare & Medicaid Services (CMS) website (www.cms.gov/cciio) and information on health reform can be found at 
www.HealthCare.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    This rule finalizes amendments to the definition of ``short-term, 
limited-duration insurance'' for purposes of its exclusion from the 
definition of ``individual health insurance coverage'' in 26 CFR part 
54, 29 CFR part 2590, and 45 CFR part 144.

A. General Statutory Background and Enactment of PPACA

    The Health Insurance Portability and Accountability Act of 1996 
(HIPAA) \1\ added title XXVII to the Public Health Service Act (PHS 
Act), part 7 to the Employee Retirement Income Security Act of 1974 
(ERISA), and Chapter 100 to the Internal Revenue Code (the Code), 
providing portability and nondiscrimination rules with respect to 
health coverage. These provisions of the PHS Act, ERISA, and the Code 
were later augmented by other laws, including the Mental Health Parity 
Act of 1996,\2\ the Paul Wellstone and Pete Domenici Mental Health 
Parity and Addiction Equity Act of 2008,\3\ the Newborns' and Mothers' 
Health Protection Act,\4\ the Women's Health and Cancer Rights Act,\5\ 
the Genetic Information Nondiscrimination Act of 2008,\6\ the 
Children's Health Insurance Program Reauthorization Act of 2009,\7\ 
Michelle's Law,\8\ and the Patient Protection and Affordable Care Act, 
as amended by the Health Care and Education Reconciliation Act of 2010 
(PPACA).\9\
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    \1\ Public Law 104-191, 110 Stat. 1936 (August 21, 1996).
    \2\ Public Law 104-204, 110 Stat. 2944 (September 26, 1996).
    \3\ Public Law 110-343, 122 Stat. 3881 (October 3, 2008).
    \4\ Public Law 104-204, 110 Stat. 2935 (September 26, 1996).
    \5\ Public Law 105-277, 112 Stat. 2681-436 (October 21, 1998).
    \6\ Public Law 110-233, 122 Stat. 881 (May 21, 2008).
    \7\ Public Law 111-3, 123 Stat. 64 (February 4, 2009).
    \8\ Public Law 110-381, 122 Stat. 4081 (October 9, 2008).
    \9\ The Patient Protection and Affordable Care Act, Public Law 
111-148, was enacted on March 23, 2010, and the Health Care and 
Education Reconciliation Act of 2010, Public Law 111-152, was 
enacted on March 30, 2010. These statutes are collectively referred 
to as PPACA.
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    PPACA reorganizes, amends, and adds to the provisions of Part A of 
title XXVII of the PHS Act relating to group health plans and health 
insurance issuers in the group and individual markets. PPACA added 
section 715 of ERISA and section 9815 of the Code to incorporate 
provisions of Part A of title XXVII of the PHS Act (generally, sections 
2701 through 2728 of the PHS Act) into ERISA and the Code.

B. President's Executive Order

    On October 12, 2017, President Trump issued Executive Order 13813 
entitled ``Promoting Healthcare Choice and Competition Across the 
United States.'' \10\ This Executive Order states in relevant part: 
``Within 60 days of the date of this order, the Secretaries of the 
Treasury, Labor, and Health and Human Services shall consider proposing 
regulations or revising guidance, consistent with law, to expand the 
availability of [short-term, limited-duration insurance]. To the extent 
permitted by law and supported by sound policy, the Secretaries should 
consider allowing such insurance to cover longer periods and be renewed 
by the consumer.''
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    \10\ 82 FR 48385.
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C. 2017 Tax Legislation

    Section 5000A of the Code, added by PPACA, provides that all non-
exempt applicable individuals must maintain minimum essential coverage 
(MEC) or pay the individual shared responsibility payment.\11\ On 
December 22, 2017, the President signed tax reform legislation into 
law.\12\ This legislation includes a provision under which the 
individual shared responsibility payment under section 5000A of the 
Code is reduced to

[[Page 38213]]

$0, effective for months beginning after December 31, 2018.
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    \11\ The eligibility standards for exemptions can be found at 45 
CFR 155.605. Section 5000A of the Code and Treasury regulations at 
26 CFR 1.5000A-3 provide exemptions from the requirement to maintain 
MEC for the following individuals: (1) Members of recognized 
religious sects; (2) members of health care sharing ministries; (3) 
exempt noncitizens; (4) incarcerated individuals; (5) individuals 
with no affordable coverage; (6) individuals with household income 
below the income tax filing threshold; (7) members of federally 
recognized Indian tribes; (8) individuals who qualify for a hardship 
exemption certification; and (9) individuals with a short coverage 
gap of a continuous period of less than 3 months in which the 
individual is not covered under MEC.
    \12\ Public Law 115-97, 131 Stat. 2054.
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D. Short-Term, Limited-Duration Insurance

    Short-term, limited-duration insurance is a type of health 
insurance coverage that was primarily designed to fill temporary gaps 
in coverage that may occur when an individual is transitioning from one 
plan or coverage to another plan or coverage. Section 2791(b)(5) of the 
PHS Act provides ``[t]he term `individual health insurance coverage' 
means health insurance coverage offered to individuals in the 
individual market, but does not include short-term limited duration 
insurance.'' \13\ However, the PHS Act does not define short-term, 
limited-duration insurance. In 1997, the Department of the Treasury, 
the Department of Labor, and the Department of Health and Human 
Services (together, the Departments), issued regulations implementing 
the portability and renewability requirements of HIPAA, which included 
definitions of individual health insurance coverage as well as short-
term, limited-duration insurance.\14\ Those regulations defined short-
term, limited-duration insurance as ``health insurance coverage 
provided pursuant to a contract with an issuer that has an expiration 
date specified in the contract (taking into account any extensions that 
may be elected by the policyholder without the issuer's consent) that 
is less than 12 months after the original effective date of the 
contract.'' \15\
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    \13\ Sections 733(b)(4) of ERISA and 2791(b)(4) of the PHS Act 
provide that group health insurance coverage means ``in connection 
with a group health plan, health insurance coverage offered in 
connection with such plan.'' Sections 733(a)(1) of ERISA and 
2791(a)(1) of the PHS Act provide that a group health plan is 
generally any plan, fund, or program established or maintained by an 
employer (or employee organization or both) for the purpose of 
providing medical care to employees or their dependents (as defined 
under the terms of the plan) directly, or through insurance, 
reimbursement, or otherwise. There is no corresponding provision 
excluding short-term, limited-duration insurance from the definition 
of group health insurance coverage. Thus, any health insurance that 
is sold in the group market and purports to be short-term, limited-
duration insurance must comply with applicable group health 
insurance requirements established under Part A of title XXVII of 
the PHS Act, part 7 of ERISA, and Chapter 100 of the Code.
    \14\ The definition of individual health insurance coverage (and 
its exclusion of short-term, limited-duration insurance) has some 
limited relevance with respect to certain provisions that apply to 
group health plans and group health insurance issuers over which the 
Departments of Labor and the Treasury have jurisdiction. For 
example, an individual who loses coverage due to moving out of an 
HMO service area in the individual market triggers a special 
enrollment right into a group health plan. See 26 CFR 54.9801-
6(a)(3)(i)(B), 29 CFR 2590.701-6(a)(3)(i)(B), and 45 CFR 
146.117(a)(3)(i)(B). Also, a group health plan that wraps around 
individual health insurance coverage is an excepted benefit if 
certain conditions are satisfied. See 26 CFR 54.9831-1(c)(3)(vii), 
29 CFR 2590.732(c)(3)(vii), and 45 CFR 146.145(b)(3)(vii).
    \15\ 62 FR 16894 at 16928, 16942, 16958 (April 8, 1997); see 
also 69 FR 78720 (December 30, 2004).
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    Short-term, limited-duration insurance is generally exempt from the 
Federal market requirements applicable to health insurance sold in the 
individual market because it is not considered individual health 
insurance coverage. For example, short-term, limited-duration insurance 
is not subject to the requirement to provide essential health benefits 
and it is not subject to the prohibitions on preexisting condition 
exclusions or lifetime and annual dollar limits. It is also not subject 
to requirements regarding guaranteed availability and guaranteed 
renewability.
    To address the issue of short-term, limited-duration insurance 
being sold as a type of primary coverage, as well as concerns regarding 
possible adverse selection impacts on the risk pools for PPACA-
compliant plans, the Departments published a proposed rule on June 10, 
2016 in the Federal Register entitled ``Expatriate Health Plans, 
Expatriate Health Plan Issuers, and Qualified Expatriates; Excepted 
Benefits; Lifetime and Annual Limits; and Short-Term, Limited-Duration 
Insurance.'' \16\ The June 2016 proposed rule proposed changing the 
definition of short-term, limited-duration insurance that had been in 
place for nearly 20 years by revising the definition to specify that 
short-term, limited-duration insurance could not provide coverage for 3 
months or longer taking into account any extensions that may be elected 
by the policyholder with or without the issuer's consent.\17\
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    \16\ 81 FR 38019.
    \17\ 81 FR 38019, 38032.
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    The June 2016 proposed rule also proposed to require that the 
following notice be prominently displayed in the contract and in any 
application materials provided in connection with enrollment in short-
term, limited-duration insurance, in at least 14 point type:

THIS IS NOT QUALIFYING HEALTH COVERAGE (``MINIMUM ESSENTIAL 
COVERAGE'') THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE 
AFFORDABLE CARE ACT. IF YOU DON'T HAVE MINIMUM ESSENTIAL COVERAGE, 
YOU MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES.\18\
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    \18\ Id. at 38032.

    After reviewing public comments and feedback received from 
stakeholders, on October 31, 2016, the Departments finalized the June 
2016 proposed rule without change in a final rule published in the 
Federal Register entitled ``Excepted Benefits; Lifetime and Annual 
Limits; and Short-Term, Limited-Duration Insurance.'' \19\
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    \19\ 81 FR 75316 (October 31, 2016).
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    On June 12, 2017, HHS published a request for information in the 
Federal Register entitled ``Reducing Regulatory Burdens Imposed by the 
Patient Protection and Affordable Care Act & Improving Healthcare 
Choices to Empower Patients,'' \20\ which solicited public comments 
about potential changes to existing regulations and guidance that could 
promote consumer choice, enhance affordability of coverage for 
individual consumers, and affirm the traditional regulatory authority 
of the states in regulating the business of health insurance, among 
other goals. Several commenters stated that changes to the October 2016 
final rule may provide an opportunity to achieve these goals. 
Consistent with many comments submitted on the June 2016 proposed rule, 
commenters stated that shortening the permitted length of short-term, 
limited-duration insurance policies had deprived individuals of 
affordable coverage options. One commenter explained that due to the 
increased costs of PPACA-compliant major medical coverage, many 
financially-stressed individuals may be faced with a choice between 
short-term, limited-duration insurance coverage and going without any 
coverage at all. One commenter highlighted the need for short-term, 
limited-duration insurance coverage among individuals who are between 
jobs. Another commenter explained that states have the primary 
responsibility to regulate short-term, limited-duration insurance and 
opined that the October 2016 final rule was overreaching on the part of 
the federal government.
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    \20\ 82 FR 26885.
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    In addition to considering these comments, the Departments also 
considered that, while individuals who qualify for premium tax credits 
(PTCs) under section 36B of the Code are largely insulated from premium 
increases for individual health insurance coverage (that is, the 
government, and thus federal taxpayers, largely bear the cost of the 
increases), individuals who are not eligible for PTCs are particularly 
harmed by increased premiums in the individual market due to a lack of 
other, more affordable alternative coverage options. Based on CMS data 
on Exchange-effectuated enrollment and payment,

[[Page 38214]]

average monthly enrollment for individuals without PTCs declined by 1.3 
million, or 20 percent, between 2016 and 2017.\21\ Some of this decline 
is likely a response to increased premiums.\22\ Further, in 2018, about 
26 percent of enrollees (living in 52 percent of counties) have access 
to just one issuer in the Exchange.\23\ Such monopoly markets, which 
are more predominant in rural counties, do not provide meaningful 
choice for consumers and cause premiums to be higher than they would be 
in a competitive market. Additionally, although the October 2016 final 
rule was intended to boost enrollment in individual health insurance 
coverage by reducing the maximum duration of coverage in short-term, 
limited-duration plans, it did not succeed in that regard. Rather, 
average monthly enrollment in individual market plans decreased by 10 
percent between 2016 and 2017, while premiums increased by 21 
percent.\24\ Therefore, the Departments determined that the expansion 
of additional coverage options such as short-term, limited-duration 
insurance is necessary, as premiums have escalated and affordable 
choices in the individual market have dwindled.
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    \21\ Centers for Medicare and Medicaid Services, ``Trends in 
Subsidized and Unsubsidized Individual
    Health Insurance Market Enrollment'', July 2, 2018. Available at 
https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-2.pdf.
    \22\ Note, however, that the reduction in the number of 
unsubsidized enrollees is due to several different effects. As 
implied in the main text, some of the reduction is attributable to 
unsubsidized enrollees dropping coverage due to premium increases. 
Unsubsidized enrollees might also have left the Exchange because the 
labor market has improved, which might have resulted in increased 
availability of employer-sponsored coverage. In addition, because 
Exchange enrollees pay a fixed share of income for premiums with PTC 
covering the remainder, when premiums rise some unsubsidized 
enrollees become subsidized, even if enrollment does not change at 
all. Between February 2017 and February 2018, effectuated enrollment 
fell by about 209,000 among the unsubsidized but rose by 522,000 for 
the subsidized, suggesting some movement from unsubsidized to 
subsidized status without a change in enrollment. See ``2017 
Effectuated Enrollment Snapshot'', June 12, 2017, available at 
https://downloads.cms.gov/files/effectuated-enrollment-snapshot-report-06-12-17.pdf and ``Early 2018 Effectuated Enrollment 
Snapshot'', June 2, 2018, available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-1.pdf.
    \23\ Kaiser Family Foundation, ``Insurer Participation on ACA 
Marketplaces, 2014-2018,'' November 10, 2017. Available at https://www.kff.org/health-reform/issue-brief/insurer-participation-on-aca-marketplaces/.
    \24\ Centers for Medicare and Medicaid Services, ``Trends in 
Subsidized and Unsubsidized Individual Health Insurance Market 
Enrollment'', July 2, 2018. Available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-2.pdf.
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    Accordingly, in light of Executive Order 13813 directing the 
Departments to consider proposing regulations or revising guidance to 
expand the availability of short-term, limited-duration insurance, as 
well as in response to continued feedback from stakeholders expressing 
concerns about the October 2016 final rule, the Departments published a 
proposed rule on February 21, 2018 entitled ``Short-Term, Limited-
Duration Insurance'' under which the Departments proposed to amend the 
definition of short-term, limited-duration insurance to provide (as did 
the regulations implementing HIPAA) that such insurance may have a 
maximum coverage period of less than 12 months after the original 
effective date of the contract, taking into account any extensions that 
may be elected by the policyholder without the issuer's consent.\25\
---------------------------------------------------------------------------

    \25\ 83 FR 7437 (February 21, 2018).
---------------------------------------------------------------------------

    In addition, the Departments proposed to revise the content of the 
notice that must appear in the contract and any application materials 
provided in connection with enrollment in short-term, limited-duration 
insurance, to be prominently displayed (in at least 14 point type), and 
to read as follows:

THIS COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS 
FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE 
CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU 
UNDERSTAND WHAT THE POLICY DOES AND DOESN'T COVER. 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. 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.

    Under the proposed rule, the final two sentences of the notice 
would only be required for policies sold on or after the applicability 
date of the final rule, if finalized, that have a coverage start date 
before January 1, 2019, because the individual shared responsibility 
payment is reduced to $0 for months beginning after December 2018.
    The Departments proposed that the rule would be effective 60 days 
after publication of the final rule in the Federal Register, and with 
respect to the applicability date, the Departments proposed that 
policies sold on or after the 60th day following publication of the 
final rule would have to meet the definition of short-term, limited-
duration insurance in the final rule in order to be considered short-
term, limited-duration insurance. Further, the Departments proposed 
that group health plans and group health insurance issuers, to the 
extent they must distinguish between short-term, limited-duration 
insurance and individual health insurance coverage, must apply the 
definition of short-term, limited-duration insurance in the final rule 
as of the 60th day following publication of the final rule.
Request for Comments
    The Departments requested comments on all aspects of the proposed 
rule, including whether the length of short-term, limited-duration 
insurance should be some other duration. Also, the Departments 
requested comments on any regulations or other guidance or policy that 
limits issuers' flexibility in designing short-term, limited-duration 
insurance or poses barriers to entry into the short-term, limited-
duration insurance market. In addition, the Departments specifically 
sought comments on both the conditions under which issuers should be 
able to allow short-term, limited-duration insurance to continue for 12 
months or longer with the issuer's consent and the revised notice.
    The Departments requested comments on the economic impact analysis 
provided in the proposed rule, and welcomed other estimates of the 
increase in enrollment in short-term, limited-duration insurance under 
the proposal, and on the health status and age of individuals who would 
purchase these policies.
    The comment period on the proposed rule ended on April 23, 2018. 
The Departments received approximately 12,000 comments. After careful 
consideration of these comments, the Departments are issuing these 
final rules.

II. Overview of the Final Regulations

    After considering the public comments, the Departments are 
finalizing the proposed rule with some modifications. Under this final 
rule, short-term, limited-duration insurance means health coverage 
provided pursuant to a contract with an issuer that has an expiration 
date specified in the contract that is less than 12 months after the 
original effective date of the contract and, taking into account

[[Page 38215]]

renewals or extensions, has a duration of no longer than 36 months in 
total.
    This final rule also retains the requirement that issuers of short-
term, limited-duration insurance display one of two versions of a 
notice prominently in the contract and in any application materials 
provided in connection with enrollment in such coverage in at least 14-
point type. However, the language of the notice in the final rule is 
revised to read as follows:

    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. 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.

    As under the proposed rule, the last two sentences of the notice 
are only required for policies sold on or after the applicability date 
of this final rule that have a coverage start date before January 1, 
2019. As explained in more detail later in this preamble, in response 
to comments, the notice in the final rule contains additional 
specificity, including a list of health benefits that might not be 
covered. However, the Departments do not have evidence that short-term, 
limited-duration insurance policies have not historically or are 
unlikely to cover hospitalization and emergency services. Further, this 
final rule provides that the notice may contain any additional 
information as required by applicable state law and that the notice 
typeface should be in sentence case, rather than all capital letters.
    Based on comments submitted, the Departments have also revised the 
estimates of the impact of short-term, limited-duration coverage on the 
individual health insurance market and the uninsured as explained 
further below. In addition, a severability clause has been added to 
this final rule. Finally, as was proposed in the proposed rule, this 
final rule is effective and applicable 60 days after publication in the 
Federal Register.
Comments on Authority
    Several commenters questioned the Departments' legal authority with 
regard to various aspects of the proposed rule. One commenter stated 
that because the PHS Act exempts short-term, limited-duration insurance 
from the definition of ``health insurance coverage,'' there is no 
delegation of Congressional authority giving HHS the power to define 
short-term, limited-duration insurance. Several commenters questioned 
whether the Departments have legal authority to define short-term, 
limited-duration insurance as having a maximum contract term of less 
than 12 months. One commenter stated that allowing such coverage to 
last nearly as long as individual health insurance coverage would be 
arbitrary, capricious, and not in accordance with law. Another 
commenter stated that the Departments failed to provide any reasonable 
justification for the change and expressed concern that short-term, 
limited-duration insurance will harm consumers and the individual 
market, will increase premiums for individual market plans, and will 
increase PTC expenditures. The commenter noted that despite 
acknowledging these potential outcomes of the proposed rule, the 
Departments stated that they are proposing this action to provide more 
affordable consumer choice for health coverage. The commenter stated 
that this does not suffice to explain the decision for a rule change 
that is inconsistent with the Departments' earlier position, cannot 
carry the force of law, and is not entitled to deference and therefore 
is arbitrary and capricious, and cannot stand. One commenter stated 
that none of the three preambles supporting the less-than-12-month 
duration (the 1997 rules, the 2004 rules and the proposed rule that 
this rule finalizes) provide a ``reasoned explanation'' for this choice 
as the maximum length of coverage. Another commenter stated that 3 
months is a reasonable, ordinary-English meaning of the word ``short,'' 
that the Departments' adoption of it in 2016 was well-reasoned, and 
that neither the facts nor the statute have changed, only a policy 
agenda inimical to PPACA is new.
    Another commenter stated that the definition in the proposed rule 
is inconsistent with the statutory text of PHS Act section 2791(b)(5) 
because the proposed maximum duration for short-term, limited-duration 
insurance coverage is not sufficiently shorter than individual health 
insurance coverage to be consistent with any reasonable reading of the 
statutory phrase ``short-term.'' This commenter also asserted that the 
proposed definition is inconsistent with PPACA, because an issuer 
meeting the proposed definition could avoid all PPACA insurance 
reforms, which would deprive consumers of PPACA's protections and 
damage individual market risk pools. Taking all this into 
consideration, the commenter asserted that the proposed definition is 
thus arbitrary and capricious.
    The Departments disagree with these commenters that questioned our 
legal authority.
    The Departments have clear statutory authority under the PHS Act to 
interpret undefined provisions of the PHS Act, ERISA, and the Code.\26\ 
In order to determine the scope of individual health insurance 
coverage, which is essential to allow enforcement of the rules that 
apply to individual health insurance coverage, the Departments must 
give meaning to the term short-term, limited-duration insurance.\27\ 
Relatedly, Congress provided the Secretaries of HHS, Labor and the 
Treasury with explicit authority to promulgate regulations as may be 
necessary or appropriate to carry out the provisions of the PHS 
Act.\28\ Due to the absence of a statutory definition for the term 
short-term, limited-duration insurance, and the fact that the only 
reference to such coverage is as an exclusion from individual health 
insurance coverage, this includes the authority to issue regulations on 
short-term, limited-duration insurance to define it and set standards 
that distinguish it from individual health insurance coverage.
---------------------------------------------------------------------------

    \26\ See section 715 of ERISA and section 9815 of the Code, 
which incorporate provisions of Part A of title XXVII of the PHS Act 
(generally, sections 2701 through 2728 of the PHS Act) into ERISA 
and the Code. See also, section 104 of HIPAA. See also, sections 505 
and 734 of ERISA, sections 2761 and 2792 of the PHS Act, section 
1321(a)(1) and (c) of PPACA and section 7805 of the Code.
    \27\ As discussed in footnote 14, the definition of short-term, 
limited-duration insurance also has some relevance with respect to 
certain provisions that apply to group health plans and group health 
insurance issuers over which the Departments of Labor and the 
Treasury have jurisdiction.
    \28\ See section 2792 of the PHS Act.
---------------------------------------------------------------------------

    The Departments also disagree that the definition in the proposed 
rule and as revised in this final rule is inconsistent with PPACA. Both 
the proposed rule and the final rule establish federal standards for 
short-term, limited-duration insurance in a manner that clearly 
distinguishes such insurance from the individual health insurance 
coverage that is subject to PPACA's individual market requirements. 
Further, there are no explicit statutory standards governing

[[Page 38216]]

the degree to which short-term, limited-duration insurance must vary 
from individual health insurance coverage, leaving it to the 
Departments to use their interpretive authority to distinguish between 
the two terms. Indeed, when the federal regulations for short-term, 
limited-duration insurance were first implemented in 1997, short-term, 
limited-duration insurance was considered to be health insurance 
coverage with a period of coverage that was less than 12 months, as 
under the proposed rule. That standard was in place for nearly two 
decades without objection. As demonstrated by the definition of short-
term, limited-duration insurance in this final rule, short-term, 
limited-duration insurance and individual health insurance coverage are 
distinguished by the differences in their initial contract terms, the 
maximum duration of a policy itself, and the types of notice 
requirements applicable to each type of coverage. The two types of 
insurance are further distinguished with respect to whether the 
coverage is considered MEC. In the Departments' view, these differences 
are significant and sufficient to distinguish short-term, limited-
duration insurance from individual health insurance coverage, and the 
definition of short-term, limited-duration insurance in this final rule 
is consistent with PPACA, is well reasoned, is clearly within the 
Departments' authority, and is therefore not arbitrary and capricious. 
Rather than deprive consumers of PPACA protections, this final rule 
expands access to additional, more affordable coverage options for 
individuals, including those who might otherwise be uninsured, as well 
as to those who do not qualify for PTCs or who otherwise find 
individual health insurance coverage unattractive. Consumers who want 
comprehensive, individual health insurance coverage as defined by PPACA 
will continue to be able to purchase such coverage on a guaranteed 
availability and guaranteed renewability basis in the individual 
market. As to the comment regarding whether the rule is justified, see 
the discussion in the Regulatory Impact Analysis in this final rule for 
updated estimates of the impact of enrollment in short-term, limited-
duration insurance on consumers and the individual market.
    As stated above, some commenters challenged the legal authority of 
the Departments to set a less-than-12 month maximum contract term, 
including extensions that may be elected by the policyholder without 
the issuer's consent. In this final rule, the Departments instead set a 
less-than-12-month maximum on the length of the initial contract term. 
The Departments would have had the authority to do the former (had we 
chosen to do so), and also have the authority to do the latter. As 
explained above, the Departments have authority to establish regulatory 
standards for short-term, limited-duration insurance, including setting 
a limit on the length of the initial contract term. The Departments 
have explained in the proposed rule and elsewhere in this final rule 
that this regulatory action is necessary and appropriate to remove 
federal barriers that inhibit consumer access to additional, more 
affordable coverage options and support state efforts to develop 
innovative solutions in response to market-specific needs.
    This final rule recognizes the role that short-term, limited-
duration insurance can fulfill, while at the same time distinguishing 
it from individual health insurance coverage by interpreting ``short-
term'' to mean an initial contract term of less than 12 months and 
implementing the ``limited-duration'' requirement by precluding 
renewals or extensions that extend a policy beyond a total of 36 
months. See below for a discussion of the rationale for the 
interpretation of the ``limited-duration'' requirement to mean no 
longer than 36 months. States remain free to adopt a definition with a 
shorter maximum initial contract term or shorter maximum duration 
(including renewals and extensions) for a policy to meet their specific 
market needs, including the adoption of strategies to mitigate adverse 
selection in the individual market.
    One commenter stated that unlike health insurance products sold in 
the non-group market, short-term, limited-duration insurance is exempt 
from federal regulation and is subject only to state regulation and 
that the extent of CMS's statutory authority is to define what short-
term, limited-duration insurance is. The commenter stated that the 
Departments have no legal authority to impose regulatory burdens or 
limitations on short-term, limited-duration insurance, such as the 
notice requirement.
    The Departments agree with the commenter that short-term, limited-
duration insurance is exempt from the PHS Act's individual market rules 
and is generally subject to state regulation. However, the Departments 
also have limited authority under the PHS Act to establish federal 
regulatory standards for short-term, limited-duration insurance, 
including standards related to the maximum length of the initial 
contract term, the maximum duration (including renewals and extensions) 
for a policy, and a consumer notice. This final rule establishes such 
federal standards for short-term, limited-duration insurance in a way 
that is necessary and appropriate to distinguish this coverage from 
individual health insurance coverage. As stated above, Congress 
provided the HHS, Labor, and Treasury Secretaries with explicit 
authority to promulgate regulations as may be necessary or appropriate 
to carry out the provisions of the PHS Act.\29\ The Departments believe 
that the federal regulatory definition of short-term, limited-duration 
insurance as set forth in this final rule, including the notice 
requirement, is necessary and appropriate to carry out the provisions 
of the PHS Act. As explained above, the Departments must give meaning 
to the undefined statutory term short-term, limited-duration insurance 
and the meaning must distinguish it from individual health insurance 
coverage. This is because the PHS Act imposes certain requirements on 
individual health insurance coverage, and does not impose those same 
requirements on short-term, limited-duration insurance. Further, the 
Departments believe it is necessary and appropriate for consumers 
considering the purchase of short-term, limited-duration insurance, and 
those actually purchasing such insurance, to be aware that such 
coverage is not subject to the federal individual market rules under 
the PHS Act. Therefore, one component of the federal standards for 
short-term, limited-duration insurance in this final rule is inclusion 
of the notice specified in this final rule, to inform applicants and 
enrollees that short-term, limited-duration insurance is not individual 
health insurance coverage and therefore is not required to meet the 
federal market requirements that apply to individual health insurance 
coverage. Defining short-term, limited-duration insurance in such a way 
that requires a short, standard description of how the coverage might 
vary from individual health insurance coverage allows for a clear 
determination by regulators that the policy is intended to be short-
term, limited-duration insurance, facilitates compliance by issuers, 
and promotes ease of understanding by consumers. We further clarify 
that to the extent a health insurance policy sold to an individual in 
the non-group market includes the notice, and satisfies the other 
federal standards for short-term, limited-duration insurance in this 
final rule, it constitutes short-term, limited-duration insurance and 
is not subject to

[[Page 38217]]

the federal individual market rules under the PHS Act. As described 
elsewhere in this final rule, states can adopt a definition with a 
shorter maximum initial contract term and/or a shorter maximum duration 
of a policy, and can require issuers to provide additional information 
as part of the consumer notice.
---------------------------------------------------------------------------

    \29\ See section 2792 of the PHS Act.
---------------------------------------------------------------------------

    The proposed rule did not address whether any aspect (or standard) 
in the definition of short-term, limited-duration insurance should be 
considered independent of other provisions, and thus severable, if such 
part of the definition were to be determined invalid. Although there 
were no comments that directly addressed severability, from the 
comments received on the proposed rule, the Departments recognize there 
is a possibility that some stakeholders may challenge the 36-month 
maximum duration standard in court. The Departments expect to prevail 
in any such challenge, as this final rule and each of the federal 
standards for short-term, limited-duration insurance finalized herein 
are legally sound. If a court should conclude that the 36-month maximum 
duration standard for short-term, limited-duration insurance in this 
final rule is invalid, the Departments wish to emphasize our intent 
that the remaining standards of the final rule will take effect and be 
given the maximum effect as permitted by law. Thus, we have added a 
severability clause as a new paragraph (4) to the final rule, which 
addresses two situations--one where the 36-month provision is 
invalidated ``as applied,'' and the other where it is invalidated 
``facially.'' The severability provision reads as follows: ``If a court 
holds the 36-month maximum duration provision set forth in paragraph 
(1) of this definition or its applicability to any person or 
circumstances invalid, the remaining provisions and their applicability 
to other people or circumstances shall continue in effect.''
General Comments on the Proposed Rule
    Many commenters generally agreed that short-term, limited-duration 
insurance plays an important role in providing temporary health 
coverage to individuals who would otherwise go uninsured. Most 
commenters also stated that such plans are not meant to take the place 
of comprehensive health insurance coverage, and allowing them to be 
marketed as a viable alternative to comprehensive coverage would 
subject uninformed consumers to potentially severe financial risks, and 
would siphon off healthier individuals from the market for individual 
health insurance coverage, thereby raising premiums for such coverage. 
Commenters who supported the proposed rule stated that it would allow 
purchasers of short-term, limited-duration insurance to obtain the 
coverage they want (excluding services they do not want) at a more 
affordable price for a longer period of time. These commenters 
explained that currently, enrollees have to reapply for short-term, 
limited-duration insurance every 3 months, have their deductibles reset 
every 3 months, and might lose coverage for conditions that develop 
during the initial 3 months. They also noted that many individuals may 
be unable to obtain more comprehensive coverage at the end of the 3-
month coverage period because they may not qualify for a special 
enrollment period for individual health insurance coverage and might 
have a long time to wait for the next individual market open enrollment 
period.
    The Departments agree that short-term, limited-duration insurance 
plays an important role in providing temporary valuable health coverage 
to individuals who would otherwise go uninsured. Short-term, limited-
duration insurance can also provide a more affordable, and potentially 
desirable, coverage option for some consumers, such as those who cannot 
afford unsubsidized coverage in the individual market. This final rule 
balances the important role that short-term, limited-duration insurance 
plays in the market, while at the same distinguishing it from 
individual health insurance coverage and requiring issuers of short-
term, limited-duration insurance to inform consumers of how coverage 
under the policy might differ from coverage under individual health 
insurance coverage. The rule does this by setting the maximum length of 
the initial contract term to less than 12 months, establishing the 
total maximum duration for a policy (including coverage during the 
initial contract term and renewals or extensions under the same 
insurance contract) of no longer than 36 months, and providing for a 
notice to inform consumers of how coverage under the policy might 
differ from coverage under individual health insurance coverage. Thus, 
under this final rule, issuers may offer coverage under a short-term, 
limited-duration insurance policy for up to a total of 36 months, 
without any medical underwriting or experience rating beyond that 
completed upon the initial sale of the policy (as long as the 
applicable notice is provided to consumers and the initial contract 
term is less than 12 months).
    The Departments acknowledge that making short-term, limited-
duration insurance more available, and for longer initial contract 
terms and periods of duration than is currently permitted, could have 
an impact on the risk pools for individual health insurance coverage, 
and could therefore raise premiums for individual health insurance 
coverage (see the discussion in the Regulatory Impact Analysis 
section). However, as discussed more fully below, we believe the 
critical need for coverage options that are more affordable than 
individual health insurance coverage, combined with the general need 
for more coverage options and choice, substantially outweigh the 
estimated impact on individual health insurance premiums.
Initial Contract Term for Short-Term, Limited-Duration Insurance
    The proposed rule would have set a maximum length of short-term, 
limited-duration coverage, including any extensions that may be elected 
by the policyholder without the issuer's consent, of less than 12 
months. Given that the proposed rule did not include a proposal to 
permit renewal periods in addition to or longer than the less-than-12-
month period, we are addressing all comments related to the ``less-
than-12-month'' aspect of the proposed rule as comments on the initial 
contract term. The Departments discuss and respond to comments related 
to renewals and extensions beyond the initial contract term, including 
comments on the permissible maximum duration for a policy (including 
renewals and extensions of the same insurance contract), later in this 
preamble. With respect to the maximum length of the initial contract 
term for short-term, limited-duration insurance, most comments 
suggested not extending the maximum duration beyond the current less-
than-3-month maximum. Others suggested periods such as less than 6 or 8 
months. Most commenters who supported extending the maximum initial 
contract term suggested it should be 364 days. A few commenters 
suggested more than 1 year. Other commenters stated that any short-
term, limited-duration policy should end by December 31 of the calendar 
year in which the policy period commences, while others stated that the 
maximum duration should be 1 year or until December 31 of the calendar 
year in which the policy period commences, whichever occurs later. 
Other commenters stated that the maximum

[[Page 38218]]

length of the coverage should be left to the states.
    As explained in the proposed rule, we proposed to return to the 
less-than-12-month standard in order to expand more affordable coverage 
options to consumers who desire and need them, to help individuals 
avoid paying for benefits provided in individual health insurance 
coverage that they believe are not worth the cost, to reduce the number 
of uninsured individuals, and to make available more coverage options 
with broader access to providers than certain individual health 
insurance coverage has. The Departments disagree with the commenters 
who supported a shorter maximum initial contract term. To the extent 
the initial contract term would be limited to a shorter duration, for 
example, 3 months, this would mean that every 3 months, absent 
renewability of the policy, an individual purchasing short-term, 
limited-duration insurance would be subject to re-underwriting if they 
did not have a renewal guarantee, and would possibly have his or her 
premium greatly increased as a result. The issuer could also decline to 
issue a new policy to the consumer based on preexisting medical 
conditions. Also, to the extent that the policy has a deductible, the 
individual would not get credit for money spent toward the deductible 
during the previous 3 months. In addition, to the extent that the 
policy excluded preexisting conditions for a specified period of time 
or imposed a waiting period on specific benefits, the individual might 
not get credit for the amount of the time he or she had the previous 
coverage, and thus the waiting period on preexisting conditions or on 
specific benefits would start over, leaving the consumer without 
coverage for the condition(s) or benefit(s) until the new waiting 
period expires. Although these circumstances would be somewhat 
mitigated if the maximum initial contract term was somewhat longer than 
less than 3 months, for example, less than 9 months, the Departments 
believe that mitigating these circumstances even further, by 
establishing a federal maximum initial contract term of less than 12 
months, is preferable. The Departments find all of these to be 
compelling reasons in favor of permitting a maximum initial contract 
term of less than 12 months, rather than a shorter maximum initial 
contract term.
    With respect to the comment that any short-term, limited-duration 
policy should end by December 31 of the calendar year in which the 
policy period commences, this could result in many such policies having 
an initial contract term of far less than 12 months, which for the 
reasons stated above, the Departments believe is not desirable. With 
respect to the comment that the maximum duration should be 1 year or 
until December 31 of the calendar year in which the policy period 
commences, the Departments do not believe that a policy with an initial 
contract term of 1 full year would satisfy the ``short-term'' component 
of short-term, limited-duration insurance, as it would have the same 
initial contract term as individual health insurance coverage.
    The Departments agree that states remain free to adopt a definition 
with a shorter maximum initial contract term. The maximum initial 
contract term of less than 12 months established in this final rule 
provides a uniform federal standard for the initial contract term for 
short-term, limited-duration insurance. As explained in the proposed 
rule and elsewhere in this final rule, this standard was selected in 
order to promote access to health coverage choices in addition to 
individual health insurance coverage, which, as stated above, may or 
may not be the most appropriate or affordable policies for some 
individuals. Therefore, this rule sets a federal standard for the 
maximum initial contract term for short-term, limited-duration 
insurance. This federal standard defines the ``short-term'' component 
of short-term, limited-duration insurance as less than 12 months. The 
federal maximum duration for a policy (including renewals and 
extensions of the same insurance contract), discussed further below, 
implements the ``limited-duration'' component of short-term, limited-
duration insurance.
    Many commenters that opposed the extension of the maximum initial 
contract term for short-term, limited-duration insurance generally 
expressed concerns about the lack of protections for consumers who 
purchase short-term, limited-duration insurance. Some of these 
commenters stated that such insurance is not a viable option for people 
with serious or chronic medical conditions because of potential policy 
exclusions. Commenters also stated that short-term, limited-duration 
policies discriminate against those with serious illnesses and other 
preexisting conditions including mental health and substance abuse 
disorders, older consumers, women, transgender patients, persons with 
gender-identity-related health concerns, and victims of rape and 
domestic violence.
    The commenters did not provide persuasive evidence for concluding 
that short-term, limited-duration policies discriminate against 
individuals. The Departments acknowledge that short-term, limited-
duration insurance may not be suitable coverage for all individuals in 
all circumstances and that in some instances it may not provide 
coverage that is as comprehensive as individual health insurance 
coverage. However, short-term, limited-duration insurance can be a 
viable health insurance option for many people in many circumstances. 
Also, no individual is required to enroll in short-term, limited-
duration insurance; rather, it is simply an additional, and likely more 
affordable, option that may be available to them. Individual health 
insurance coverage is unaffordable for many consumers, particularly 
those who do not qualify for PTCs. Of uninsured consumers visiting the 
HealthCare.gov website in the past year, 63 percent of those who did 
not purchase a plan cited high premiums as the primary reason not to 
purchase.\30\ Furthermore, the availability of short-term, limited-
duration insurance provides an additional choice for many consumers 
that exists side-by-side with individual market coverage, with the end 
result that individuals are provided with more choices and have the 
opportunity to purchase the type of coverage that is most desirable and 
suitable for the individual and/or her family. Additionally, many 
individuals who have health conditions for which they desire coverage 
that might be more comprehensive than what is available through short-
term, limited-duration insurance, can access individual health 
insurance coverage on a guaranteed available and guaranteed renewable 
basis and, if enrollment is pursued through an Exchange and the 
individual is otherwise eligible, may qualify for the PTC to offset the 
cost of such coverage and, in some cases, cost-sharing reductions. PTCs 
and cost-sharing reductions generally are not available to purchasers 
of short-term, limited-duration insurance. However, states may be able 
to provide subsidies to purchasers of short-term, limited-duration 
insurance with funds provided under waivers authorized by section 1332 
of PPACA \31\ should they choose to do so and should the waiver satisfy 
all applicable requirements.
---------------------------------------------------------------------------

    \30\ CMS Exchanges Trend Report, July 2, 2018.
    \31\ 42 U.S.C. 18052.
---------------------------------------------------------------------------

    Also, states have flexibility to establish a different, shorter 
maximum initial contract term consistent with state law. In addition, 
these final rules require the prominent display of a notice in the 
contract and any application materials provided in connection with 
enrollment in short-term, limited-duration insurance to alert

[[Page 38219]]

consumers about how coverage under the policy might vary from coverage 
under individual health insurance coverage. See the discussion below 
for an explanation of the changes the Departments are making to the 
required notice in this final rule in response to commenters' concerns 
about consumers' potential misunderstanding of some of those 
variations. These changes include a clarification that states have the 
flexibility to require additional consumer disclosures.
    Many commenters who opposed the extension of the maximum initial 
contract term for short-term, limited-duration insurance expressed 
concern about what they viewed as a history of aggressive and deceptive 
marketing practices by individuals who market short-term, limited-
duration insurance. One commenter stated that over the past 2 years, 
state regulators have seen an increase in complaints about such 
insurance, with consumers saying they were unaware their plan did not 
provide comprehensive coverage or that they could be refused a new 
policy at the end of the contract term. Many commenters provided 
examples of specific issues states were dealing with, such as issues 
with claims handling. In a 10-state survey conducted by the 
Commonwealth Fund \32\ cited to by some commenters, state regulators 
noted an increase in complaints about brokers using deceptive practices 
to enroll people in short-term, limited-duration insurance over the 
phone. Some commenters also mentioned the low levels of health 
literacy, particularly among younger adults, and how this could 
exacerbate deceptive marketing practices by short-term, limited-
duration insurance issuers and brokers. Several commenters stated that 
they did not want state laws prohibiting the sale of short-term, 
limited-duration insurance preempted.
---------------------------------------------------------------------------

    \32\ Dania Palanker, Kevin Lucia, Sabrina Corlette, Maanasa 
Kona, ``Proposed Federal Changes to `Short-Term Health Coverage 
Leave Regulation to States'', Commonwealth Fund, February 20, 2018. 
Available at https://www.commonwealthfund.org/blog/2018/proposed-federal-changes-short-term-health-coverage-leave-regulation-state.
---------------------------------------------------------------------------

    This final rule establishes federal standards for short-term, 
limited-duration insurance only with respect to the maximum length of 
the initial contract term, the maximum duration of a policy (including 
renewals and extensions under the same insurance contract), and a 
consumer notice. States are free to regulate such coverage in every 
other respect. This contrasts with the federal regulation of individual 
health insurance coverage under the PHS Act, which touches many aspects 
of individual health insurance coverage, and therefore limits the 
degree to and areas in which states may regulate such coverage. This is 
yet another way in which the federal regulation of short-term, limited-
duration insurance in this rule is different from individual health 
insurance coverage. In fact, several commenters (both in favor of, and 
opposed to, the proposed rule) said that states should retain the 
authority to regulate short-term, limited-duration insurance, and that 
such authority should not be preempted by the PHS Act. Several 
commenters requested the Departments to coordinate with the states on 
the regulation of short-term, limited-duration insurance. The 
Departments have considered those comments, and we acknowledge and 
respect states' authority to regulate the business of insurance. The 
Departments generally agree that states retain the authority to 
regulate short-term, limited-duration insurance and further note that 
this final rule does not change or otherwise modify the existing PHS 
Act preemption standard.\33\ As such, states may shorten the length of 
the maximum initial contract term, the 36-month total maximum duration 
(including renewals or extensions) discussed further below, or both, 
although they may not lengthen them. Relatedly, as discussed later in 
this preamble, in this final rule, the Departments added language to 
the notice to alert consumers to how the coverage they are purchasing 
might vary from individual health insurance coverage and also added a 
clarification to the regulation text that states may also impose 
additional requirements with respect to the language in the consumer 
notice. States remain free to regulate short-term, limited-duration 
insurance. We also clarify that this final rule does not preempt any 
state laws prohibiting the sale of short-term, limited-duration 
insurance.
---------------------------------------------------------------------------

    \33\ See section 2724 (formerly section 2723) of the PHS Act and 
45 CFR 146.143 and 148.210. See also 62 FR 16894 at 16904 and 69 FR 
78719 at 78739.
---------------------------------------------------------------------------

Renewability of Short-Term, Limited-Duration Insurance Coverage
    The proposed rule provided that in determining whether an insurance 
contract had a duration of less than 12 months, extensions that may be 
elected by the policyholder without the issuer's consent were taken 
into account. The Departments solicited comments on the conditions 
under which issuers should be able to allow short-term, limited-
duration insurance to continue 12 months or longer with the issuer's 
consent. The Departments also solicited comments on whether any 
processes for expedited or streamlined reapplication for short-term, 
limited-duration insurance that would simplify the reapplication 
process and minimize the burden on consumers may be appropriate; 
whether federal standards are appropriate for such processes; and 
whether any clarifications are needed regarding the application of the 
proposed definition of short-term, limited-duration insurance to such 
practices. For example, the proposed rule preamble noted that an 
expedited process could involve setting minimum federal standards for 
what must be considered as part of the streamlined reapplication 
process while allowing issuers to consider additional factors in 
accordance with contract terms. The Departments were also interested in 
information on any state approaches (including any approaches that 
states are considering adopting) to minimize the burden of the 
reapplication process for issuers and consumers.
    Several commenters questioned the Departments' authority to permit 
the duration of short-term, limited-duration insurance to extend to 12 
months or longer through renewal or extension of such policies. One 
commenter stated that ``limited-duration'' means these policies cannot 
be made guaranteed renewable. Several commenters stated that 
establishing a guaranteed renewability requirement for short-term, 
limited-duration insurance would be contrary to the plain language of 
the statute since short-term, limited-duration insurance is excluded 
from the statutory definition of individual health insurance coverage. 
One commenter stated that short-term, limited-duration insurance 
issuers should be permitted to sell a policy with a duration of less 
than 12 months, with a separate guaranteed renewability rider, allowing 
the customer to buy a new policy without underwriting. The commenter 
stated that the Departments have no statutory authority to prohibit or 
otherwise regulate such arrangements, and that the Departments have no 
authority to require guaranteed renewability, or prohibit it. One 
commenter suggested that issuers be allowed to sell multiple 
consecutive policies at the initial point of sale and be allowed to 
sell renewal options with and without preexisting conditions 
exclusions. One commenter stated that the term ``short-term, limited-
duration insurance'' provides authority to define the length of time 
within which such insurance contracts must expire, but does not provide 
authority to limit how many contracts consumers enter into, or to 
regulate renewal guarantees. The commenter

[[Page 38220]]

asserted that renewal guarantees are not ``health insurance coverage,'' 
explaining that such guarantees protect against premiums increasing, 
but do not provide benefits consisting of items and services paid for 
as medical care and therefore, the Departments cannot regulate these 
contracts. Since renewal guarantees are not ``health insurance 
coverage,'' the commenter asserted, it is reasonable to interpret the 
statute as not counting renewal guarantees against the time limit the 
Departments set for the contract for medical benefits. Another 
commenter stated that, should the final rule allow renewals, then 
changing the interpretation of this from the current rule, without 
support, would violate federal law.
    Other commenters commented on the renewal of short-term, limited-
duration insurance coverage from a policy perspective. Most such 
commenters who supported the proposed rule stated that short-term, 
limited-duration insurance should be permitted to be renewable, while 
those who opposed the proposed rule and some who agreed with 
lengthening the maximum period were opposed to permitting such policies 
to be renewable. One commenter stated that a federal mandate for 
automatic renewability would limit the rights of states and the ability 
of state regulators to determine the design, length, and sales 
practices of short-term, limited-duration insurance plans in a manner 
that best protects their consumers and markets. A few commenters 
addressed the extent to which, and the circumstances under which, 
individuals should be permitted to reapply for coverage under an 
expedited application process. Some of these commenters opposed such an 
expedited process, while others favored permitting it. One commenter 
suggested that short-term, limited-duration insurance issuers could 
design a less-than-12-month plan with an option to re-write at point of 
sale. This product would have a different set of underwriting questions 
at point of sale for the option. Upon expiration of the initial 
contract term, the issuer could elect to waive preexisting conditions 
and underwriting for the new less-than-12-month period. One commenter 
stated that federal standards should regulate short-term, limited-
duration insurance policies, including standards for reapplication, 
while one commenter asserted that states should maintain authority to 
regulate the application and reapplication process. Another commenter 
that supported the proposed rule suggested further expanding the 
proposed federal standards to permit guaranteed renewals for short-
term, limited-duration insurance.
    Although some commenters questioned whether the Departments have 
authority to impose a guaranteed renewability requirement on short-
term, limited-duration insurance, this final rule does not impose such 
a requirement. Rather, it permits, but does not require, issuers to 
renew or extend a short-term, limited-duration policy up to a maximum 
total duration of 36 months and still have such coverage considered 
short-term, limited-duration insurance. This rule does so by 
establishing a maximum duration of a short-term, limited-duration 
insurance policy (inclusive of the initial contract term and renewals 
or extensions under the same insurance contract) of no longer than 36 
months.
    Under this final rule, the total number of consecutive days of 
coverage under a single (that is, the same) insurance contract is the 
relevant metric to calculate the duration of the coverage to determine 
if it satisfies the 36-month maximum duration standard. In contrast, 
the total number of consecutive days of coverage under two or more 
(that is, separate) insurance contracts, even if one picks up where the 
last ended, is irrelevant to the 36-month maximum duration standard. 
The number of days of coverage in separate contracts is considered 
separately and the relevant question is whether each individual 
contract satisfies the 36-month maximum duration standard. Nothing in 
this final rule precludes the purchase of separate insurance contracts 
that run consecutively, so long as each individual contract is separate 
and can last no longer than 36 months.
    With respect to the comment that, should the final rule allow 
renewals, then changing the interpretation of this from the current 
rule, without support, would violate federal law, the Departments note 
that the current rule (the October 2016 final rule) also allows 
renewals.\34\ Accordingly, with regard to permitting renewals, there is 
no change of interpretation. The only difference between the two rules 
with respect to renewals is that the current rule allows renewals to 
the extent the total duration of coverage, including the initial 
contract term and any extensions or renewals, is less than 3 months, 
whereas this final rule allows renewals to the extent the maximum 
duration of a policy, including the initial contract term and renewals 
or extensions, is up to 36 months.
---------------------------------------------------------------------------

    \34\ The 1997 HIPAA rule similarly addressed extensions for 
short-term, limited-duration insurance (that is, short-term, 
limited-duration insurance was defined as health insurance coverage 
provided pursuant to a contract with an issuer that has an 
expiration date specified in the contract (taking into account any 
extensions elected by the policyholder without the issuer's consent) 
that is less than 12 months after the original effective date of the 
contract). 62 FR 16894 (April 8, 1997).
---------------------------------------------------------------------------

    The Departments have determined that the 36-month limit on 
coverage, including the initial contract term, plus renewals or 
extensions (without limiting consecutive periods of separate coverage, 
as explained above) satisfies the ``limited-duration'' component of the 
statutory term ``short-term, limited-duration insurance'' (while the 
less-than-12-months limit on the initial contract term, discussed 
above, satisfies the ``short-term'' component of the term). The 
Departments note that Congress did not change the existing reference to 
short-term, limited-duration insurance as an exclusion from the PHS Act 
definition of ``individual health insurance coverage'' or otherwise 
address short-term, limited-duration insurance in PPACA, which 
indicates Congress was not concerned with short-term, limited-duration 
insurance existing side-by-side, at least under the standard in place 
prior to the October 2016 rule, with individual health insurance 
coverage. The Departments believe that a maximum duration of 36 months 
for short-term, limited-duration insurance is consistent with these two 
insurance markets existing side-by-side, while still giving meaning and 
effect to the ``limited-duration'' component of short-term, limited-
duration insurance.
    Likewise, the Departments' interpretation is consistent with the 
canon of statutory construction that disfavors rendering one or more 
statutory words or phrases redundant. Here, Congress used two terms: 
``short-term'' and ``limited-duration.'' The Departments have concluded 
that these two terms are best interpreted to refer to periods of time 
of differing length; if they both referred to a time period of the same 
length (for example, if the Departments interpreted both words to refer 
to a time period of less than twelve months), then one of the terms 
would be rendered redundant, or nearly so. The Departments likewise 
conclude that the term ``limited-duration'' refers to a longer time 
period than ``short-term,'' because, while an insurance policy's 
duration is (absent cancellation) never shorter than its term, a 
policy's term can be shorter than its duration (if the policy is 
renewed or extended). Thus, the Departments conclude that the term 
``limited-duration'' refers to a period of time that is longer than the 
time period contemplated by the term ``short-term,'' and contemplates 
renewal of a short-term policy for a time period potentially

[[Page 38221]]

longer than the maximum term length for which a short-term policy can 
be acquired (under this final rule, less than 12 months).
    In determining the appropriate limits on the permissible range of 
renewals or extensions in giving meaning to the term ``limited-
duration,'' the Departments were informed by the stakeholder comments 
and other circumstances under which Congress authorized temporary 
limited coverage options. In particular, the Consolidated Omnibus 
Budget Reconciliation Act of 1985 (COBRA) requires certain group health 
plans to extend group health coverage to certain individuals otherwise 
losing that coverage.\35\ COBRA requires certain group health plan 
sponsors to provide a temporary continuation coverage option for a 
minimum of 18, 29, or 36 months, depending on the nature of the 
qualifying event that triggers the temporary coverage period. Under 
COBRA, the maximum period that COBRA coverage could extend is for a 
period of 36 months (where the qualifying event is employee enrollment 
in Medicare, divorce or legal separation, death of an employee, or loss 
of dependent child status (that is, ``aging out'' under the plan)). In 
certain circumstances, individuals experiencing a qualifying event such 
as job loss, which triggers an initial 18-month COBRA continuation 
coverage period, may experience a second qualifying event, making them 
eligible for a total maximum duration of 36 months of COBRA 
continuation coverage.
---------------------------------------------------------------------------

    \35\ 26 U.S.C. 4980B(f), 29 U.S.C. 1161-1168, 42 U.S.C. 300bb-
1--300bb-8.
---------------------------------------------------------------------------

    Similar to COBRA, short-term, limited-duration insurance also 
serves as temporary coverage for individuals transitioning between 
other types of coverage, and accordingly the Departments believe that 
it is reasonable to look to COBRA in giving meaning to ``limited-
duration,'' as both types of coverage serve an analogous purpose--that 
is, to provide temporary health coverage for individuals who are not 
currently eligible for or enrolled in comprehensive medical coverage, 
and are transitioning between types of coverage. Unlike COBRA, where 
Congress explicitly authorized a sliding scale of maximum duration 
periods, the Departments decline to adopt a sliding scale approach to 
the maximum duration period for short-term, limited-duration coverage. 
We adopt the approach outlined in this final rule for simplicity in the 
absence of explicit, staggered statutory maximums and because no party 
is required to renew or extend coverage for the maximum duration with 
respect to a short-term, limited-duration insurance policy; instead 
whether to provide coverage for the maximum period is left to the 
states and/or contracting parties. Accordingly, in establishing federal 
standards for short-term, limited-duration insurance, the Departments 
interpret the term ``limited-duration'' in a manner consistent with the 
temporary continuation coverage maximums available through COBRA and 
the somewhat similar statutory temporary continuation of coverage 
provisions under the Federal Employees Health Benefits Program,\36\ 
which permit continuation of coverage for up to a maximum duration of 
36 months.
---------------------------------------------------------------------------

    \36\ 5 U.S.C. 8905(a).
---------------------------------------------------------------------------

    Individuals may choose to purchase short-term, limited-duration 
insurance for a variety of different reasons, which may align with 
various COBRA qualifying events or not. Further, whereas COBRA 
describes the minimum period that certain group health plan sponsors 
must offer COBRA continuation coverage, these regulations describe the 
maximum coverage period during which insurers may renew a short-term, 
limited-duration insurance policy. However, the Departments conclude 
that the 36-month maximum coverage period is a reasonable and 
appropriate benchmark for interpreting the term ``limited-duration.'' 
By allowing COBRA coverage to last up to 36 months in some 
circumstances, Congress recognized that 36 months qualifies as a 
temporary period of transition, during which coverage of limited 
duration may be useful. The Departments have strong policy 
considerations, as described elsewhere herein, for adopting an 
interpretation of the term ``limited-duration'' that provides a 
flexible period of insurance for individuals transitioning between 
other types of coverage, and COBRA's 36-month maximum provides 
precedent for a 36-month coverage period that is designed to be of 
limited duration. Therefore, in looking to COBRA as a guidepost for 
determining the maximum duration of short-term, limited-duration 
insurance (that is, the length of coverage under the initial contract 
term, plus renewals or extensions), the Departments believe the 36-
month COBRA period, rather than the 18-month COBRA period, is more 
appropriate.
    The Departments also believe permitting renewal or extension of a 
short-term, limited-duration insurance policy, but only to the extent 
the maximum duration of coverage under a policy is no longer than 36 
months, serves to further distinguish such short-term, limited-duration 
insurance from individual health insurance coverage, which must be 
guaranteed renewable indefinitely, except under certain limited 
circumstances.\37\ As noted earlier in this rule, states have 
flexibility to establish a different, shorter maximum duration for a 
short-term, limited-duration policy (including renewals or extensions) 
consistent with state law.
---------------------------------------------------------------------------

    \37\ Section 2703 of the PHS Act; see also 42 U.S.C. 300gg-42.
---------------------------------------------------------------------------

    While the Departments did not specifically propose the 36-month 
maximum duration period for short-term, limited-duration insurance 
coverage in the proposed rule, comments were solicited on all aspects 
of the proposed rule, including whether the length of short-term, 
limited-duration insurance should be a different duration than less 
than 12 months, and the circumstances, if any, under which issuers 
should be allowed to continue (that is, renew) such coverage for 12 
months or longer.\38\ Comments were also solicited on a potential 
reapplication process for short-term, limited-duration insurance, 
including whether there should be federal standards for such a process. 
In response, the Departments received a wide range of comments 
indicating that short-term, limited-duration insurance coverage should 
be required to be guaranteed renewable, should be permitted to be 
renewed or extended for a designated period of time, and also that it 
should not be allowed to be renewed or extended beyond the initial 
contract term. We also received a number of suggestions regarding the 
adoption of federal standards governing any reapplication processes. 
After consideration of all the comments related to the issue of 
renewability or extensions, and for the reasons stated above, this 
final rule permits a short-term, limited-duration insurance policy to 
be renewed or extended so that the total duration of coverage under the 
policy may be up to 36 months.
---------------------------------------------------------------------------

    \38\ See, for example, 83 FR 7440.
---------------------------------------------------------------------------

    Renewal guarantees generally permit a policyholder, when purchasing 
his or her initial insurance contract, to pay an additional amount, in 
exchange for a guarantee that the policyholder can elect to purchase, 
for periods of time following expiration of the initial contract, 
another policy or policies at some future date, at a specific premium 
that would not reflect any additional underwriting. In 2009, shortly 
before enactment of PPACA, one of the

[[Page 38222]]

nation's largest health insurance issuers received regulatory approval 
from 25 states to offer renewal guarantees as a standalone product, for 
an annual premium equal to 20 percent of the cost of a guaranteed 
renewable health insurance policy.\39\ With respect to the comments on 
renewal guarantees, to the extent a contract for health insurance 
coverage is extended or renewed, whether due to a renewal guarantee or 
otherwise, the period of health insurance coverage that is covered by 
the renewal or extension of the policy is counted toward the 36 month 
maximum duration, as to not do so would ignore the meaning of the 
statutory phrase ``limited-duration.'' However, to the extent a 
contract does not provide health insurance coverage \40\ and instead 
consists of a separate transaction or other instrument under which the 
individual can, in advance, lock in a premium rate in the future or the 
ability to purchase a new, separate short-term, limited-duration 
insurance policy at a specified premium rate at a future date without 
re-underwriting, such subsequent periods of coverage under the new, 
separate short-term, limited-duration insurance policies would not 
count toward the 36-month maximum. Through these mechanisms, it may be 
possible for a consumer to maintain coverage under short-term, limited-
duration insurance policies for extended periods of time to protect 
themselves against financial vulnerabilities, such as developing a 
costly medical condition. The ability to purchase such instruments, 
which are essentially options to buy new policies in the future, is at 
present permitted under federal law, and this rule does nothing to 
forbid or permit such transactions. Furthermore, the Departments note 
that anyone, not just policyholders of short-term, limited-insurance, 
can purchase such instruments under current federal law (which this 
rule does not alter).
---------------------------------------------------------------------------

    \39\ Reed Abelson, ``United Health to Insure the Right to 
Insurance,'' New York Times, December 2, 2008, https://www.nytimes.com/2008/12/03/business/03insure.html.
    \40\ See section 2792(b)(1) of the PHS Act.
---------------------------------------------------------------------------

    Similarly, the Departments also have not, and do not in this final 
rule, prohibit issuers from offering a new short-term, limited-duration 
insurance policy to consumers who have previously purchased this type 
of coverage, or otherwise prevent consumers from stringing together 
coverage under separate policies offered by the same or different 
issuers, for total coverage periods that would exceed 36 months.\41\ 
The Departments are also significantly limited in their ability to take 
an enforcement action under the PHS Act market rules with respect to 
such transactions involving products or instruments that are not health 
insurance coverage.\42\ As commenters mentioned, we also recognize that 
the mechanisms and means by which coverage may be extended or renewed 
may vary from state to state. Further, states can shorten the maximum 
duration for a short-term, limited-duration insurance policy, but 
cannot extend the maximum duration beyond the 36-month federal 
standard.
---------------------------------------------------------------------------

    \41\ 81 FR 75318.
    \42\ However, the Departments may have the authority to regulate 
health insurance coverage issued pursuant to such an instrument.
---------------------------------------------------------------------------

    Therefore, as stated above, under this final rule, the total number 
of consecutive days of coverage under the same insurance contract is 
considered when calculating the duration of a policy for purposes of 
determining if the insurance satisfies the 36-month maximum duration 
federal standard. In contrast, the total number of consecutive days of 
coverage under separate insurance contracts is not considered when 
calculating the duration of coverage for such purpose. Rather, in such 
cases, the number of days of coverage under each contract of insurance 
is considered separately, to determine if the duration of the coverage 
under each contract satisfies the 36-month maximum duration standard, 
and coverage under each new contract commences a new period of 
coverage. The Departments generally defer to state law to determine the 
circumstances under which consecutive periods of coverage are under the 
same, or under separate, insurance contracts.
    In addition to having authority to allow renewals or extensions for 
a maximum duration of up to 36 months, the Departments also determined 
there are sound policy reasons to provide the ability for renewals and 
extensions as set forth in the final rule. Many of these reasons are 
discussed above with respect to the less-than-12-month initial contract 
term maximum finalized in this rule. As many commenters pointed out, to 
the extent that the maximum duration of short-term, limited-duration 
insurance is limited to a relatively short period of time, for example, 
less than 3 months, or even less than 12 months, without permitting 
renewals or extensions, this would mean that every 3 months or every 12 
months, an individual purchasing short-term, limited-duration insurance 
would be subject to re-underwriting, and would possibly have his or her 
premium greatly increased as a result. Also, to the extent the policy 
excluded preexisting conditions for a specified period of time or 
imposed a waiting period on specific benefits, the individual might not 
get credit for the amount of time he or she had the previous coverage. 
The issuer could also decline to issue a new policy to the consumer 
based on preexisting medical conditions. The Departments find all of 
these to be compelling reasons in favor of permitting renewals and 
extensions as set forth in the final rule, such that the maximum 
duration of coverage under a single short-term, limited-duration 
insurance policy may be 36 months (including renewal or other extension 
periods), as opposed to less than 12 months. While the Departments 
anticipate that some issuers will choose to provide renewals without 
the restrictions described above (such as providing renewals without 
premium increases and without re-setting preexisting condition 
exclusion waiting periods), we note that short-term, limited-duration 
insurance issuers are not required to do so under this final rule and 
may determine the terms of the renewal in the short-term, limited-
duration insurance contract, subject to the definition of short-term, 
limited-duration insurance in this final regulation and any permissible 
state law variations. Further, in consideration of Congress' intent to 
exempt from the definition of individual health insurance coverage (and 
therefore, to exempt from the HIPAA and PPACA individual market 
requirements) short-term, limited-duration insurance, the Departments 
are not imposing a guaranteed renewability requirement on short-term, 
limited-duration insurance.
    The Departments appreciate the comments and suggestions regarding 
simplified or expedited application and reapplication processes. The 
Departments decline to adopt or otherwise establish federal standards 
regarding such procedures at this time. Rather, the Departments defer 
to the states to define and regulate such practices.
Notice
    In the proposed rule, the Departments proposed to revise the notice 
that must appear in the contract and any application materials provided 
in connection with enrollment in short-term, limited-duration 
insurance. The Departments noted concerns that short-term, limited-
duration insurance policies that provide coverage lasting almost 12 
months may be more difficult for some individuals to distinguish from 
coverage available in the individual

[[Page 38223]]

market, which is typically offered on a 12-month basis. Accordingly, 
under the proposed rule, one of two versions of the following notice 
was proposed to be required to be prominently displayed (in at least 14 
point type) in the contract and in any application materials provided 
in connection with enrollment:

THIS COVERAGE IS NOT REQUIRED TO COMPLY WITH FEDERAL REQUIREMENTS 
FOR HEALTH INSURANCE, PRINCIPALLY THOSE CONTAINED IN THE AFFORDABLE 
CARE ACT. BE SURE TO CHECK YOUR POLICY CAREFULLY TO MAKE SURE YOU 
UNDERSTAND WHAT THE POLICY DOES AND DOESN'T COVER. 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. 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.

    Given that the individual shared responsibility payment is reduced 
to $0 for months beginning after December 2018, the Departments 
proposed that the final two sentences of the notice must appear only 
with respect to policies sold on or after the proposed applicability 
date of the rule, if finalized, that have a coverage start date before 
January 1, 2019.
    The Departments solicited comments on this revised notice, and 
whether its language or some other language would best ensure that it 
is understandable and sufficiently apprises individuals of the nature 
of the coverage.
    Many commenters generally supported the approach in the proposed 
rule that a short-term, limited-duration insurance policy must include 
such a notice. One commenter stated that the notice should not be part 
of the definition of short-term, limited-duration insurance, but should 
be a separate requirement that applies once a policy satisfies the 
short-term, limited-duration insurance definition. One commenter stated 
that requiring short-term, limited-duration insurance issuers to use 
one of two different notices (depending on the year) is burdensome to 
issuers and state regulators with respect to filing policies, and 
suggested developing one notice that could be used for all years. A few 
other commenters also more generally supported the use of just one type 
of notice. One commenter stated that issuers should be permitted to 
modify the notice to provide additional disclosures about their short-
term, limited-duration insurance product, subject to state approval, 
while another commenter said that states should be permitted to 
prescribe their own notice language, with the federal language as a 
default for those states that fail to do so.
    The Departments believe it is important and appropriate for issuers 
of short-term, limited-duration insurance to disclose the key potential 
characteristics of such insurance to applicants and policyholders. 
Consumers need as complete and accurate information as possible in 
order to make informed coverage purchasing decisions--whether it be for 
comprehensive, major medical coverage in the individual market or for 
short-term, limited-duration insurance, which can consist of a wide 
variety of coverage options. Therefore, the final rule retains the 
notice requirement, with some changes to content and style, as 
discussed below.
    The Departments decline to adopt the suggestion that the notice 
should not be part of the definition of short-term, limited-duration 
insurance, but instead should be a separate requirement, once a policy 
satisfies the definition of short-term, limited-duration insurance. The 
Departments do not believe there is a compelling reason to so change 
the regulatory structure. The Departments also decline to adopt the 
suggestion that one disclosure notice be used, regardless of the year 
in which the policy is issued. As previously stated, the amount of the 
individual shared responsibility payment will be $0 for months 
beginning January 2019. For short-term, limited-duration policies 
covering any months before January 2019, the Departments believe it is 
critical that the disclosure notice inform applicants and policyholders 
that they could be liable for the individual shared responsibility 
payment, given the potential financial consequences for not maintaining 
MEC during that time. However, for policies not covering any such 
month, not only would such language be irrelevant, but the Departments 
believe it could be confusing. The Departments further note that the 
language in the two notices is verbatim with the exception of the final 
two sentences (which must not appear in notices provided with short-
term, limited-duration insurance policies with a coverage start date on 
or after January 1, 2019). Therefore, the Departments believe any 
burden associated with the two notices applying to different periods 
are outweighed by the benefits of mitigating the potential for consumer 
confusion that could result from maintaining the last two sentences in 
the notice, when provided for policies with an effective date on or 
after January 1, 2019.
    With respect to additional flexibility to add language to the 
notices, the Departments have clarified as part of the final 
regulations that states may require additional language to be included 
in the notices, as discussed elsewhere in this rule. In addition, there 
is no prohibition on issuers including additional language in their 
notices, as long as the additional language accurately describes the 
coverage.
    Many commenters suggested specific changes to the content of the 
notices. Some commenters suggested expanding the notice to include 
details such as which benefits are not covered by the plan, whether 
preexisting conditions are covered, which PPACA protections will not be 
applicable, and more clearly state that loss of short-term, limited-
duration insurance will not trigger a special enrollment period in the 
individual market. Several commenters stated that the notice should not 
only distinguish short-term, limited-duration insurance from available 
individual market plans, but should also distinguish the former from 
excepted benefits coverage. Some commenters suggested making the notice 
available in several languages. One commenter stated that the notice 
should illustrate how certain conditions would be covered. Several 
commenters stated that the notice should not be in capital letters. A 
few commenters stated that the notice should inform consumers that if 
they choose to purchase short-term, limited-duration insurance 
following expiration of the policy, they will be underwritten again, 
while another commenter stated that the notice should state that, even 
if the consumer passes re-underwriting, he may not be covered for 
medical conditions that the previous policy covered. A few commenters 
stated that the notice should indicate that purchasers of short-term, 
limited-duration insurance cannot qualify for PTCs (although some 
purchasers of qualified health plans sold on the Exchange can). One 
commenter stated that the notice should say that the policy ``does not 
comply,'' as well as ``is not required to comply,'' with PPACA 
requirements. One commenter stated that the notice should have a 
CAUTION heading, be in bullet form, be written in dark-color type, be 
literacy-tested to a 6th grade reading level, and have the MEC language 
listed first. One commenter stated that the notice should appear on the 
first page of the policy, rather than be displayed ``prominently.'' One 
commenter stated that the

[[Page 38224]]

statement that short-term, limited-duration insurance may not comply 
with PPACA and may require additional payment with your taxes should be 
removed. One commenter noted that in addition to PPACA, short-term, 
limited-duration insurance is also exempt from other specific federal 
laws and that should be included in the notice as well. One other 
commenter recommended that the notice include a link to the applicable 
state-based Exchange website or HealthCare.gov.
    The Departments agree with some of the commenters who suggested 
providing additional specificity in the notice. Therefore, the notice 
in the final rule has been revised to add language to make consumers 
aware of potential 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). The 
notice in the final rule also contains new language informing consumers 
that the policy might have lifetime and/or annual dollar limits on 
health benefits. The Departments did not incorporate the other 
additional language suggested by other commenters. The Departments 
believe the language added in this final rule provides important new 
information to consumers, without lengthening the notice to such an 
extent that would make it cumbersome to read, or cause consumers to not 
read it at all. The Departments are also cognizant of the burdens and 
costs on issuers that would be associated with a longer notice. 
However, states may require additional language in the notice, 
consistent with their authority to regulate short-term, limited-
duration insurance. The Departments also agree with the commenters who 
suggested that the notice not be in all capital letters, as the 
Departments believe the notice will be more readable in sentence 
case.\43\ Therefore, the notice in the final rule is in sentence case.
---------------------------------------------------------------------------

    \43\ See also, for example, Bryan A. Garner, What's Wrong With 
Initial-Caps Point Headings, https://bit.ly/2uNHtNL (over use of 
capital letters may mean that ``readers will probably skip over what 
you're trying to make sink in.'')
---------------------------------------------------------------------------

    Given the varying demographics of different states, the Departments 
disagree with the comment that this final rule should require the 
notice to be available in several languages. Although the Departments 
believe it is important for the disclosure notice to be useful and 
informative to individuals who are most literate in a language other 
than English, the Departments decline in this rule to require that the 
notice be provided in additional languages. States as primary 
regulators of short-term, limited-duration insurance can impose 
additional requirements as may be necessary to meet local needs. The 
Departments disagree with the comment that the notice have a CAUTION 
heading, should be in bullet form, should be written in dark-color 
type, be literacy-tested to a 6th grade reading level, and should have 
the MEC language listed first. The Departments believe the form of this 
notice should be in straight text, which is the same form of most 
documents that individuals are accustomed to reading. The Departments 
also believe that a CAUTION heading might inappropriately bias the 
reader against short-term, limited-duration insurance; the Departments 
instead believe the notice should assist the consumer in making an 
informed choice about the type of coverage that is most appropriate for 
him or her. The Departments disagree with the comment that the MEC 
language should appear first in the notice. Although that language is 
important, the Departments believe most consumers would find the 
language that appears before the MEC language in the final notice to be 
more significant when deciding whether short-term, limited-duration 
insurance is the most appropriate type of coverage for their personal 
needs.
    In addition, the Departments believe the language in the notice in 
the proposed rule stating that ``This coverage is not required to 
comply with federal requirements for health insurance'' could be 
interpreted too broadly, as meaning that the issuer of such coverage is 
not required to comply with certain other federal requirements not 
related to health insurance market rules that apply generally to 
issuers as well as other entities. Therefore, the Departments revise 
that clause in the notice in this final rule to read: ``This coverage 
is not required to comply with certain federal market requirements for 
health insurance.'' In this final rule, the disclosure now reads as 
follows, with the first, second and third sentences differing from the 
proposal:

    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. 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.

    Importantly, the Departments note that we do not have evidence that 
erm, limited-duration insurance has not historically covered or is 
unlikely to cover hospitalization and emergency services. These 
benefits are included in the notice, however, due to an abundance of 
caution. Several commenters stated that, in order to meet the 
definition of short-term, limited-duration insurance, the issuer should 
be required to provide information through other means in addition to 
the notice. One commenter stated that, in addition to the notice, to 
satisfy the definition of short-term, limited-duration insurance, 
issuers should be required to include a plain-language explanation of 
the general limits of such insurance in the application, and that the 
application should have a signature line indicating that the consumer 
received and understood it. Several commenters stated that the notice 
should require the purchaser to initial several discrete statements 
about the limitations of the policy at the time of application. Several 
commenters stated that the Summary of Benefits and Coverage (SBC) 
requirement, as set forth in section 2715 of the PHS Act, should apply 
to short-term, limited-duration insurance. One commenter stated that 
the term ``short-term, limited-duration insurance'' should display 
prominently in the footer on every page of the contract, and in any 
application, sales, and marketing materials, and the outline of 
coverage should include a ``warning'' that this is temporary coverage 
that provides limited benefits. Several commenters stated that the 
statement in the notice should also appear in marketing materials. One 
commenter stated that the notice should be read out loud to any 
prospective purchaser, particularly those with limited English 
proficiency. One commenter stated that, in addition to providing the 
notice, short-term, limited-duration issuers should be required to name 
their policies in such a way as to distinguish them from individual 
health insurance coverage, maybe by inserting the word ``Limited'' as 
part of the name of the policy. Several commenters stated that the 
notice should be accompanied by a list of network providers.

[[Page 38225]]

    The Departments believe that the requirements relating to both the 
content and delivery of the notice as set forth in this final rule 
strike the appropriate balance to help each consumer make an informed 
choice about the type of coverage that is most appropriate for him or 
her, while not being overly burdensome to issuers of short-term, 
limited-duration insurance or inappropriately biasing the reader 
against short-term, limited-duration insurance. The Departments 
therefore decline to adopt these suggestions by commenters. However, as 
previously noted, states may specify additional methods and forms of 
disclosure, as well as mandate additional disclosure requirements that 
issuers of short-term, limited-duration insurance must comply with, 
consistent with their authority to regulate such coverage. Because 
short-term, limited-duration insurance is not individual health 
insurance coverage under the PHS Act, it is not subject to the SBC 
requirements established under section 2715 of the PHS Act.
    Finally, the Departments note that to the extent an issuer of 
short-term, limited-duration insurance provides a contract or 
application materials in connection with extension or renewal of a 
short-term, limited-duration policy, the notice must be displayed 
prominently in any such materials, just as it must be displayed 
prominently in the contract and in any materials provided in connection 
with enrollment in such coverage.
Short-Term, Limited-Duration Insurance as Student Health Insurance 
Coverage
    Some commenters asked whether short-term, limited-duration 
insurance may be sold as ``student health insurance coverage'' within 
the meaning of HHS regulations. It may not.
    ``Student health insurance coverage'' is defined in HHS regulations 
at 45 CFR 147.145(a), which provides that ``student health insurance 
coverage'' is a type of individual health insurance coverage. Thus, 
``student health insurance coverage'' under the definition of ``student 
health insurance coverage'' must satisfy the PHS Act requirements for 
individual health insurance coverage, except for those specified in 45 
CFR 147.145(b). Accordingly, short-term, limited-duration insurance 
cannot be ``student health insurance coverage'' because it is by 
definition not individual health insurance coverage. However, to the 
extent permitted by state law, an issuer may sell short-term, limited-
duration insurance to individual students in institutions of higher 
education (or to individual students in boarding or other pre-higher-
education institutions). Some higher education institutions may require 
their students to either purchase ``student health insurance 
coverage,'' or a type of coverage other than short-term, limited-
duration insurance.
Short-Term, Limited-Duration Insurance and Minimum Essential Coverage
    A few commenters asked whether, under the final rule, short-term, 
limited-duration insurance would be considered MEC. One commenter 
suggested that the Departments provide a special enrollment period to 
purchase individual health insurance coverage for individuals who lose 
short-term, limited-duration insurance coverage outside of the 
individual market open enrollment period, similar to how individuals 
who lose MEC are currently provided a special enrollment period.
    Short-term, limited-duration insurance is not individual health 
insurance coverage, nor is it MEC. This rule does not recognize short-
term, limited-duration insurance as MEC. The Departments further note 
that the reduction of the individual shared responsibility payment to 
$0 beginning with coverage months after December 31, 2018, mitigates 
the need to designate short-term, limited-duration insurance as MEC, 
given that individuals who do not have MEC during any such coverage 
months, including individuals who have short-term, limited-duration 
coverage, will not be subject to the individual shared responsibility 
payment. Additionally, this rule does not create a special enrollment 
period to enroll in individual health insurance coverage for 
individuals whose short-term, limited-duration insurance has ended. The 
disclosure notice puts purchasers of short-term, limited-duration 
insurance on notice that no such special enrollment period is 
available. The Departments acknowledge that the loss of eligibility for 
short-term, limited-duration insurance creates a special enrollment 
opportunity to enroll in a group health plan (as opposed to individual 
health insurance coverage), either insured or self-insured.\44\
---------------------------------------------------------------------------

    \44\ See 26 CFR 54.9801-6, 29 CFR 2590.701-6, 45 CFR 146.117.
---------------------------------------------------------------------------

Other Federal and State Requirements
    Several commenters were in favor of imposing various additional 
federal requirements on short-term, limited-duration insurance that 
were not included in the proposed rule. These included requiring 
additional training for agents and brokers who sell such insurance, 
minimum federal standards such as a minimum range of benefits to be 
offered equally in rural and urban areas, basing premiums on statewide 
markets, coverage of preexisting conditions and preventive services and 
network adequacy standards, federal regulation and oversight of short-
term, limited-duration insurance policies sold through group trusts and 
associations, and requirements for websites marketing both short-term, 
limited-duration insurance and individual health insurance coverage.
    For purposes of establishing federal standards for short-term, 
limited-duration insurance, the Departments believe that setting the 
initial contract term to less than 12 months, a maximum duration for a 
policy (including renewals or extension under the same insurance 
contract) of 36 months, and a notice requirement, as set forth in this 
final rule, are the only necessary federal standards for short-term, 
limited-duration insurance. In recognition of the states' important, 
traditional role in regulating short-term, limited-duration insurance, 
the Departments decline to adopt any additional federal standards such 
as those suggested by the commenters. As discussed elsewhere in this 
final rule, states generally remain free to adopt these suggested 
standards, or other standards, as they see fit.
    In response to the Departments' solicitation of comments on any 
regulations or other guidance or policy that limits issuers' 
flexibility in designing short-term, limited-duration insurance or 
poses barriers to entry into the short-term, limited-duration insurance 
market, a few commenters mentioned section 1557 of PPACA as such a 
limitation. One commenter observed that the lack of standardized 
regulation of short-term, limited-duration insurance across state lines 
causes barriers to entry, and suggested the Departments encourage state 
insurance departments to participate in an interstate compact to create 
standard regulations that result in one policy form filing and approval 
that is effective in many states.
    Section 1557 of PPACA prohibits discrimination on the basis of 
race, color, national origin, sex, age, or disability in certain health 
programs or activities. This provision is administered by the HHS 
Office for Civil Rights, and it is beyond the scope of this rule to 
address the impact of section 1557 of PPACA on short-term, limited-
duration insurance. With respect to the comment that state insurance 
departments should participate in an interstate compact to create 
standard regulations that result in

[[Page 38226]]

one policy form filing and approval that is effective in many states, 
the Departments did not propose and are not adopting such federal 
standards and generally defer to state insurance departments on that 
issue.
Effective Date and Applicability Date
    The Departments proposed that this rule, if finalized, would be 
effective 60 days after publication of the final rule in the Federal 
Register. With respect to the applicability date, the Departments 
proposed that insurance policies sold on or after the 60th day 
following publication of the final rule, if finalized, would have to 
meet the definition of short-term, limited-duration insurance in the 
final rule in order to be considered such insurance. The Departments 
also proposed that group health plans and group health insurance 
issuers, to the extent they must distinguish between short-term, 
limited-duration insurance and individual health insurance coverage, 
must apply the definition of short-term, limited-duration insurance in 
the final rule as of the 60th day following publication of the final 
rule. The current regulations specify the applicability date for the 
definition of short-term, limited-duration insurance at 26 CFR 54.9833-
1, 29 CFR 2590.736, 45 CFR 146.125, and 45 CFR 148.102. Therefore, the 
Departments proposed conforming amendments to those rules as part of 
this rulemaking.
    The Departments also proposed a technical update in 26 CFR 54.9833-
1, 29 CFR 2590.736, and 45 CFR 146.125 to delete the reference to the 
applicability date for amendments to 26 CFR 54.9831-1(c)(5)(i)(C), 29 
CFR 2590.732(c)(5)(i)(C), and 45 CFR 146.145(c)(5)(i)(C) (regarding 
supplemental coverage excepted benefits).\45\ Given that the 
applicability date for the amendments to those sections has passed, the 
Departments explained that it is no longer necessary to mention the 
``future'' applicability date.\46\ HHS similarly proposed to amend 45 
CFR 148.102 to remove the reference to the applicability date for 
amendments to 45 CFR 148.220(b)(7) (regarding supplemental coverage 
excepted benefits).\47\
---------------------------------------------------------------------------

    \45\ As explained in the proposed rule, the reference in current 
regulations at 45 CFR 146.125 to the applicability date of 45 CFR 
146.145(c)(5)(i)(C) was a drafting error. It was intended to be a 
reference to 45 CFR 146.145(b)(5)(i)(C).
    \46\ The applicability date for these amendments (policy years 
and plan years beginning on or after January 1, 2017) remains 
unchanged.
    \47\ The applicability date for these amendments (policy years 
beginning on or after January 1, 2017) remains unchanged.
---------------------------------------------------------------------------

    Some commenters supported the proposed effective and applicability 
date, suggesting that the rule should be effective and applicable as 
soon as possible, while others stated that the rule should be 
applicable as of January 1, 2019. Others stated that it should be 
applicable January 1, 2020, to allow issuers time to plan and prepare 
new plan designs and regulatory filings and to allow states the chance 
to enact any legislation or promulgate regulations they felt necessary. 
One commenter asserted that if the rule were to become effective in 
2018, it would disrupt the markets for 2018 and 2019 without providing 
a fair opportunity for health insurance issuers of individual market 
plans to adjust their rates to account for the potential impact on the 
individual market risk pool. This commenter also stated that a delayed 
effective date would allow states time to educate the public. Some 
states and the National Association of Insurance Commissioners (NAIC) 
expressed concerns about the timing of this rule, noting that some 
states may want to modify existing laws and regulations and asked the 
Departments to give such states time to review their rules and seek 
statutory or regulatory changes. These states asked for flexibility in 
overseeing short-term, limited-duration insurance plans according to 
market-specific needs, including the ability to postpone or otherwise 
delay the effective date to review existing state requirements to 
facilitate a smooth transition and educate the public about this 
coverage option. Another commenter asked for an effective date that 
would allow issuers to begin selling short-term, limited-duration 
insurance, as defined in this final rule, in 2019, stressing the 
collapse of its individual market. One commenter stated that, given 
that individual health insurance issuers have set their 2018 rates 
assuming that short-term, limited-duration insurance is limited to less 
than 3 months, a change in the rule at this point would violate serious 
reliance interests.
    The Departments understand that an applicability date of 60 days 
following publication of this final rule might cause challenges for 
some states and issuers as they move to adopt, enforce, and comply with 
the final rule. However, as stated elsewhere in this final rule, the 
Departments believe there is a critical need to expand access to health 
coverage choices in addition to individual health insurance coverage, 
which, as stated above, may not be the most appropriate or affordable 
policies for many individuals. The Departments believe that a uniform 
federal standard of less than 12 months for the initial contract term, 
with renewals or extensions permitted for a maximum duration of up to 
36 months under a policy, and with the notice set forth in the final 
rule, is the appropriate federal standard for the reasons stated 
earlier, and must be applicable as soon as possible. Therefore, this 
final rule provides that the new definition of short-term, limited-
duration insurance applies to insurance policies sold on or after 
October 2, 2018. This effective and applicability date, which is 60 
days after the date this final rule was published in the Federal 
Register, is the effective and applicability date that was proposed in 
the proposed rule. The Departments realize that some states may wish to 
retain the less-than-3-month duration standard that was set forth in 
the October 2016 final rule, or some other standard that is narrower 
than the federal definition but for whom it might be difficult to enact 
legislation, or promulgate a regulation before the final rules goes 
into effect. Thus, the Departments reiterate that included in states' 
ability and authority to define and regulate short-term, limited-
duration insurance, is the ability and authority to define and regulate 
such coverage in such a way as to impose a shorter (but not longer) 
maximum initial contract term and a shorter (but not longer) maximum 
duration for a policy than those included in this final rule. In 
addition, issuers of short-term, limited-duration insurance must comply 
with the notice requirement in this final rule, with respect to 
policies sold on or after October 2, 2018, with states having 
flexibility to require additional disclosures.
    Group health plans, to the extent they must distinguish between 
short-term, limited-duration insurance and individual health insurance 
coverage for purposes of the federal requirements under the PHS Act, 
may apply the definition of short-term, limited-duration insurance 
contained in the final rule, as of October 2, 2018. The Departments 
believe this approach might substantially reduce burden for group 
health plan sponsors, particularly sponsors of large group health plans 
that operate in multiple states, as the Departments believe it could be 
burdensome for sponsors of such plans to have to familiarize themselves 
with the definition of short-term, limited-duration insurance that 
applies in each state in which the group health plan operates. However, 
to the extent an insurance contract is subject to state law that 
requires short-term, limited-duration insurance to have a maximum

[[Page 38227]]

initial contract term and/or total duration of coverage that is shorter 
than the maximum periods under the definition of short-term, limited 
insurance in this final rule, and that requires the notice specified in 
that definition, a plan or a health insurance issuer may, or, if 
permitted or required by applicable state insurance law, must, as 
applicable, determine whether a given insurance contract is individual 
health insurance coverage or is short-term, limited-duration insurance 
by applying that state law to the coverage.
    The Departments received no comments on the proposed conforming 
amendments and technical updates with respect to the applicability 
date, and are finalizing them in this final rule.

III. Economic Impact and Paperwork Burden

A. Summary

    This rule amends the definition of short-term, limited-duration 
insurance coverage so that the coverage has a maximum initial contract 
term of less than 12 months and a maximum duration (including the 
initial contract term and renewals and extensions of the same insurance 
contract) of no longer than 36 months. The final rule also requires a 
notice be included in the contract and any application materials 
provided in connection with enrollment in such coverage.
    The Departments have examined the effects of this rule as required 
by Executive Order 13563 (76 FR 3821, January 18, 2011, Improving 
Regulation and Regulatory Review), Executive Order 12866 (58 FR 51735, 
September 30, 1993, Regulatory Planning and Review), the Regulatory 
Flexibility Act (September 19, 1980, Pub. L. 96-354), section 1102(b) 
of the Social Security Act, section 202 of the Unfunded Mandates Reform 
Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), the Congressional Review Act (5 U.S.C. 
804(2)) and Executive Order 13771 (January 30, 2017, Reducing 
Regulation and Controlling Regulatory Costs).

B. Executive Orders 12866 and 13563

    Executive Order 12866 (58 FR 51735) directs agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 (76 FR 3821, January 21, 2011) is supplemental to and 
reaffirms the principles, structures, and definitions governing 
regulatory review as established in Executive Order 12866.
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a rule: 
(1) Having an annual effect on the economy of $100 million or more in 
any 1 year, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order.
    A regulatory impact analysis must be prepared for major rules with 
economically significant effects (for example, $100 million or more in 
any 1 year), and a ``significant'' regulatory action is subject to 
review by the Office of Management and Budget (OMB). The Departments 
anticipate that this regulatory action is likely to have economic 
impacts of $100 million or more in at least 1 year, and therefore meets 
the definition of a ``significant rule'' under Executive Order 12866. 
Therefore, the Departments have provided an assessment of the potential 
costs, benefits, and transfers associated with this final rule. In 
accordance with the provisions of Executive Order 12866, this final 
rule was reviewed by OMB.
1. Need for Regulatory Action
    This rule contains amendments to the definition of short-term, 
limited-duration insurance for purposes of the exclusion from the 
definition of individual health insurance coverage under the PHS Act. 
This regulatory action is taken in light of Executive Order 13813 
directing the Departments to consider proposing regulations or revising 
guidance to expand the availability of short-term, limited-duration 
insurance, as well as continued feedback from stakeholders expressing 
concerns about the October 2016 final rule. While individuals who 
qualify for PTCs are largely insulated from significant premium 
increases, individuals who are not eligible for subsidies are harmed by 
increased premiums in the individual market and the lack of other, more 
affordable, alternative coverage options. This final rule aims to 
increase insurance options for individuals unable or unwilling to 
purchase available individual market plans and provide more flexibility 
to states to pursue innovative solutions to meet their market-specific 
needs.
2. Summary of Impacts
    In accordance with OMB Circular A-4, Table 1 depicts an accounting 
statement summarizing the Departments' assessment of the benefits, 
costs, and transfers associated with this regulatory action. The 
Departments believe the need for coverage options that are more 
affordable than individual health insurance coverage is critical, 
combined with the general need for more coverage options and choice. 
Therefore, the Departments believe that the benefits associated with 
this rule outweigh the costs.

                        Table 1--Accounting Table
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
                                Benefits:
------------------------------------------------------------------------
Qualitative:
     Increased access to affordable health insurance for
     consumers unable or unwilling to purchase available individual
     market plans, potentially decreasing the number of uninsured
     individuals and resulting in improved health outcomes for these
     individuals.
     Increased choice at lower cost and increased financial
     protection (for consumers who are currently uninsured or face
     extremely high premiums and deductibles for PPACA coverage) from
     catastrophic health care expenses for consumers purchasing short-
     term, limited-duration insurance.
     Potentially broader access to health care providers
     compared to available individual market plans for some consumers.
     Increased profits for issuers and brokers of short-term,
     limited-duration insurance.
     Economic efficiency gains from people buying unsubsidized
     coverage and minimizing overinsurance.
------------------------------------------------------------------------

[[Page 38228]]

 
                                 Costs:
------------------------------------------------------------------------
Qualitative:
     Reduced access to some services and providers for some
     consumers who switch from available individual market plans and
     possibly reduced choice for individuals remaining in the individual
     market risk pools.
     Potential increase in out-of-pocket costs for some
     consumers, possibly leading to financial hardship.
------------------------------------------------------------------------
                               Transfers:
 
 
------------------------------------------------------------------------

    qdrt]Short-term, limited-duration insurance represents a small 
fraction of the health insurance market. Based on data from the NAIC, 
in 2016, before the October 2016 final rule became effective, total 
premiums earned for policies designated short-term, limited-duration by 
carriers were approximately $146 million for approximately 1,279,500 
member months and with approximately 160,600 covered lives at the end 
of the year. During the same period, total premiums for individual 
market (comprehensive major medical) coverage were approximately $63.25 
billion for approximately 175,689,900 member months with approximately 
13.6 million covered lives at the end of the year.\48\ One commenter 
stated, however, that the actual enrollment in short-term, limited-
duration insurance was close to 500,000 covered lives in December 2016, 
once association based sales were taken into account. Another commenter 
cited a report \49\ stating that enrollment in such coverage may be 
closer to one million. Based on data from the NAIC, in 2017, total 
premiums earned for policies designated short-term, limited-duration by 
carriers were approximately $151 million for approximately 1,053,082 
member months and with approximately 122,483 covered lives at the end 
of the year.\50\ While sales of short-term, limited-duration insurance 
declined after the October 2016 final rule was finalized, the sales of 
such coverage were increasing prior to the issuance of that rule. In 
part because under the October 2016 rule short-term, limited-duration 
plans may be offered only for periods of less than three months, fixed 
administrative costs for issuers, including underwriting, are likely to 
be high relative to premiums. In addition, the transactions costs of 
obtaining plans are high for consumers, relative to benefits claimed. 
Allowing plans to be sold for a longer period of time is expected to 
reduce these costs, making short-term, limited-duration plans more 
attractive for issuers and consumers. Given this and the trend we 
observed prior to issuance of the October 2016 rule, the Departments 
expect more issuers to offer a greater variety of short-term, limited-
duration plans, and more consumers to purchase such plans, as a result 
of this rule.\51\
---------------------------------------------------------------------------

    \48\ National Association of Insurance Commissioners, ``2016 
Accident and Health Policy Experience Report'', July 2017. Available 
at https://www.naic.org/prod_serv/AHP-LR-17.pdf.
    \49\ Reed Abelson, ``Without Obamacare Mandate, `You Open the 
Floodgates' for Skimpy Health Plans'', the New York Times, November 
30, 2017. Available at https://www.nytimes.com/2017/11/30/health/health-insurance-obamacare-mandate.html.
    \50\ National Association of Insurance Commissioners, ``2017 
Accident and Health Policy Report'', July 2018. Available at https://naic.org/prod_serv/AHP-LR-18.pdf.
    \51\ Other analysts also expect issuers to offer a greater 
variety of short-term limited-duration plans as a result of this 
rule. See Congressional Budget Office, ``Federal Subsidies for 
Health Insurance Coverage for People Under Age 65: 2018 to 2028,'' 
May 23, 2018. Available at https://cbo.gov/publication/53826.
---------------------------------------------------------------------------

a. Benefits
    This rule will benefit individuals who have been harmed by the 
increasing premiums, deductibles and cost-sharing associated with 
individual market plans and by limited choices. This rule empowers 
consumers to purchase the benefits they want and reduce overinsurance. 
Short-term, limited-duration insurance is likely to represent more 
efficient amounts of coverage since it lacks distortionary price 
controls and regulation that can greatly separate price from value and 
lead some people to overinsure and others to underinsure.
    Lengthening the term of short-term, limited-duration plans will 
help reduce the fraction of the population that is uninsured by giving 
the uninsured a greater variety of plan choices. Similarly this rule 
also offers additional choice to persons who would otherwise be limited 
to the products offered on their local Exchange. By reducing the per-
month transactions and administrative costs on such plans, this rule 
confers an economic benefit to its members because the insurance market 
passes on some or all of the cost savings as premium savings. This rule 
also helps the economic burden of PPACA to be shared more equitably by 
shifting some of the premium costs to general revenue from individual-
market customers who are induced to purchase short-term, limited-
duration plans rather than Exchange plans.
    Consumers who purchase short-term, limited-duration insurance for 
longer periods than currently permitted will benefit from increased 
insurance options at lower premiums, as the average monthly premium for 
an individual in the fourth quarter of 2016 for a short-term, limited-
duration policy was approximately $124 compared to $393 for an 
unsubsidized individual market plan--a premium savings of 70 
percent.\52\ This disparity may be wider given that unsubsidized 
premiums significantly increased from 2016 to 2018. A recent study 
concluded that the least expensive short-term, limited-duration 
insurance policy often costs 20 percent or less of the premium for the 
lowest-cost individual market bronze plan in the area.\53\ While there 
is a significant difference in the premiums for short-term, limited-
duration

[[Page 38229]]

insurance and unsubsidized individual market plans, individuals 
qualifying for PTCs may not find the difference in premiums as 
appealing, as the difference in their out-of-pocket premium costs is 
likely relatively small. A recent study estimated that in 2016 the 
consumer portion of the premium, after the tax credit, for a 40 year 
old non-smoker making $30,000 per year ranged from $163 to $206 per 
month in most of the country.\54\ However, the premium cost for a 40 
year old non-smoker making $30,000, before accounting for any tax 
credit, ranged from $183 to $719 per month depending on location.\55\ 
This rule will provide an affordable alternative to individuals who do 
not qualify for PTCs and have been harmed by rising premiums in the 
individual market. This final rule will also benefit individuals who 
need coverage for longer periods, such as those who need more than 3 
months to find new employment, or who find available individual market 
plans to be unaffordable. Individuals who purchase short-term, limited-
duration insurance as opposed to being uninsured will potentially 
experience improved health outcomes and have greater financial 
protection from catastrophic health care expenses. Individuals 
purchasing short-term, limited-duration policies may obtain broader 
access to health care providers compared to what they would obtain 
through individual market plans that have narrow provider networks.\56\
---------------------------------------------------------------------------

    \52\ Michelle Andrews, ``Sales Of Short-Term Insurance Plans 
Could Surge If Health Law Is Relaxed'', NPR, January 31, 2017. 
Available at https://www.npr.org/sections/health-shots/2017/01/31/512518502/sales-of-short-term-insurance-plans-could-surge-if-health-law-is-relaxed.
    \53\ Karen Pollitz, Michelle Long, Ashley Semanskee, and Rabah 
Kamal, ``Understanding Short-Term Limited Duration Health 
Insurance'', Kaiser Family Foundation, April 23, 2018. Available at 
https://www.kff.org/health-reform/issue-brief/understanding-short-term-limited-duration-health-insurance/.
    \54\ Cynthia Cox, Selena Gonzales, Rabah Kamal, Gary Claxton and 
Larry Levitt, ``Analysis of 2016 Premium Changes in the Affordable 
Care Act's Health Insurance Marketplaces'', Kaiser Family 
Foundation, October 26, 2015. Available at https://www.kff.org/health-reform/fact-sheet/analysis-of-2016-premium-changes-in-the-affordable-care-acts-health-insurance-marketplaces/.
    \55\ Id.
    \56\ Anna Wilde Mathews, ``Sales of Short-Term Health Policies 
Surge: Some consumers opt for limited coverage, saying it is cheaper 
than conventional plans'', Wall Street Journal, April 10, 2016. 
Available at https://www.wsj.com/articles/sales-of-short-term-health-policies-surge-1460328539. The ability of short-term, 
limited-duration plans to provide broad provider networks has been 
touted by some in the insurance community.
---------------------------------------------------------------------------

    Issuers of short-term, limited-duration insurance will benefit from 
higher enrollment. They are likely to experience an increase in premium 
revenues and profits because such policies can be priced in an 
actuarially fair manner (by which the Departments mean the policies are 
priced so that the premium paid by an individual reflects the risks 
associated with insuring the particular individual or individuals 
covered by that policy) and issuers have experience pricing in this 
manner. In addition, the fixed costs of issuing plans will be reduced 
relative to premiums as issuers will not need to reissue plans every 3 
months in order to cover consumers for a year or more.
    In response to the Departments' request for comments on the 
benefits of having short-term, limited-duration insurance, many 
commenters stated that short-term, limited-duration insurance has 
served a critical role in providing temporary limited health coverage 
to individuals who would otherwise go uninsured. Some commenters also 
stated that the proposed changes would allow potential purchasers of 
short-term, limited-duration insurance, especially those who find 
individual market plans to be unaffordable, to obtain the coverage they 
want (and exclude services they do not want) at a more affordable price 
for a longer period of time. Other benefits commenters stated would 
flow from extending the maximum duration for short-term, limited-
duration insurance include the facts that deductibles will not be reset 
every 3 months and that health conditions that develop during this 
coverage period will continue to be covered for a longer period of 
time. Commenters also stated that increasing the length of coverage 
would expand access to affordable coverage options for those who 
otherwise would lose coverage and could not pass underwriting and would 
not qualify for a special enrollment period because they would not be 
forced to go without coverage until the next open enrollment period. 
One commenter cited Bureau of Labor Statistics data that the average 
length of unemployment in the United States (U.S.) is 24.1 weeks, or 
about 5.5 months, as of March 2018; further stating that in 20.3 
percent of cases the period of unemployment lasts 27 weeks or more, 
which means that 6 months is often not long enough to secure gainful 
employment.\57\ Therefore, limiting the duration of short-term, 
limited-duration insurance policies to 3 months, or even 6 months, 
harms those Americans who find themselves unemployed for the average 
length of time or longer.
---------------------------------------------------------------------------

    \57\ The Departments note that the average duration of 
unemployment as reported by the Bureau of Labor Statistics is an 
arithmetic mean based on observed incomplete spells of unemployment. 
The actual average duration of completed spells of unemployment 
could be longer or shorter.
---------------------------------------------------------------------------

    The Departments agree with the commenters that increasing the 
maximum duration of a short-term, limited-duration insurance policy 
will benefit consumers who have been most harmed by PPACA (for example, 
those who cannot afford or do not want individual health insurance 
coverage) or who want to purchase such coverage for longer than 3 
months; it also will provide states with additional flexibility to 
pursue innovative approaches to expand access to coverage options in 
addition to individual health insurance coverage. The final rule 
increases the maximum duration of the initial contract term, under the 
federal definition, to less than 12 months and permits such policies to 
be renewed or extended such that the maximum duration of a policy, 
including the initial contract term specified in the contract and 
renewals and extensions, is no longer than 36 months.
    One commenter asserted that short-term, limited-duration insurance 
plans typically provide coverage for all major benefits such as: Doctor 
and specialist visits, preventive/wellness care, emergency care, x-
rays, lab tests, transplants, intensive care, and hospitalization. In 
addition, the commenter noted, short-term, limited-duration insurance 
policies can include benefits for mental health disorders, substance 
abuse, physical therapy, speech therapy, home health care, ambulance, 
and other covered medical expenses. The commenter also claimed that 
these policies generally provide coverage for prescription drugs that 
are administered by a doctor in a setting covered by the policy and 
there is typically outpatient prescription coverage for drugs that 
require a written prescription and are necessary to treat a condition 
covered by the policy.
    One commenter stated that a key feature of typical short-term, 
limited-duration insurance is that the plan benefits are paid for 
covered expenses incurred from any provider in the U.S. and there is no 
referral required if a member would like to see a specialist. According 
to the commenter, members have the added benefit of receiving 
discounted network rates if they choose to use an in-network provider.
    The Departments agree that short-term, limited-duration insurance 
could be a desirable and affordable option for many consumers. The 
Departments are therefore finalizing a definition in this final rule to 
remove federal barriers that inhibit consumer access to additional, 
more affordable coverage options while, at the same time, 
distinguishing it from individual market health insurance coverage. 
States remain free to regulate these products as set forth elsewhere in 
this final rule.
    Some commenters stated that the potential risks of high copayments 
and severely limited health coverage associated with short-term, 
limited-duration insurance significantly outweigh the cost savings from 
enrollment in such plans. A commenter

[[Page 38230]]

stated that the analysis in the proposed rule does not sufficiently 
explain how the benefits of expanding short-term, limited-duration 
insurance could possibly outweigh the disruption and consumer harm 
caused by the proposed changes.
    Some commenters stated that some of the benefits are 
mischaracterized; for example, people with short-term, limited-duration 
insurance don't have broader access to health care providers, when many 
benefits and health conditions are entirely excluded from short-term, 
limited-duration plans. Commenters suggested that other purported 
benefits of the proposed rule (such as lower premiums for some 
healthier people) would be erased by its harmful impacts (higher 
premiums in the individual market as a whole).
    One commenter stated that potential increases in access to health 
care and choice are ``illusory''. The commenter provided an example 
where an issuer of short-term, limited-duration insurance claims not to 
restrict enrollees to a network, but in reality pays claims up to a 
fixed percentage of Medicare reimbursement rates, leaving enrollees 
responsible for any amounts above that threshold. The commenter 
explained that this essentially is equivalent to being enrolled in a 
PPO plan with an empty network that leaves enrollees faced with high 
out-of-pocket expenses after receiving care.
    With regard to the claim that short-term, limited-duration 
insurance can offer broader network coverage, a commenter expressed 
concerns that the Departments relied on promotional material provided 
by an issuer. Another commenter stated that the coverage may have a 
very limited network of providers and may not provide any coverage for 
out-of-network providers, while others stated that the exclusion of 
services effectively limits the actual networks by excluding providers, 
and this could particularly affect rural areas.
    One commenter stated that while premiums for short-term, limited-
duration insurance policies will likely be lower relative to individual 
market plans, using premiums as the sole measure of a benefit to 
consumers provides an incomplete analysis. This commenter noted that 
short-term, limited-duration insurance policies fail to provide 
comprehensive coverage and thus expose consumers who have a serious 
medical condition, such as cancer, to significant out-of-pocket costs. 
The commenter also suggested that the analysis fails to take into 
account that due to underwriting, premiums for short-term, limited-
duration insurance policies can expose even relatively healthy older 
individuals to significant premiums, and could also result in 
individuals with preexisting conditions being denied coverage or 
charged significantly higher premiums due to their health conditions.
    A few commenters stated that short-term, limited-duration insurance 
plans should also not be compared with being uninsured, rather they 
should be compared to individual market plans. Many commenters stated 
that the Departments should look at the benefits to all consumers and 
not just young and healthy individuals.
    This rule will benefit individuals who have been harmed by the 
increasing premiums, deductibles and cost sharing associated with 
individual market plans and limited choices--both in terms of coverage 
options and in terms of narrowing provider networks. The Departments' 
judgment is that individuals are in the best position to evaluate the 
tradeoffs between the benefits and costs of various coverage 
alternatives. This rule empowers consumers to make decisions on the 
benefits they want and reduce the potential for overinsurance and 
underinsurance while expanding access to more affordable coverage 
options. As acknowledged previously, short-term, limited-duration 
insurance may not be the most suitable coverage for everyone. 
Individuals who desire comprehensive coverage subject to PPACA rules 
will continue to have the option of purchasing individual market health 
insurance coverage on a guaranteed available and guaranteed renewal 
basis. Also, individuals who receive PTCs generally will not experience 
an increase in out-of-pocket costs for premiums if they continue to 
purchase Exchange coverage. However, this final rule provides another 
choice in addition to individual health insurance coverage for 
consumers to consider, based on their own personal circumstances and 
needs. In many cases, short-term, limited-duration insurance will 
provide a more desirable option for individuals, especially those who 
would otherwise be uninsured, those not eligible for PTCs, those who 
have lost their employment and are unable to afford individual market 
coverage, and those with objections to purchasing coverage of certain 
services or products that are mandated to be covered by PPACA. In that 
regard, the Departments believe it is appropriate to compare having 
short-term, limited-duration insurance to both being uninsured as well 
as having individual health insurance coverage. Uninsured individuals 
who purchase short-term, limited-duration insurance will experience an 
increase in financial protection and may gain greater access to certain 
health care providers. Moreover, individual market plan networks may 
also be quite restrictive, and short-term, limited-duration plan 
networks may very well cover a broader array of providers. For most 
individuals who switch to short-term, limited-duration insurance from 
individual market plans, lower premiums will provide the biggest 
benefit. Short-term, limited-duration insurance may also provide 
consumers with benefits that are more tailored to their individual or 
familial needs or circumstances. Commenters have valid concerns about 
the potential for misleading information about provider networks, which 
can also be a concern with individual market plans,\58\ and we 
generally defer to the states to address such concerns as part of their 
regulation and oversight of health insurance.
---------------------------------------------------------------------------

    \58\ Chad Terhune, ``Top insurers overstated doctor networks, 
California regulators charge'', Los Angeles Times, November 18, 
2014. Available at https://www.latimes.com/business/la-fi-obamacare-network-probe-20141119-story.html.
---------------------------------------------------------------------------

    Many commenters stated that issuers and brokers will receive higher 
profits and commissions for these plans, as issuers have made moves to 
reduce broker commissions for individual market plans. One commenter 
mentioned that according to available data from the NAIC, in 2015 the 
industry-wide average MLR for ``Short-Term Medical'' was 69.76 percent, 
with smaller companies falling below 50 percent MLR for the vast 
majority of the total market share. The commenter stated that health 
insurance products with an MLR at or below 50 percent raise a red flag 
because when a majority of the company's revenue is not spent on 
medical services, consumer health becomes a secondary part of its 
business.
    The Departments acknowledge that issuers and brokers of short-term, 
limited-duration insurance will benefit from the changes finalized in 
this rule to varying degrees depending on state regulations of short-
term, limited-duration insurance. Short-term, limited duration 
insurance is not subject to the federal MLR standards under section 
2718 of the PHS Act and this final rule does not establish a federal 
MLR threshold for short-term, limited-duration insurance. There is also 
a large variation in the reported MLR for short-term, limited-duration 
insurance. Average MLR for short-term, limited-duration coverage was 
approximately 67 percent in 2016.\59\ For the top 10 issuers

[[Page 38231]]

that accounted for almost 94 percent of the national short-term, 
limited-duration insurance market their MLRs ranged from 47.46 percent 
to 219.61 percent in 2016.\60\ MLR may be of limited utility in 
evaluating the efficiency of insurance coverage and may result in 
higher medical costs and premiums, less innovation in plan design, less 
consumer choice, and increased market concentration.\61\ As previously 
mentioned, the majority of short-term, limited-duration insurance 
policies were sold as transitional coverage in 2016, and the duration 
of such policies typically was less than 3 months. Increased 
administrative costs due to underwriting and the short duration may 
also explain the lower-end reported MLRs for short-term, limited-
duration insurance policies in 2016. As the short-term, limited-
duration insurance market grows, the Departments anticipate that in the 
long term more issuers will sell such coverage, increasing competition 
and limiting excessive profits.
---------------------------------------------------------------------------

    \59\ National Association of Insurance Commissioners, ``2016 
Accident and Health Policy Experience Report'', July 2017. Available 
at https://www.naic.org/prod_serv/AHP-LR-17.pdf.
    \60\ Id.
    \61\ Scott E. Harrington, ``Medical Loss Ratio Regulation under 
the Affordable Care Act'', Inquiry, 2013. Available at https://www.jstor.org/stable/23480894.
---------------------------------------------------------------------------

b. Costs and Transfers
    Short-term, limited-duration insurance policies are unlikely to 
include all the requirements applicable to individual market plans, 
such as the preexisting condition exclusion prohibition, coverage of 
essential health benefits without annual or lifetime dollar limits, 
preventive care, maternity and prescription drug coverage, rating 
restrictions, and guaranteed renewability. Therefore, consumers who 
switch to such policies from individual market plans will experience 
loss of third-party payments for some services and providers and 
potentially an increase in out-of-pocket expenditures related to such 
excluded services, as well as an exclusion of benefits that in many 
cases consumers do not believe are worth their cost (which could be one 
reason why many consumers, possibly even those receiving subsidies for 
Exchange plans, may switch to short-term, limited-duration policies 
rather than remain in individual market plans). Depending on state 
regulation, issuer plan design, and whether consumers decline to 
purchase a separate renewal guarantee product, consumers who purchase 
short-term, limited-duration insurance policies and then develop 
chronic conditions may face financial hardship as a result, until they 
are able to enroll in individual market plans that will provide 
coverage for such conditions.
    Since short-term, limited-duration insurance is not MEC, any 
individual enrolled in short-term, limited-duration coverage that lasts 
3 months or longer in 2018 will potentially incur a tax liability for 
not having MEC during that year. Starting in 2019, the individual 
shared responsibility payment included in section 5000A of the Code is 
reduced to $0, as provided under Public Law 115-97, and thus no tax 
liability could accrue in that year and thereafter for not having MEC. 
However, the tax liability is not the sole consequence of not having 
MEC. Because short-term, limited-duration insurance does not qualify as 
MEC, those individuals who lose coverage in these plans may not qualify 
for a special enrollment period in the individual market and may face a 
period of time in which they have no medical coverage, and this will 
continue to be the case even after 2018. Purchasing a renewal 
guarantee, however, may eliminate the need for a special enrollment 
period.
    The Departments requested and received many comments on the 
potential costs of the proposed changes. Many commenters pointed out 
the possible negative impacts and costs associated with the proposed 
changes, especially the effect on consumers' out-of-pocket costs. Many 
commenters stated that consumers considering purchasing short-term, 
limited-duration insurance policies are unlikely to know the 
limitations of the policies and the non-applicability of the numerous 
PPACA consumer protections to these policies. Many commenters also 
stated that the comprehensiveness of items and services covered by 
short-term, limited-duration insurance coverage can be misleading; 
individuals who are expected to need expensive services because of 
preexisting conditions would likely either have services for those 
conditions excluded from coverage or be denied coverage altogether. 
Thus, consumer expectations for short-term, limited-duration insurance 
policies may be significantly different from the realities of these 
policies. Commenters are concerned that the differences between short-
term, limited-duration insurance policies and plans offered in 
individual and group markets may not be clear to consumers. As a result 
they may be exposed to excessive out-of-pocket costs.
    This final rule requires issuers to provide a notice in application 
materials and the contract to alert consumers to the potential 
limitations of short-term, limited-duration insurance. States also have 
the flexibility to mandate the disclosure of additional information. 
This will help inform consumers about the limitations of short-term, 
limited-duration insurance and their choice of the coverage that best 
suit their needs. The notice language in the final rule provides more 
detail on the potential limitations of short-term, limited-duration 
insurance coverage than what was in the proposed rule to support 
informed coverage purchasing decisions by consumers, while those who 
are concerned about potential excessive out-of-pocket costs will 
continue to have the option to purchase individual market coverage that 
includes PPACA requirements.
    Many commenters noted that short-term, limited-duration insurance 
often lacks consumer safeguards, generally excludes coverage for 
preexisting conditions, does not provide coverage for essential health 
benefits, often applies high deductibles and cost-sharing requirements, 
has lifetime and annual dollar caps on reimbursement for medical 
expenses, has no maximum limits on out-of-pocket costs, may be 
rescinded, and is generally available only for healthy consumers. As a 
result, consumers who purchase short-term, limited-duration insurance 
can experience significant financial hardship, especially if they 
require access to health care services not covered by their plan. These 
commenters noted that this is particularly problematic for people who 
have chronic or life-threatening conditions that require costly 
treatment, close monitoring and ongoing medication.
    Commenters also stated that the potential risks of unreasonable 
copayments and severely limited health coverage associated with short-
term, limited-duration insurance significantly outweigh the cost 
savings from enrollment in such plans. For example, according to one 
commenter, out-of-pocket costs for short-term, limited-duration 
insurance policies may be excessive in many markets: In Phoenix, AZ, 
the out-of-pocket cost-sharing limit for a 40-year-old male can be as 
high as $30,000 for a 3-month period. While another commenter pointed 
out that in Georgia, a plan had a 3-month out-of-pocket limit of 
$10,000, but did not include the deductible of $10,000, resulting in an 
effective 3-month out-of-pocket maximum of $20,000.
    Some commenters are concerned about the lack of network adequacy 
requirements for short-term, limited-duration insurance. One commenter 
expressed concern that misleading claims related to provider networks

[[Page 38232]]

could result in consumers purchasing plans later finding that the 
provider networks may be non-existent in their specific market, as 
short-term, limited-duration plans are not subject to the network 
adequacy protections, leading to higher out-of-pocket costs.
    Many commenters stated that these policies could subject patients 
to catastrophic medical bills and medical bankruptcy. For example, 
short-term, limited-duration insurance enrollees suffering acute health 
emergencies, debilitating injuries that lead to permanent disabilities, 
or the onset of chronic conditions could end up facing financial 
hardship until they can enroll in an individual (or group) market plan 
that provides the coverage they need. Many commenters shared their past 
experience with short-term, limited-duration insurance (as well as pre-
PPACA individual market coverage) and provided numerous examples of how 
annual and lifetime dollar limits resulted in consumers being left 
responsible for large medical bills and high out-of-pocket costs and 
concluded that short-term, limited-duration insurance is not really an 
affordable alternative to available individual market plans. Many 
commenters stated that the proposed changes would reduce access to 
maternity care, treatment for illnesses such as cancer, cystic 
fibrosis, multiple sclerosis, arthritis, eating disorders, visions and 
hearing loss and mental health and substance use disorders. Many 
commenters shared personal stories of struggles with illnesses such as 
cancer and the financial and emotional toll of such illnesses. These 
commenters expressed deep fears that as a result of this rule, they 
would lose coverage because issuers would stop offering individual 
market plans or because those plans would become too expensive. These 
commenters expressed fear of becoming bankrupt and losing their lives 
because of reduced access to the necessary health care.
    Commenters expressed concern that this would reverse the health 
coverage gains over the last few years, especially in minority 
communities and amongst women. One commenter stated that the design of 
short-term, limited-duration insurance in the proposed rule will 
discourage the pursuit of preventive services, so the public health 
will suffer.
    This rule will benefit individuals who have been harmed by the 
increasing premiums, deductibles, and cost-sharing associated with 
individual market plans and by limited choices. Individual market 
premiums increased 105 percent from 2013 to 2017, in the 39 states 
using Healthcare.gov in 2017,\62\ while the average monthly premium for 
the second-lowest cost silver plan for a 27-year-old increased by 37 
percent from 2017 to 2018.\63\ Individual market plans will continue to 
be available to individual consumers on a guaranteed availability basis 
and many individuals will have the opportunity to purchase the type of 
coverage that is most desirable and suitable for them and their 
families' health care and budget needs, unless states take actions to 
restrict the short-term, limited-duration market. Also, individuals who 
receive PTCs generally will not experience an increase in out-of-pocket 
costs for premiums. However, consumer expectations for individual 
market plans have often not been met due to high deductibles,\64\ and 
short-term, limited-duration insurance provides an additional choice 
for individuals to consider, based on their own personal circumstances. 
In addition to dramatically higher premiums, high out-of-pocket costs 
have harmed many individual market plan enrollees, with deductibles 
that average nearly $6,000 a year for bronze single coverage and more 
than $12,000 a year for bronze family coverage in 2018 as well as more 
than $4,000 a year for silver single coverage and more than $8,000 a 
year for silver family coverage in 2018.\65\ In addition, out-of-pocket 
maximums for individual market plans are only applicable to in-network 
care and thus actual out-of-pocket costs may be much higher for 
individuals who need to obtain care out of network. High deductibles 
may also be a deterrent to obtaining care for some individuals. In some 
cases, short-term, limited-duration insurance will provide a more 
desirable option for individuals and may be the only affordable 
alternative to being uninsured. To help consumers make informed 
coverage decisions, issuers of short-term, limited-duration insurance 
are required under this final rule to provide a notice to alert 
consumers to the potential limitations of the coverage. The 
Departments' judgment is that individuals are in the best position to 
evaluate the tradeoffs between lower premiums and limitations of short-
term, limited-duration insurance. This rule empowers consumers to make 
decisions on the benefits they want and to reduce potential 
overinsurance and underinsurance. As discussed below, rather than 
increase the number of individuals who are uninsured the total number 
of individuals purchasing either individual market or short-term, 
limited-duration insurance coverage is expected to increase, perhaps 
significantly. Uninsured individuals who purchase short-term, limited-
duration insurance will experience an increase in financial protection 
and potentially an increase in access to health care. As previously 
mentioned, individual market plan networks may also be quite 
restrictive, and short-term, limited-duration plan networks may very 
well cover a broader or superior set of providers. State regulators 
have also taken compliance action against misleading claims regarding 
benefits and provider networks, which should act as a disincentive to 
such practices. In response to the concern raised regarding bankruptcy, 
the rule makes clear that individuals are free to purchase separate 
products that may provide protection against the possibility of getting 
sick in the future and facing higher premiums as a result.
---------------------------------------------------------------------------

    \62\ ASPE ``Data Point--Individual Market Premium Changes: 2013-
2017'', May 23, 2017. Available at https://aspe.hhs.gov/system/files/pdf/256751/IndividualMarketPremiumChanges.pdf.
    \63\ ASPE ``Health Plan Choice and Premiums in the 2018 Federal 
Health Insurance Exchange'', October 30, 2017. Available at https://aspe.hhs.gov/pdf-report/health-plan-choice-and-premiums-2018-federal-health-insurance-exchange.
    \64\ Robert Pear, ``Many Say High Deductibles Make Their Health 
Law Insurance All but Useless'', The New York Times, November 14, 
2015. Available at https://www.nytimes.com/2015/11/15/us/politics/many-say-high-deductibles-make-their-health-law-insurance-all-but-useless.html.
    \65\ HealthPocket, ``Average Market Premiums Spike Across 
Obamacare Plans in 2018'', October 27, 2017. Available at https://www.healthpocket.com/healthcare-research/infostat/2018-obamacare-premiums-deductibles.
---------------------------------------------------------------------------

    A few commenters also mentioned the potential increase in 
uncompensated care and the financial burdens that the increased use of 
short-term, limited-duration insurance could place on hospitals. 
Commenters stated that the proposed changes could have a devastating 
impact on hospital emergency rooms, since they are required to provide 
care regardless of coverage status or one's ability to pay. If more 
consumers enroll in short-term, limited-duration policies that do not 
cover treatments received in emergency departments, it will result in 
an increase in uncompensated care. In addition, the lack of coverage of 
essential health benefits may also lead to an increased reliance on 
emergency departments as consumers delay or do not seek primary care, 
exacerbating existing acute and chronic conditions. One commenter 
stated that this may also lead to increased boarding of mental health 
patients in emergency departments, where mental health patients 
presenting to an emergency department have an average stay of 18 hours, 
compared to an

[[Page 38233]]

average of only four hours for all emergency department patients.
    The Departments acknowledge that if a short-term, limited-duration 
insurance policy excludes treatment in hospital emergency rooms, there 
is the possibility that there could be increases in uncompensated care 
provided by hospitals. However, the Departments have no reason to 
believe that all short-term, limited-duration insurance policies will 
exclude such coverage. The Departments note that individuals enrolled 
in individual market plans also frequently experience unexpected high 
out-of-pocket costs due to balance billing (charges arising when an 
insured individual receives care from an out-of-network provider, the 
balance bill being the difference between the total charges incurred 
and what the issuer ultimately pays), when obtaining care at emergency 
departments and when treating providers are not part of in-network 
hospitals.\66\ Very few states have laws that protect consumers from 
this practice; 15 states offer limited balance billing protections, 
while only six provide comprehensive balance billing protections for 
consumers.\67\ In addition, for people who would otherwise have been 
uninsured and now purchase short-term, limited-duration insurance, the 
final rule will likely result in a decrease in uncompensated care. The 
Departments have no evidence that this rule will lead to increased 
emergency department boarding times for mental health patients in 
emergency departments.
---------------------------------------------------------------------------

    \66\ Karen Pollitz, ``Surprise Medical Bills'', Kaiser Family 
Foundation, March 17, 2016. Available at https://www.kff.org/private-insurance/issue-brief/surprise-medical-bills/.
    \67\ Kevin Lucia, Jack Hoadley, and Ashley Williams, ``Balance 
Billing by Health Care Providers: Assessing Consumer Protections 
Across States' '', The Commonwealth Fund, June 13, 2017. Available 
at: https://www.commonwealthfund.org/publications/issue-briefs/2017/jun/balance-billing-health-care-providers-assessing-consumer and 
Berta Alicia Bustamante, ``Most States Still Don't Have 
Comprehensive Balance Billing Legislation'', insideARM, October 3, 
2017. Available at: https://www.insidearm.com/news/00043325-most-states-still-dont-have-comprehensive/.
---------------------------------------------------------------------------

    A few commenters stated that short-term, limited-duration insurance 
coverage also poses a threat to the student health insurance market. 
Students may buy the cheaper, short-term, limited-duration insurance 
erroneously thinking that it is comprehensive coverage. Commenters 
believe that losses to this insurance pool would result in increased 
premiums for student health coverage for those students that choose or 
need to stay on their campus student health insurance plan and this 
could also place considerable stress on the institutions' student 
health and wellness departments.
    The Departments believe that all consumers, including but not 
limited to students, should have access to additional, more affordable 
coverage options. In fact, these policies may significantly benefit 
students since premiums for the young have risen most dramatically as a 
result of PPACA. However, since most educational institutions require 
students to obtain insurance through individual market plans or group 
coverage and often provide relatively inexpensive options to students, 
the Departments believe that losses to this insurance pool will be 
limited. As previously stated, the Departments believe that the notice, 
provided at the time of application and in the contract with the 
language specified in this final rule, will help consumers understand 
what they are purchasing. Consumers may also be able to obtain 
additional guidance and assistance from brokers and agents as well as 
additional plan documents in order to understand the products they seek 
to purchase. The Departments generally defer to the states' authority 
over agents and brokers licensed in their respective jurisdictions, 
including taking appropriate action in response to unfair or deceptive 
practices, which should act as a disincentive to such practices.
    Some commenters stated that the proposed changes would be harmful 
for solo entrepreneurs and small business employees by raising rates 
for individuals dependent on the individual market Exchanges, which is 
where many small business employees and solo entrepreneurs purchase 
health coverage. These commenters asserted that in order for employees 
of small businesses to be able to receive affordable coverage, 
individual market risk pools must be robust and well balanced.
    The Departments acknowledge that the changes finalized in this rule 
may lead to a small increase in premiums for individual market plans 
and possibly a reduction in net premiums for Exchange plans. The CMS 
Office of the Actuary (OACT) estimated that the average net premium 
paid by Exchange enrollees is expected to decline by 14 percent as a 
result of the rule.\68\ The Departments note, however, that other 
regulations, such as this rule and the recently finalized rule titled 
``Definition of ``Employer'' under Section 3(5) of ERISA--Association 
Health Plans'',\69\ issued by the Department of Labor, will increase 
access to other alternative, less expensive options for small 
businesses and solo entrepreneurs. Moreover, many small business 
employees and solo entrepreneurs stand to benefit from this rule. 
States also maintain flexibility under this final rule to pursue 
innovative strategies to strengthen and protect their respective risk 
pools.
---------------------------------------------------------------------------

    \68\ The net premium reduction is a result of unsubsidized and 
less-subsidized enrollees exiting the market, leaving the remaining 
population receiving more premium tax credit, on average. Net 
premiums for individual enrollees do not fall.
    \69\ 83 FR 28912.
---------------------------------------------------------------------------

    Some commenters stated that these changes could result in counties 
with no Exchange plans available, otherwise known as bare counties. 
Many commenters stated that these changes would increase the number of 
uninsured.
    The Departments acknowledge that due to the potential increase in 
risk segmentation, in which healthier individuals choose products 
outside the individual market may result in an individual market risk 
pool with higher medical expenses, it is possible that fewer issuers 
may offer plans in the individual market. However, the impact on issuer 
participation in the individual market will vary depending on a number 
of different factors, such as the unique demographic and other 
characteristics of a state's population, regulatory environment and 
insurance markets. Further, as a result of silver loading \70\ and 
dramatically higher premiums as well as pricing power from markets with 
limited competition from other issuers, issuers have begun to turn a 
profit in the individual market and some issuers are looking to enter 
the individual market. Further, many enrollees already had access to 
just one issuer for Exchange coverage. In addition, as discussed below, 
it is expected that the total number of individuals with some type of 
health insurance coverage will increase, perhaps significantly.
---------------------------------------------------------------------------

    \70\ Silver loading refers to issuers including the entire cost 
of un-funded cost sharing reduction (CSR) payments on silver metal 
tier plans which offer CSR plan variants, rather than spread the 
cost over all metal tier plans.
---------------------------------------------------------------------------

    In response to the request for comments on the value of excluded 
services to individuals who switch from individual market coverage to 
short-term, limited-duration coverage, one commenter expressed concern 
about the suggestion that consumers would be willing to switch from 
individual market plans that provide more robust coverage to short-
term, limited-duration insurance policies that provide less generous 
coverage because consumers do not believe the more generous benefits 
are worth the cost. The commenter stated that the Departments

[[Page 38234]]

have not offered any evidence to support such a suggestion and the 
commenter stated that recent polling indicates the opposite. The 
commenter referred to a poll \71\ where 84 percent of respondents in 
the individual market stated that they would prefer to stay with their 
current plan rather than enroll in short-term, limited-duration 
insurance coverage, when asked if they would like to enroll in coverage 
that was less generous but with a lower premium. The commenter was also 
concerned that consumers, when faced with cost concerns, new plan 
choices, non-transparent plan information, and a confusing enrollment 
process will not be able to tell whether they are enrolling in a 
comprehensive plan or not--and consequently will end up with far less 
coverage than they thought they had.
---------------------------------------------------------------------------

    \71\ Kaiser Family Foundation. Poll: ``Survey of the Non-Group 
Market Finds Most Say the Individual Mandate Was Not a Major Reason 
They Got Coverage in 2018, And Most Plan to Continue Buying 
Insurance Despite Recent Repeal of the Mandate Penalty'', April 3, 
2018. Available at https://www.kff.org/health-reform/press-release/poll-most-non-group-enrollees-plan-to-buy-insurance-despite-repeal-of-individual-mandate-penalty/.
---------------------------------------------------------------------------

    Many commenters stated that the negative consequences of short-
term, limited-duration insurance are not limited to individuals with 
preexisting conditions; even healthy individuals may be harmed by 
choosing cheaper, skimpier coverage. If individuals are unable to 
receive or pay for care solely on the basis of having a less 
comprehensive health plan, they may put off needed care, and may lose 
the ability to have cost-effective choice over their health care 
decisions. Many commenters also stated that enrollees in short-term, 
limited-duration insurance will face financial hardship if they have an 
accident or become sick and find out that these policies do not cover 
benefits such as prescription drugs or some surgeries and that the 
policies can deny claims that should have been covered or that the 
enrollees were lead to believe were covered.
    One commenter stated that individuals who want the services that 
are excluded in short-term, limited-duration insurance have the choice 
to buy individual market plans. If they cannot afford those policies, 
however, the commenter stated that they would not be able to get the 
excluded services in the first instance.
    One commenter suggested that the proposed changes fail to address 
(and will likely exacerbate) the most critical needs in the health care 
and health insurance markets to put downward pressure on the rapidly 
rising costs of health care in the U.S. and to spread risk across 
larger, more diverse populations. One commenter stated that the 
proposals would worsen the inequality between the low and moderate 
income populations in the individual insurance market.
    This rule makes no changes to the federal individual market 
requirements. The Departments acknowledge that individuals will be able 
to continue to purchase and renew individual market plans, instead of 
switching to short-term, limited-duration insurance. Of note, the 
turbulence of the first several years of the Exchanges with persistent 
issuer exit resulted in many individuals being unable to renew their 
individual market plans. Under this final rule, individuals who prefer 
less expensive coverage, or those that do not qualify for PTCs or 
otherwise find individual market coverage unattractive, will generally 
have greater flexibility to purchase short-term, limited-duration 
insurance and obtain coverage for services they want and exclude 
services they determine they do not need. The Departments believe that 
individuals reveal their preferences with their actions and consumers 
who switch to short-term, limited-duration insurance from individual 
market plans will do so because they do not value the individual market 
coverage at the cost. In addition, allowing people to purchase what 
they view as an efficient amount of coverage leads to less third-party 
payments, and third-party payments can drive up health care spending as 
consumers and producers are insensitive to price when third-party 
payers are paying the bill. Consumers can use their savings from lower 
premiums toward buying health care services when they are active, 
informed consumers, looking for the best possible deals.
    Because short-term, limited-duration insurance policies can, 
subject to state law, be priced in an actuarially fair manner (by which 
the Departments mean that is the policies are priced so that the 
premium paid by an individual reflects the risks associated with 
insuring the particular individual or individuals covered by that 
policy) individuals who purchase such coverage are likely to be 
relatively young or relatively healthy. Allowing such individuals to 
purchase a policy that does not comply with PPACA, but with an initial 
contract term of less than 12-months with renewals or extensions up to 
maximum duration of 36 months, may weaken states' individual market 
single risk pools. The degree to which individuals purchase separate 
renewal guarantee products will serve to strengthen individual market 
pools and could reduce Exchange premiums and spending--as at least one 
commenter pointed out. If the individual market deteriorates because of 
people choosing other types of coverage, individual market issuers 
could experience higher than expected costs of care and suffer 
financial losses, which might prompt them to leave the individual 
market. Although choices of plans available in the individual market 
have already been reduced to plans from a single issuer in roughly half 
of all counties, this final rule may further reduce choices for 
individuals remaining in those individual market single risk pools. 
However, as a result of silver loading and the tightening of special 
enrollment periods, some issuers, aware of the Association Health Plan 
rule and the short-term, limited-duration insurance proposals, have 
indicated they will expand their presence in the individual market next 
year.
Impact on Individual Market Risk Pool
    This final rule allows short-term, limited-duration insurance 
policies to be renewed or extended such that the maximum duration of a 
policy, including the initial term specified in the contract and 
renewals or extensions under the same insurance contract, is no longer 
than 36 months. Depending on state rating requirements, issuers of such 
coverage may be able to introduce new plans every year at low rates 
that only healthy individuals would be able to purchase, while imposing 
large renewal rate increases for less healthy enrollees in existing 
plans. This could lead to further worsening of the risk pool by keeping 
healthy individuals out of the individual market for longer periods of 
time, increasing premiums for individual market plans and may cause an 
increase in the number of individuals who are uninsured. Previous 
academic research on the pre-PPACA individual market suggests this is 
unlikely to happen, however, as premium increases generally reflect the 
entire pool's experience with less healthy individuals effectively 
subsidized by healthier individuals through market forces.\72\ This 
impact may be further mitigated by the degree that individuals purchase 
separate renewal guarantee products which may provide another mechanism 
for consumers to continue coverage under separate short-term, limited-
duration

[[Page 38235]]

insurance policies for a longer period of time.\73\
---------------------------------------------------------------------------

    \72\ Michael F. Cannon, ``Short-Term Plans Would Increase 
Coverage, Protect Conscience Rights & Improve ObamaCare Risk 
Pools'', Cato Institute, July 2, 2018. Available at https://www.cato.org/blog/short-term-plans-reducing-uninsured-protecting-conscience-rights-improving-obamacares-risk.
    \73\ Id.
---------------------------------------------------------------------------

    Further, as detailed elsewhere in this rule, the Departments are 
finalizing a notice requirement to inform consumers about the 
limitations of short-term, limited-duration insurance to help 
individuals make informed coverage purchasing decisions that best suits 
their needs--whether that is comprehensive individual market coverage 
or short-term, limited-duration insurance. This notice will also assist 
consumers of short-term, limited-duration insurance in further 
understanding the products being offered and can be used to combat 
misleading marketing and aggressive sales tactics that some brokers, 
agents, or issuers may employ as a result of potentially higher profits 
and commissions for short-term, limited-duration insurance.
    In response to the request for comments on any impacts on PPACA 
individual market single risk pools, some commenters who supported the 
proposed rule expressed confidence that the rule would not adversely 
impact the single risk pools. One commenter stated that the short-term, 
limited-duration insurance market has been in existence for over three 
decades and was not accused in the pre-PPACA market of being a 
destabilizing influence. According to the commenter, the market's 
modest size, which they estimated to be between 650,000 and 850,000 
enrollees before the October 2016 final rule became effective, 
represents a niche within the broader private health insurance market.
    Many commenters, however, expressed concern that extending the 
maximum duration of short-term, limited-duration coverage would weaken 
the single risk pools and destabilize the individual market by 
syphoning young, healthy individuals to the short-term, limited-
duration insurance market, leaving only those with higher expected 
health costs and those receiving subsidies in the individual market. 
Commenters suggested that the resulting market segmentation and adverse 
selection would increase premiums for individual market plans and may 
decrease the number of plans available as issuers exit the individual 
market, potentially leading to ``bare counties''. Commenters also 
suggested that this would transform individual markets into high risk 
pools and would create a parallel insurance market, undercutting the 
comprehensive, major medical policies offered to individuals and 
families.
    Many commenters stated that the combination of increased 
availability of short-term, limited-duration insurance and the 
reduction of the individual shared responsibility payment to $0, in 
conjunction with the proposed Association Health Plan rule,\74\ could 
exacerbate adverse selection in the individual market. One commenter 
stated that premium and cost-sharing subsidies are available only for 
individual market plans sold on Exchanges, providing incentives for 
healthy lower-income individuals to remain in such plans and therefore 
limiting the deterioration of the individual market risk pool. 
Individuals eligible for premium subsidies would generally be shielded 
from the premium increases as federal premium subsidies would increase. 
For unsubsidized individuals who are healthy, higher premiums for 
individual market plans would increase the attractiveness of lower-
premium short-term, limited-duration insurance.
---------------------------------------------------------------------------

    \74\ The proposed rule, published in the Federal Register on 
January 5, 2018 (83 FR 614) was subsequently finalized and published 
in the Federal Register on July 12, 2018 (83 FR 28912).
---------------------------------------------------------------------------

    A few commenters stated that these effects on the individual market 
risk pool could be limited in states that implement additional 
regulations limiting the length and availability of short-term, 
limited-duration policies or requiring that they meet rules governing 
individual market plans.
    One commenter stated that if short-term, limited-duration issuers 
are allowed to increase premiums at renewal based on an individual's 
health conditions, individuals with new conditions will receive higher 
rate increases than enrollees without new conditions. The commenter 
further stated that if there are no limits on the allowable rate 
increases, premiums for some individuals could exceed those in the 
individual market. In such a case, the enrollee may move back to the 
individual market risk pool, increasing the health care costs of the 
pool.
    Many commenters stated that a key element of any healthy, 
sustainable insurance market is that a broad pool of enrollees share in 
the spreading of risk. The effect of the proposed rule would be to 
undercut the individual market risk pool as more individuals leave 
their current health plans and purchase short-term, limited-duration 
insurance. This would further destabilize an already difficult market 
for individual and family coverage.
    One commenter suggested the proposed rule assumed that consumers 
who purchase short-term, limited-duration insurance and then find the 
insurance inadequate for a health problem that occurs during the term 
of this insurance will switch to more adequate coverage in the 
individual market. The commenter noted that the proposed rule 
fundamentally conceded that it will adversely affect the individual 
market that is a last resort for those with serious health issues at 
the same time ``the agencies tout the fail safe function of those 
markets''.
    Some commenters gave examples where state policies allowing 
segmentation of the risk pool has led to higher premiums and problems 
with issuer participation. These commenters mentioned continuation of 
transitional plans in Iowa, Nebraska, North Carolina and large 
enrollment numbers in the Tennessee Farm Bureau as examples. A 
commenter noted that in 2016, the average plan liability risk scores 
for PPACA-compliant individual market plans in states that allowed the 
sale of transitional plans were 12.3 percent higher than risk scores 
for PPACA-compliant individual market plans in states that prohibited 
transitional policies.
    The Departments acknowledge that relatively young, relatively 
healthy individuals in the middle-class and upper middle-class whose 
income disqualifies them from obtaining PTCs are more likely to 
purchase short-term, limited-duration insurance. As people choose these 
plans rather than individual market coverage, this could lead to 
adverse selection and the worsening of the individual market risk pool. 
As discussed below, the Departments estimate that the proportion of 
healthier individuals in the individual market Exchanges will decrease 
and by 2028 premiums for unsubsidized enrollees in the Exchanges will 
increase by 5 percent. The Congressional Budget Office (CBO) projects 
only a 2 percent to 3 percent impact on premiums in the small group and 
individual markets from the combined Association Health Plan and short-
term, limited-duration insurance rules, even while projecting more 
people will exit the individual market for these alternatives.\75\ 
Compared to CBO, the OACT analysis thereby represents a more 
conservative analysis. However, premium and cost-sharing subsidies are 
available only for individual market plans offered on Exchanges, which 
makes it likely that healthy lower-income individuals will

[[Page 38236]]

remain in individual market plans even if they place a relatively low 
value on this coverage because the individual subsidized premium is so 
low, limiting the extent of adverse selection. To the extent that 
individuals purchase separate renewal guarantee products, and continue 
to use short-term, limited-duration insurance, they very well may not 
return to the individual market risk pool if they get sick. This will 
limit the adverse effect on the individual market risk pool. In 
addition, as discussed below, the total number of individuals with 
coverage (including short-term, limited-duration insurance) is expected 
to increase. The impact on individual states' single risk pools will 
vary depending on state regulations, the current state of the 
individual market, and the unique demographic and other characteristics 
of a state's population and insurance markets.
---------------------------------------------------------------------------

    \75\ Congressional Budget Office, ``Federal Subsidies for Health 
Insurance Coverage for People Under Age 65: 2018 to 2028,'' May 23, 
2018. Available at https://cbo.gov/publication/53826.
---------------------------------------------------------------------------

    The Departments anticipate that most of the individuals who switch 
from individual market plans to short-term, limited-duration insurance 
will be relatively young or relatively healthy and have an annual 
income--about $48,000 for a single household and $98,000 for a family-
of-four--that makes them ineligible to receive PTCs. If the individual 
market single risk pools change, the change will result in an increase 
in gross premiums for the individuals remaining in those risk pools. An 
increase in premiums for individual market single risk pool coverage is 
expected to result in an increase in federal outlays for PTCs. However, 
individuals who receive PTCs will be largely insulated from these 
increases in premiums because a consumer's PTC amount generally 
increases as the price of the relevant benchmark plan increases. As 
discussed above, OACT's analysis projects that net premiums in PPACA-
compliant markets will decline.\76\
---------------------------------------------------------------------------

    \76\ The net premium reduction is a result of unsubsidized and 
less-subsidized enrollees exiting the market, leaving the remaining 
population receiving more premium tax credit, on average. Net 
premiums for individual enrollees do not fall.
---------------------------------------------------------------------------

Impact Estimates
    The economic impact analysis in the proposed rule provided that 
because short-term, limited-duration insurance can, subject to state 
law, be priced in an actuarially fair manner (by which the Departments 
meant that it is priced so that the premium paid by an individual 
reflects the risks associated with insuring the particular individual 
or individuals covered by that policy) individuals who are likely to 
purchase short-term, limited-duration insurance are likely to obtain a 
better value than they receive from individual health insurance 
coverage. The economic impact analysis of the proposed rule also 
provided that allowing individuals greater choice of policies that do 
not comply with all of the PPACA market requirements would impact the 
individual market single risk pools. The Departments \77\ estimated 
that in 2019, between 100,000 and 200,000 individuals previously 
enrolled in individual market coverage would purchase short-term, 
limited-duration insurance policies instead. The Departments estimated 
that this would cause the average monthly individual market premiums 
and average monthly PTCs to increase, leading to an increase in total 
annual advance payments of the PTC \78\ in the range of $96 million to 
$168 million in 2019. Other entities project greater enrollment and 
have different views on whether or not this increases the deficit. The 
Departments also noted that enrollment in short-term, limited-duration 
insurance and the resulting reductions in individual market enrollment 
and increases in individual market premiums in future years are 
uncertain.
---------------------------------------------------------------------------

    \77\ For purposes of the economic impact analysis in the 
proposed rule, the term ``the Departments'' was used to refer to HHS 
and the Department of Labor.
    \78\ The Departments used data on Advance PTC as an 
approximation of PTC since this is the data that is available for 
2017.
---------------------------------------------------------------------------

    OACT performed an analysis of the financial effects of the proposed 
rule on April 6, 2018.\79\ An updated estimate has been performed by 
OACT where the baseline was updated to the President's Fiscal Year 2019 
Mid-Session Review. As stated in the April 6th estimate, the 
assumptions and methods used in the updated estimate are the same as 
those used in OACT's previous health reform modelling.\80\ The updated 
estimate includes the policy to allow renewability up to 36 months. 
This policy was estimated to have a negligible impact. In addition, 
consideration was given to some states taking action to prohibit or 
limit the sale of short-term, limited-duration insurance policies. The 
original estimate also assumed a 4-year transition to short-term, 
limited-duration insurance policies with roughly two-thirds of the 
impact occurring in 2019, while the new estimate assumes a 3-year 
transition with one-third of the impact occurring in 2019.
---------------------------------------------------------------------------

    \79\ CMS Office of the Actuary, ``Estimated Financial Effects of 
the Short-Term, Limited-Duration Policy Proposed Rule,'' April 6, 
2018. Available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/STLD20180406.pdf.
    \80\ CMS Office of the Actuary, ``Estimated Financial Effect of 
the ``American Health Care Act of 2017''' June 13, 2017. Available 
at https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/AHCA20170613.pdf.
---------------------------------------------------------------------------

    Using these updated assumptions yields an estimate that 2019 
enrollment in short-term, limited-duration insurance will increase by 
600,000. Exchange enrollment in 2019 is expected to decrease by 
200,000, while enrollment in off-Exchange plans is expected to decrease 
by 300,000. The remaining 100,000 increase in short-term, limited-
duration enrollment is largely accounted for by new consumers who were 
previously uninsured. By 2028, enrollment in individual market plans is 
projected to decrease by 1.3 million, while enrollment in short-term, 
limited-duration insurance will increase by 1.4 million. The net result 
will be an increase in the total number of people with some type of 
coverage by 0.1 million in 2020 and by 0.2 million by 2028. Premiums 
for unsubsidized enrollees in the Exchanges are expected to increase by 
1 percent in 2019 and by 5 percent in 2028. Individuals who choose to 
purchase short-term, limited-duration insurance are expected to pay a 
premium that is approximately half of the average unsubsidized premium 
in the Exchange. Since individual market plan premiums are expected to 
increase the study estimates that PTCs will increase by $0.2 billion in 
2019 and by a net total of $28.2 billion for fiscal years 2019-2028.

                              Table 2--Estimated Effect of Short-Term, Limited-Duration Insurance Policy Changes 2019-2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
                    Calendar year                        2019     2020     2021     2022     2023     2024     2025     2026     2027     2028   2019-28
--------------------------------------------------------------------------------------------------------------------------------------------------------
Enrollment Impact:
    Exchange.........................................     -0.2     -0.4     -0.6     -0.6     -0.6     -0.6     -0.6     -0.6     -0.6     -0.6  .......
    Off-Exchange \1\.................................     -0.3     -0.7     -0.8     -0.8     -0.8     -0.8     -0.7     -0.7     -0.7     -0.7  .......

[[Page 38237]]

 
    Short-term, limited-duration.....................      0.6      1.3      1.6      1.6      1.5      1.5      1.5      1.5      1.5      1.4  .......
                                                      --------------------------------------------------------------------------------------------------
        Total........................................      0.0      0.1      0.2      0.2      0.2      0.2      0.2      0.2      0.2      0.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Premium Impact:
    Marketplace......................................
    Gross Premium....................................       1%       3%       5%       5%       5%       5%       5%       5%       5%       5%  .......
    Net Premium \2\..................................      -6%     -11%     -14%     -14%     -14%     -14%     -14%     -14%     -14%     -14%  .......
    Short-term, limited-duration.....................
    Gross Premium \3\................................     -41%     -45%     -49%     -49%     -49%     -49%     -49%     -49%     -49%     -49%  .......
--------------------------------------------------------------------------------------------------------------------------------------------------------
                     Fiscal year                         2019     2020     2021     2022     2023     2024     2025     2026     2027     2028   2019-28
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Impact [$ Billions]:
    Premium Tax Credits..............................     $0.2     $1.2     $2.5     $3.0     $3.1     $3.3     $3.4     $3.6     $3.8     $4.0    $28.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Off-Exchange coverage includes enrollment in plans that we assume would meet the definition of insurance coverage. Most of these individuals are
  assumed to be enrolled in individual market plans.
\2\ Net premium is the actual premium paid by the consumer after accounting for any subsidies such as premium tax credits. The net premium reduction is
  a result of unsubsidized and less-subsidized enrollees exiting the market, leaving the remaining population receiving more premium tax credit, on
  average. Net premiums for individual enrollees do not fall.
\3\ The change in gross premium for those choosing a short-term, limited-duration policy is measured relative to the average gross premium in the
  Exchange.
Note: Impact on Exchange enrollment in 2018 is expected to be minimal.

    There is significant uncertainty regarding these estimates, because 
changes in enrollment and premiums will depend on a variety of economic 
and regulatory factors and it is difficult to predict how consumers and 
issuers will react to the changes finalized in this rule. In addition, 
the impact in any given state will vary depending on state regulations 
and the characteristics of that state's markets and risk pools.
    OACT was not the only entity to model the impacts of the proposed 
regulation. CBO, along with the Joint Committee on Taxation (CBO and 
JCT), the Urban Institute, and the Commonwealth Fund also looked at the 
impact. CBO and JCT estimated the impacts of the proposed regulation in 
their May 2018 report on ``Federal Subsidies for Health Insurance 
Coverage for People Under Age 65: 2018 to 2028''.\81\ CBO and JCT found 
that 2 million people would be covered by short-term, limited-duration 
insurance in 2023, and that ``65 percent of the 2 million purchasing 
[short-term, limited-duration] plans would have been insured in the 
absence of the proposed rules''. This estimate projected higher uptake 
of short-term, limited-duration insurance among those that were not 
previously insured than OACT estimated.\82\ Additionally, CBO projected 
higher overall enrollment in short-term, limited-duration coverage, 2 
million people in 2023 compared to OACTs estimate of 1.5 million in 
2023. Notably, CBO assumed an increase in short-term, limited-duration 
insurance policy duration to less than 12 months, but did not analyze 
the impacts of allowing extensions up to 36 months, which would have 
presumably increased their take-up rates even further. Also, notable is 
that when estimating the combined effects of this regulation and the 
recently finalized Association Health Plan rule, CBO found that 
``premiums are projected to be 2 percent to 3 percent higher in those 
markets [small group and individual market] in most years.'' Despite 
higher take-up rates, CBO and JCT expect lower premium increases for 
coverage that complies with all of the PPACA market requirements than 
OACT. CBO and JCT also found that in combination, ``the proposed rules 
[short term limited duration insurance and association health plans] 
would reduce the federal deficit by roughly $1 billion over the 2019-
2028 period if implemented as proposed.'' They stated that, ``over the 
2019-2028 period, outlays for marketplace subsidies would increase on 
net by $2 billion, and revenues would increase by $3 billion. The net 
increase in marketplace subsidies reflects an increase in subsidies 
stemming from higher premiums, mostly offset by a reduction in the 
number of people receiving those subsidies.'' CBO and JCT further 
stated that ``On the basis of information obtained from stakeholders, 
CBO and JCT project that the rule on AHPs would primarily affect the 
small-group market and that the rule on STLDI plans would primarily 
affect the non-group market.'' Relative to OACT's estimates, CBO and 
JCT estimated the impacts of this rule to result in more short-term, 
limited-duration plan take-up with a larger share of the take-up coming 
from people who were not previously insured, lower premium impacts for 
PPACA-compliant coverage, and a lower cost to the federal 
government.\83\
---------------------------------------------------------------------------

    \81\ Congressional Budget Office, ``Federal Subsidies for Health 
Insurance Coverage for People Under Age 65: 2018 to 2028,'' May 23, 
2018. Available at https://cbo.gov/publication/53826.
    \82\ CBO noted that, ``of the 2 million additional enrollees in 
STLDI plans, fewer than 500,000 would purchase products not 
providing comprehensive financial protection against high-cost, low-
probability medical events. CBO considers such people uninsured.''
    \83\ CBO and JCT did not separately break out the budget effects 
of the AHP rule and the short-term, limited-duration rule.
---------------------------------------------------------------------------

    CBO and JCT were not the only entities to analyze the quantitative 
impacts of the proposed rule. The Urban Institute ran a state-level 
microsimulation model (taking into account market conditions in each 
state as well as regulatory differences) and also estimated that an 
extension of short-term, limited-duration insurance to less than 12 
months would result in greater take-up of the plans than OACT 
estimated, as well as savings for the federal government.\84\ 
Specifically the Urban Institute found that in 2019 ``4.3 million would 
enroll in expanded short-term limited-duration plans.'' \85\ ``About 
1.7 million of the people buying [short-term, limited-duration 
insurance] policies would have been uninsured (in the traditional 
sense) under current law, and 2.6 million [short-term, limited-

[[Page 38238]]

duration] policy holders would otherwise have had insurance of some 
type.'' They further found that ``ACA-compliant non-group coverage 
would decrease by another 2.2 million people. About 70 percent of that 
decrease (1.6 million people) comes from fewer people buying PPACA-
compliant coverage without a tax credit, and about 30 percent of the 
decrease (about 600,000 people) comes from fewer people buying non-
group insurance with a tax credit.'' As a result of their estimate of 
the decrease in the number of people receiving tax credits they 
estimated the policy to result in net savings to the federal government 
of $721 million in 2019. The Urban Institute grouped the individual 
mandate penalty being reduced to $0 and the short-term, limited-
duration proposal to estimate the premium effects on individual market 
single risk pools, so it is difficult to know what just the policy 
impact of short term changes would have been to premiums in their 
analysis. In sum, relative to OACT's analysis, Urban estimates savings 
to the federal government (rather than costs), as well as materially 
higher take-up (4.3 million in 2019 versus 1.4 million in 2028), 
including among those that previously did not have insurance (1.7 
million in 2019 versus 0.2 million in 2028).
---------------------------------------------------------------------------

    \84\ L.J. Blumberg, M. Buettgens, R. Wang, ``The Potential 
Impact of Short-Term Limited-Duration Policies on Insurance 
Coverage, Premiums, and Federal Spending,'' Urban Institute, March 
2018. Available at: https://www.urban.org/sites/default/files/publication/96781/2001727_updated_finalized.pdf.
    \85\ Id.
---------------------------------------------------------------------------

    While CBO and the Urban Institute appear to have done robust work 
on the issue, other entities also provided estimates of the impact. The 
Commonwealth Fund concluded that if there are no behavioral barriers to 
enrollment in short-term, limited-duration plans, and under a baseline 
of no individual shared responsibility payment, extending the duration 
of short-term, limited-duration insurance would result in about 5.2 
million people enrolled.\86\ The Commonwealth Fund estimated that the 
average premium for a short-term, limited-duration insurance policy 
will be roughly 80 percent cheaper than silver plans and about 70 
percent cheaper than bronze plans for a 40-year old.\87\ The 
Commonwealth Fund estimated that ``the age-specific premium for a 
silver plan increases by 0.9 percent (from $7,308 to $7,377) relative 
to current law when the individual mandate is lifted, and by 3.6 
percent (from $7,308 to $7,568) when the mandate is lifted and 
behavioral barriers are removed'' (implying the marginal effect of 
adding short term plans in a scenario with limited behavior barriers 
was roughly 2.7 percent). The Commonwealth Fund did not provide 
estimates of cost impacts to the federal government.
---------------------------------------------------------------------------

    \86\ Preethi Rao, Sarah A. Nowak, Christine Eibner, ``What Is 
the Impact on Enrollment and Premiums if the Duration of Short-Term 
Health Insurance Plans Is Increased?'', Commonwealth Fund, June 5 
2018. Available at https://www.commonwealthfund.org/publications/fund-reports/2018/jun/what-impact-enrollment-and-premiums-if-duration-short-term. Examples the Commonwealth Fund cited of 
behavioral barriers to enrollment include ``increased marketing of 
plans to increase awareness, streamlining the application process, 
lack of concern over facing the mandate penalty.''
    \87\ Preethi Rao, Sarah A. Nowak, Christine Eibner, ``What Is 
the Impact on Enrollment and Premiums if the Duration of Short-Term 
Health Insurance Plans Is Increased?'', Commonwealth Fund, June 5 
2018. Available at https://www.commonwealthfund.org/publications/fund-reports/2018/jun/what-impact-enrollment-and-premiums-if-duration-short-term. In a scenario with behavioral barriers in 
place, they estimated a materially lower number of 0.3 million in 
take-up. Examples the Commonwealth Fund cited of behavioral barriers 
to enrollment include ``increased marketing of plans to increase 
awareness, streamlining the application process, lack of concern 
over facing the mandate penalty.'' Market forces may well come up 
with ways of addressing these behavioral barriers--such as by 
marketing the plans aggressively, providing a high quality customer 
experience in a streamlined application process, and clarifying the 
applicability of the mandate penalty.
---------------------------------------------------------------------------

    In response to the Departments' request for comments on how many 
consumers may choose to purchase short-term, limited-duration 
insurance, rather than being uninsured or purchasing individual market 
plans, many commenters submitted or referred to studies that estimated 
the impact of the proposed changes. Some of these studies and findings 
have been described above. Another study conducted by the Wakely 
Consulting Group \88\ estimated that, as a result of the proposed 
changes and the reduction of the individual shared responsibility 
payment to $0, premiums would increase by 0.7 percent to 1.7 percent 
and enrollment would decrease by 2.7 percent to 6.4 percent in the 
individual market in 2019. In addition, the study estimated that 
premiums for individual market plans would increase 2.2 percent to 6.6 
percent and enrollment would decrease by 8.2 percent to 15 percent in 4 
to 5 years, when the full impact of the proposed changes can be felt. A 
study by Oliver Wyman,\89\ focusing on the District of Columbia's 
individual and small group markets, estimated that the combined effect 
of the proposed changes and the reduction of the individual shared 
responsibility payment to $0 would be an increase in claims costs by 
11.7 percent to 21.4 percent and a decrease in enrollment in individual 
and small group plans of 3,800 to 6,100 in Washington, DC. Notably 
Washington DC's individual market is highly idiosyncratic in terms of 
the number of people in it not receiving subsidies, so the effects on 
that market are unlikely to be comparable with other states. A study by 
Covered California \90\ concluded that the combined effect of the 
proposed Association Health Plan rule and the short-term, limited-
duration rule would increase premiums by 0.3 percent to 1.3 percent in 
the individual market in California in 2019.
---------------------------------------------------------------------------

    \88\ Michael Cohen, Michelle Anderson, Ross Winkelman, ``Effects 
of Short-Term Limited Duration Plans on the ACA-Compliant Individual 
Market,'' Wakely Consulting Group, April, 2018. Available at: https://www.communityplans.net/wp-content/uploads/2018/04/Wakely-Short-Term-Limited-Duration-Plans-Report.pdf.
    \89\ Oliver Wyman, ``Potential Impact of Short-Term Limited 
Duration Plans,'' April 11, 2018. Available at: https://hbx.dc.gov/sites/default/files/dc/sites/hbx/publication/attachments/OWReview%20of%20Impact%20of%20Short%20Term%20Duration%20Plans%204.11.2018%20%28002%29.pdf.
    \90\ Covered California, ``Individual Markets Nationally Face 
High Premium Increases in Coming Years Absent Federal or State 
Action, With Wide Variation Among States,'' March 8, 2018. Available 
at https://hbex.coveredca.com/data-research/library/CoveredCA_High_Premium_Increases_3-8-18.pdf.
---------------------------------------------------------------------------

    Many commenters stated that the proposed rule likely underestimates 
the number of people who would enroll in short-term, limited-duration 
insurance and thus underestimates the premium and risk pool impact of 
the proposed changes. Commenters suggested that it is insufficient to 
look at prior data on short-term, limited-duration insurance enrollment 
to predict what would happen as a result of the proposed change in 
federal rules, since conditions for the short-term, limited-duration 
insurance market are poised to differ markedly from recent years. 
Commenters noted that in 2019, the individual shared responsibility 
payment will be reduced to $0, removing one factor that has likely kept 
more people from enrolling in short-term, limited-duration insurance. 
Commenters also noted that the federal government is actively promoting 
short-term, limited-duration insurance and pulling back on its outreach 
efforts for individual market plans, a reversal of prior policy that is 
likely to increase short-term, limited-duration insurance enrollment, 
and that major issuers have already expressed interest in offering or 
expanding offerings of short-term, limited-duration plans.
    One commenter stated that the total enrollment in short-term, 
limited-duration insurance was actually close to 500,000 covered lives 
in December 2016 after accounting for association-based sales. The 
commenter further noted that as a result of the reduction of the 
individual shared responsibility payment to $0 beginning in 2019, the 
cost differential between short-term,

[[Page 38239]]

limited-duration insurance and individual market plans will increase, 
and enrollment in short-term, limited-duration insurance is likely to 
grow beyond what it was in 2016. The commenter estimated that each 
percentage point increase in premiums for individual market plans as a 
result of the policies in the proposed rule would increase federal 
spending on PTCs by $800 million in 2019. Another commenter cited a 
report stating that enrollment in short-term, limited-duration coverage 
may be closer to one million.
    One commenter expected that the mostly uninsured or off-Exchange 
insured group of consumers who may purchase short-term, limited-
duration insurance policies will follow the age distribution of those 
who currently purchase short-term, limited-duration insurance, which is 
an average of approximately 41.3 years of age.
    The Departments are unable to verify the conclusions of the 
different studies submitted and referred to by commenters. However, the 
studies, in sum suggest that the rule may significantly reduce the 
number of people without any type of health insurance and will likely 
only result in a small average increase to premiums in the individual 
and group markets.
    Enrollment in short-term, limited-duration insurance will depend in 
large part on how issuers respond to this final rule and to external 
factors such as the reduction to $0 of the individual shared 
responsibility payment starting in 2019. If issuers respond by offering 
a substantially greater range of plan designs than those currently 
available in the market for short-term, limited-duration insurance in 
order to attract consumers with a wide range of medical needs, then 
total enrollment is more likely to align with high-end estimates. 
Alternatively, if states impose restrictions on short-term, limited-
duration insurance or issuers do not substantially alter existing 
short-term, limited-duration insurance plan designs, then consumers may 
experience only a moderate increase in convenience as a result of this 
final rule since short-term, limited-duration insurance is already 
available and can be purchased as four separate less than 3-month 
insurance policies \91\--and in such a scenario, high-end enrollment 
estimates would be less likely.
---------------------------------------------------------------------------

    \91\ Karen Pollitz, Michelle Long, Ashley Semanskee, and Rabah 
Kamal, ``Understanding Short-Term Limited Duration Health 
Insurance'', Kaiser Family Foundation, April 23, 2018. Available at 
https://www.kff.org/health-reform/issue-brief/understanding-short-term-limited-duration-health-insurance/.
---------------------------------------------------------------------------

    As discussed earlier in this rule, there is significant uncertainly 
regarding all of these estimates, because changes in enrollment and 
premiums will depend on a variety of factors and it is difficult to 
predict how consumers and issuers will react to the policy changes 
finalized in this rule. In addition, the impact in any given state will 
vary depending on state regulations and the characteristics of that 
state's markets and risk pools. In addition, some of these studies 
estimate the impacts of the proposed rule and some of them present 
combined effects of the Association Health Plan proposed rule or the 
reduction of the shared responsibility payment to $0. The study by 
Oliver Wyman may not be generally applicable to the rest of the 
country, because the District of Columbia is not representative of 
other markets insofar as it is very small and because a very small 
percentage of the District's enrollees receive PTCs.

C. Regulatory Alternatives

    The Departments considered not changing the federal standards for 
short-term, limited-duration insurance or increasing the initial 
contact term to 6 or 8 months, as suggested by some commenters. 
However, this alternative would not adequately increase choices for 
individuals unable or unwilling to purchase individual market health 
insurance coverage. Extending the maximum initial contract term to less 
than 12 months ensures that deductibles are not reset and premiums do 
not increase every 3 (or 6, or 8) months for consumers who purchase 
short-term, limited-duration insurance and conditions that develop 
during the coverage period continue to be covered for a longer period 
of time until the consumer can switch to an individual market plan, if 
needed
    The Departments considered finalizing the notice language as 
proposed. The Departments decided to revise the notice language based 
on commenter feedback to include more details regarding what the policy 
may or may not cover. States also have the option to require more 
information than what is included in the federal notice.
    The Departments considered not allowing renewals or extensions of 
short-term, limited-duration insurance policies beyond 12 months, as 
well as not permitting renewals or extensions. However, upon review of 
comments, the Departments determined that allowing renewals or 
extensions of a policy up to a maximum duration of 36 months increases 
consumer choices, provides additional protection, and ensures that 
consumers can maintain coverage under their short-term, limited-
duration insurance policy after the expiration of the initial contract 
term if it is the most desirable option. As many commenters pointed 
out, to the extent that the maximum duration of short-term, limited-
duration insurance is limited to a relatively short period of time, for 
example, less than 3 months, or even less than 12 months, without 
permitting renewals or extensions, this would mean that every 3 months 
or every 12 months, an individual purchasing short-term, limited-
duration insurance would be subject to re-underwriting, and would 
possibly have his or her premium greatly increased as a result. Also, 
to the extent the policy excluded preexisting conditions for a 
specified period of time or imposed a waiting period on specific 
benefits, the individual would not get credit for the amount of time he 
or she had the previous coverage. The issuer could also decline to 
issue a new policy to the consumer based on preexisting medical 
conditions. The Departments find all of these to be compelling reasons 
in favor of permitting renewals and extensions as set forth in the 
final rule, such that the maximum duration under a single short-term, 
limited-duration insurance policy may be 36 months (including renewal 
or other extension periods), as opposed to less than 12 months. As 
mentioned earlier in the preamble, in determining the appropriate 
limits on the permissible range of renewals or extensions in giving 
meaning to the term ``limited-duration,'' the Departments were informed 
by other circumstances under which Congress authorized temporary 
limited coverage options.
    In addition to the applicability date set forth in the proposed 
rule, the Departments also considered an applicability date of January 
1, 2020, as suggested by some commenters. The Departments chose the 
applicability date of 60 days after the date the rule was published in 
the Federal Register to ensure that states that want to expand access 
to short-term, limited-duration insurance and individuals who wish to 
purchase such coverage can begin to benefit from the changes as soon as 
possible.
    Some commenters criticized the Departments for not adequately, or 
failing to, consider other alternatives. Some commenters stated that 
the Departments failed to explore the options presented in the 
regulatory alternatives section and should engage in a more robust 
discussion of regulatory alternatives. One commenter stated that the 
Departments indicated that the only alternatives to this

[[Page 38240]]

proposal would be to lengthen the duration of short[hyphen]term, 
limited[hyphen]duration plans to either 6 or 9 months and dismissed 
both options without any explanation. This suggested, the commenter 
stated, that the Departments did not adequately consider other options. 
The commenter suggested that there are other options that will actually 
lead to expanded access and will not destabilize the private health 
insurance market, such as to fund cost-sharing reductions. Another 
option suggested by a commenter was to take no action since, in the 
commenter's view, the proposed action would not expand access to 
comprehensive coverage, would lead to more discrimination against 
people with preexisting conditions, and would destabilize private 
health insurance markets.
    The Departments disagree. In addition to considering maintaining 
the less than 3 month (including renewals) standard in the October 2016 
final rule, as well as the proposed less than 12 month standard in the 
proposed rule, the Departments also considered maximum durations of 6 
months or 8 months. Recognizing the myriad number of potential 
approaches the Departments could consider to establish federal 
standards for short-term, limited-duration insurance, the Departments 
also solicited comments on all aspects of the proposed rule. In 
addition, we have added a more detailed discussion of regulatory 
alternatives considered for this final regulation. The Departments have 
chosen the alternatives that we believe will benefit individuals who 
have been harmed by the increasing premiums, deductibles and cost-
sharing associated with individual market plans and limited choices. As 
discussed previously, this rule will also increase the number of people 
with some type of coverage by 0.2 million by 2028.

D. Paperwork Reduction Act--Department of Health and Human Services

    This final rule revises the required notice that must be 
prominently displayed in the contract and in any application materials 
for short-term, limited-duration insurance. The Departments are 
providing the exact text for this notice requirement and the language 
will not need to be customized. The burden associated with these 
notices is not subject to the Paperwork Reduction Act of 1995 in 
accordance with 5 CFR 1320.3(c)(2) because they do not contain a 
``collection of information'' as defined in 44 U.S.C. 3502(3). 
Consequently, this document need not be reviewed by the Office of 
Management and Budget under the authority of the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.).

E. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a final rule is not likely to 
have a significant economic impact on a substantial number of small 
entities, section 604 of the RFA requires that the agency prepare a 
final regulatory flexibility analysis describing the impact of the rule 
on small entities. Small entities include small businesses, 
organizations and governmental jurisdictions.
    The RFA generally defines a ``small entity'' as--(1) a proprietary 
firm meeting the size standards of the Small Business Administration 
(13 CFR 121.201); (2) a nonprofit organization that is not dominant in 
its field; or (3) a small government jurisdiction with a population of 
less than 50,000. (States and individuals are not included in the 
definition of ``small entity''). The Departments use as their measure 
of significant economic impact on a substantial number of small 
entities a change in costs or revenues of more than 3 to 5 percent.
    This final rule will impact health insurance issuers, especially 
those in the individual market. The Departments believe that health 
insurance issuers will be classified under the North American Industry 
Classification System code 524114 (Direct Health and Medical Insurance 
Carriers). According to SBA size standards, entities with average 
annual receipts of $38.5 million or less are considered small entities 
for this North American Industry Classification System codes. Some 
issuers could possibly be classified in 621491 (Health Maintenance 
Organization Medical Centers) and, if this is the case, the SBA size 
standard is $32.5 million or less.\92\ The Departments believe that 
few, if any, insurance companies selling comprehensive health insurance 
policies (in contrast, for example, to travel insurance policies or 
dental discount policies) fall below these size thresholds. Based on 
data from MLR annual report submissions for the 2016 MLR reporting 
year,\93\ approximately 85 out of over 520 issuers of health insurance 
coverage nationwide had total premium revenue of $38.5 million or less, 
of which 51 issuers offer plans in the individual market. This estimate 
may overstate the actual number of small health insurance companies 
that may be affected, since almost 79 percent of these small companies 
belong to larger holding groups, and many if not all of these small 
companies are likely to have non-health lines of business that will 
result in their revenues exceeding $38.5 million. Therefore, the 
Departments certify that this final rule will not have a significant 
impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \92\ U.S. Small Business Administration, ``Table of Small 
Business Size Standards Matched to North American Industry 
Classification System Codes'', Effective October 1, 2017. Available 
at https://www.sba.gov/sites/default/files/files/Size_Standards_Table_2017.pdf.
    \93\ Available at https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html.
---------------------------------------------------------------------------

    In addition, section 1102(b) of the Social Security Act requires 
agencies to prepare a regulatory impact analysis if a rule may have a 
significant economic impact on the operations of a substantial number 
of small rural hospitals. This analysis must conform to the provisions 
of section 604 of the RFA. This final rule will not have a direct 
effect on rural hospitals, though there might be an indirect impact. 
However, as discussed below, there are mitigating factors. Therefore, 
the Departments have determined that this final rule will not have a 
significant impact on the operations of a substantial number of small 
rural hospitals.
    One commenter disagreed with the statement in the proposed rule 
that ``[t]his proposed rule will not affect small rural hospitals.'' 
The commenter stated that issuer withdrawal from the individual market 
caused by the proposed changes would especially have a catastrophic 
impact on rural families who already have limited plan choices, as well 
as on the rural hospitals and other providers who ``rely on razor-thin 
financial margins to deliver care.'' The commenter urged the 
Departments to prioritize market stabilization and to pay special 
attention to the impacts in rural communities.
    The total number of individuals purchasing either individual market 
plans or short-term, limited-duration insurance coverage is expected to 
increase, which will limit or reduce the amount of uncompensated care 
provided by hospitals. Moreover, people in rural areas have generally 
been most harmed by the reduction in choice that as resulted from PPACA 
and likely stand to disproportionately receive benefit from this rule. 
The Departments

[[Page 38241]]

acknowledge there is a possibility that due to adverse selection and 
changes to the individual market risk pool, fewer issuers may offer 
individual market plans in certain states, leading to reduced choices 
for consumers remaining in the individual market risk pools. However, 
individuals in rural areas are more likely to be low-income and less 
likely to receive employer sponsored coverage compared to those living 
in other areas and a large percentage of rural individuals (24 percent 
of the nonelderly population) are covered by Medicaid.\94\ Individuals 
in rural areas enrolled in individual market plans are more likely to 
receive PTC \95\ because, generally, incomes in these areas are 
typically lower than 400% of the Federal Poverty Line and therefore 
relatively young or healthy individuals are less likely to leave the 
individual market risk pool in these areas, thereby limiting the 
effects on the risk pool. State regulations may also limit the impact 
on the individual market risk pools.
---------------------------------------------------------------------------

    \94\ Julia Foutz, Samantha Artiga, and Rachel Garfield, ``The 
Role of Medicaid in Rural America'', Kaiser Family Foundation, April 
25, 2017. Available at: https://www.kff.org/medicaid/issue-brief/the-role-of-medicaid-in-rural-america/.
    \95\ Analysis of data on Exchange plan selections (non-canceled 
plan selections at a point-in-time) for the most recent open 
enrollment period shows that consumers in rural areas are 5 percent 
more likely to receive PTC compared to those who live in non-rural 
areas.
---------------------------------------------------------------------------

F. Impact of Regulations on Small Business--Department of the Treasury

    Pursuant to section 7805(f) of the Code, the proposed rule that 
preceded this final rule was submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business, and no comments were received.

G. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any 1 year by a 
state, local, or Tribal governments, in the aggregate, or by the 
private sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2018, that threshold is approximately $150 million. This 
final rule does not include any Federal mandate that may result in 
expenditures by state, local, or tribal governments, or by the private 
sector in excess of that threshold.

H. Federalism

    Executive Order 13132 outlines fundamental principles of 
federalism. It requires adherence to specific criteria by Federal 
agencies in formulating and implementing policies that have 
``substantial direct effects'' on the states, the relationship between 
the national government and states, or on the distribution of power and 
responsibilities among the various levels of government. Federal 
agencies promulgating regulations that have these federalism 
implications must consult with state and local officials, and describe 
the extent of their consultation and the nature of the concerns of 
state and local officials in the preamble to the final regulation.
    Federal officials have discussed the issues related to short-term, 
limited- duration insurance with state regulatory officials. This final 
rule has no federalism implications to the extent that current state 
law requirements for short-term, limited-duration insurance are the 
same as or more restrictive than the Federal standard in this final 
rule. States may continue to apply such state law requirements. States 
also have the flexibility to require additional consumer disclosures 
and to establish a different, shorter initial contact term and maximum 
duration (including renewals and extensions) under state law in 
response to market-specific needs or concerns.

I. Congressional Review Act

    This final rule is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and will be transmitted to the Congress and 
to the Comptroller General for review in accordance with such 
provisions.

J. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017 and requires that the 
costs associated with significant new regulations ``shall, to the 
extent permitted by law, be offset by the elimination of existing costs 
associated with at least two prior regulations.'' This final rule is an 
Executive Order 13771 deregulatory action.

IV. Statutory Authority

    The Department of the Treasury regulations are adopted pursuant to 
the authority contained in sections 7805 and 9833 of the Code.
    The Department of Labor regulations are adopted pursuant to the 
authority contained in 29 U.S.C. 1135 and 1191c; and Secretary of 
Labor's Order 1-2011, 77 FR 1088 (Jan. 9, 2012).
    The Department of Health and Human Services regulations are adopted 
pursuant to the authority contained in sections 2701 through 2763, 
2791, 2792 and 2794 of the PHS Act (42 U.S.C. 300gg through 300gg-63, 
300gg-91, 300gg-92 and 300gg-94), as amended.

List of Subjects

26 CFR Part 54

    Pension excise taxes.

29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Health insurance, Medical child support, 
Reporting and recordkeeping requirements.

45 CFR Parts 144 and 146

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 148

    Administrative practice and procedure, Health care, Health 
insurance, Penalties, Reporting and recordkeeping requirements.

Douglas W. O'Donnell,
Acting Deputy Commissioner for Services and Enforcement, Internal 
Revenue Service.
    Approved: July 26, 2018.

David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
    Signed this 26th day of July 2018.
Preston Rutledge,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Dated: July 24, 2018.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 25, 2018.
Alex M. Azar II,
Secretary, Department of Health and Human Services.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

    For the reasons stated in the preamble, 26 CFR part 54 is amended 
as follows:

PART 54--PENSION AND EXCISE TAX

0
Paragraph 1. The authority citation for part 54 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *.


0
Par. 2. Section 54.9801-2 is amended by revising the definition of 
``Short-

[[Page 38242]]

term, limited-duration insurance'' to read as follows:


Sec.  54.9801-2   Definitions.

* * * * *
    Short-term, limited-duration insurance means health insurance 
coverage provided pursuant to a contract with an issuer that:
    (1) Has an expiration date specified in the contract that is less 
than 12 months after the original effective date of the contract and, 
taking into account renewals or extensions, has a duration of no longer 
than 36 months in total;
    (2) With respect to policies having a coverage start date before 
January 1, 2019, displays prominently in the contract and in any 
application materials provided in connection with enrollment in such 
coverage in at least 14 point type the language in the following Notice 
1, excluding the heading ``Notice 1,'' with any additional information 
required by applicable state law:

Notice 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. 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.

    (3) With respect to policies having a coverage start date on or 
after January 1, 2019, displays prominently in the contract and in any 
application materials provided in connection with enrollment in such 
coverage in at least 14 point type the language in the following Notice 
2, excluding the heading ``Notice 2,'' with any additional information 
required by applicable state law:

Notice 2:

    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.

    (4) If a court holds the 36-month maximum duration provision set 
forth in paragraph (1) of this definition or its applicability to any 
person or circumstances invalid, the remaining provisions and their 
applicability to other people or circumstances shall continue in 
effect.
* * * * *

0
Par. 3. Section 54.9833-1 is amended by revising the section heading 
and the last sentence to read as follows:


Sec.  54.9833-1  Applicability dates.

    * * * Notwithstanding the previous sentence, the definition of 
``short-term, limited-duration insurance'' in Sec.  54.9801-2 applies 
October 2, 2018.

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Chapter XXV

    For the reasons stated in the preamble, the Department of Labor 
amends 29 CFR part 2590 as set forth below:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
4. The authority citation for part 2590 continues to read as follows:

    Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; 
sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b), Pub. L. 
105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 
110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-
148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029; 
Division M, Pub. L. 113-235, 128 Stat. 2130; Secretary of Labor's 
Order 1-2011, 77 FR 1088 (Jan. 9, 2012).


0
5. Section 2590.701-2 is amended by revising the definition of ``Short-
term, limited-duration insurance'' to read as follows:


Sec.  2590.701-2  Definitions.

* * * * *
    Short-term, limited-duration insurance means health insurance 
coverage provided pursuant to a contract with an issuer that:
    (1) Has an expiration date specified in the contract that is less 
than 12 months after the original effective date of the contract and, 
taking into account renewals or extensions, has a duration of no longer 
than 36 months in total;
    (2) With respect to policies having a coverage start date before 
January 1, 2019, displays prominently in the contract and in any 
application materials provided in connection with enrollment in such 
coverage in at least 14 point type the language in the following Notice 
1, excluding the heading ``Notice 1,'' with any additional information 
required by applicable state law:

Notice 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. 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.
    (3) With respect to policies having a coverage start date on or 
after January 1, 2019, displays prominently in the contract and in any 
application materials provided in connection with enrollment in such 
coverage in at least 14 point type the language in the following Notice 
2, excluding the heading ``Notice 2,'' with any additional information 
required by applicable state law:

Notice 2:

    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.

    (4) If a court holds the 36-month maximum duration provision set 
forth in paragraph (1) of this definition or its

[[Page 38243]]

applicability to any person or circumstances invalid, the remaining 
provisions and their applicability to other people or circumstances 
shall continue in effect.
* * * * *

0
6. Section 2590.736 is amended by revising the last sentence to read as 
follows:


Sec.  2590.736  Applicability dates.

    * * * Notwithstanding the previous sentence, the definition of 
``short-term, limited-duration insurance'' in Sec.  2590.701-2 applies 
October 2, 2018.

DEPARTMENT OF HEALTH AND HUMAN SERVICES

    For the reasons stated in the preamble, the Department of Health 
and Human Services amends 45 CFR parts 144, 146, and 148 as set forth 
below:

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

0
7. The authority citation for part 144 continues to read as follows:

    Authority:  42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92.


0
8. Section 144.103 is amended by revising the definition of ``Short-
term, limited-duration insurance'' to read as follows:


Sec.  144.103   Definitions.

* * * * *
    Short-term, limited-duration insurance means health insurance 
coverage provided pursuant to a contract with an issuer that:
    (1) Has an expiration date specified in the contract that is less 
than 12 months after the original effective date of the contract and, 
taking into account renewals or extensions, has a duration of no longer 
than 36 months in total;
    (2) With respect to policies having a coverage start date before 
January 1, 2019, displays prominently in the contract and in any 
application materials provided in connection with enrollment in such 
coverage in at least 14 point type the language in the following Notice 
1, excluding the heading ``Notice 1,'' with any additional information 
required by applicable state law:

Notice 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. 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.

    (3) With respect to policies having a coverage start date on or 
after January 1, 2019, displays prominently in the contract and in any 
application materials provided in connection with enrollment in such 
coverage in at least 14 point type the language in the following Notice 
2, excluding the heading ``Notice 2,'' with any additional information 
required by applicable state law:

Notice 2:

    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.

    (4) If a court holds the 36-month maximum duration provision set 
forth in paragraph (1) of this definition or its applicability to any 
person or circumstances invalid, the remaining provisions and their 
applicability to other people or circumstances shall continue in 
effect.
* * * * *

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
 9. The authority citation for part 146 is revised to read as follows:

     Authority: 42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 through 
300gg-23, 300gg-91, and 300gg-92.


0
10. Section 146.125 is amended by revising the last sentence to read as 
follows.


Sec.  146.125   Applicability dates.

    * * * Notwithstanding the previous sentence, the definition of 
``short-term, limited-duration insurance'' in Sec.  144.103 of this 
subchapter applies October 2, 2018.

PART 148--REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET

0
11. The authority citation for part 148 continues to read as follows:

     Authority: 42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92), as amended.


0
12. Section 148.102 is amended by revising the section heading and the 
last sentence of paragraph (b) to read as follows:


Sec.  148.102  Scope and applicability date.

* * * * *
    (b) * * * Notwithstanding the previous sentence, the definition of 
``short-term, limited-duration insurance'' in Sec.  144.103 of this 
subchapter is applicable October 2, 2018.

[FR Doc. 2018-16568 Filed 8-1-18; 8:45 am]
 BILLING CODE 4150-29-P 4830-01-P 4120-01-P 6325-64-P