Short-Term, Limited-Duration Insurance, 38212-38243 [2018-16568]
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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
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SUMMARY:
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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).
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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.
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$0, effective for months beginning after
December 31, 2018.
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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, 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).
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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.
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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
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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.
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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
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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
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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:
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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.
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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
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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.
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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
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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
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(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
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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
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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
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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
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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,
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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-
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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
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Exchanges Trend Report, July 2, 2018.
U.S.C. 18052.
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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.
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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.
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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
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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
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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).
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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
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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
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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.
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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.
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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,
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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
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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:
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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
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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
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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
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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.’’)
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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
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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.
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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
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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.
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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
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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.
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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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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/.
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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.
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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.
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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
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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
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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
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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
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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.
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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
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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
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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
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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.
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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
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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/.
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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.
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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
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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/.
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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
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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.
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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.
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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.
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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.
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¥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.
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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.
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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
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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.’’
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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
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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.
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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
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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.
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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.
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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/.
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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
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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
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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
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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.
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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.
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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
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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.
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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
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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-
■
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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.
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(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
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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
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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
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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
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*
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
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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
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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
-----------------------------------------------------------------------
Internal Revenue Service
Department of Labor
-----------------------------------------------------------------------
Employee Benefits Security Administration
Department of Health and Human Services
-----------------------------------------------------------------------
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]]
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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\
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\25\ 83 FR 7437 (February 21, 2018).
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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.
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\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.
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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.
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\29\ See section 2792 of the PHS Act.
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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.
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\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.
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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.
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\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.
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\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.
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\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.
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\37\ Section 2703 of the PHS Act; see also 42 U.S.C. 300gg-42.
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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.
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\38\ See, for example, 83 FR 7440.
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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).
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\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.
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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.
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\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.
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\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\
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\44\ See 26 CFR 54.9801-6, 29 CFR 2590.701-6, 45 CFR 146.117.
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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\
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\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\
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\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.
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\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.
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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\
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\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.
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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.
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\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.
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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
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\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