New final federal regulations could make life more complicated for issuers and users of short-term health insurance by limiting the duration of short-term health insurance to periods of three months or less.
The new final regulations also ban the sale of some types of insurance products that help consumers pay for small amounts of hospital care, physician care or other types of basic medical care.
The Internal Revenue Service, the Employee Benefits Security Administration and the U.S. Department of Health and Human Services published the regulations in the form of a final rule on “Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited-Duration Insurance,” in the Federal Register Monday.
The new final rule, based on a draft that appeared in June, prohibits an insurer from selling a consumer short-term health coverage that lasts more than three months. The issuer also must warn the purchaser that the policy will not help the purchaser avoid paying the Affordable Care Act penalty now imposed on people who fail to buy what regulators classify as minimum essential coverage, or solid health coverage.
The rule will have no direct effect on a consumer, or, apparently, on an insurance agent or broker. A consumer could, apparently, get more than three months of health coverage by buying a new short-term health insurance policy when the old policy expires.
The regulations take effect Dec. 30. The regulators say they will let issuers sell short-term health policies with benefits durations longer than three months up until March 31, as long as the coverage ends on or before Dec. 31, 2017, and issuers comply with the other new new short-term health rules, such as the new individual mandate penalty warning rule.
Short-term health insurance is exempt from the ACA major medical rules, including the ban on medical underwriting, the ban on annual and lifetime benefits limits, and the requirement that an issuer cover at least 60 percent of the actuarial value of the essential health benefits package, or what regulators classify as core health benefits. A short-term health issuer can keep premiums low, especially for younger, healthier insureds, by taking steps such as excluding coverage for maternity leave and mental health care, capping benefits at $25,000 per year, and refusing to sell coverage to people with serious health problems.
Officials at the Kansas City, Missouri-based National Association of Insurance Commissioners, a group for state insurance regulators, told the federal regulators, in a comment on the draft regulations, that limiting the insurers to selling three months of short-term health coverage without limiting consumers’ ability to buy more than three months of short-term coverage could produce absurd results.
In an introduction to the new regulations, officials say they want limit short-term health coverage to durations of three months to make sure consumers get the consumer protections provided by ACA-compliant coverage, and for consumers to understand that short-term health insurance does not help them avoid paying the ACA penalty for going without minimum essential coverage.
The ACA individual penalty system “provides sufficient incentive to discourage consumers from purchasing multiple successive short-term, limited-duration insurance policies,” officials say.
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New supplemental health rules
In the new final rule, the so-called “tri agencies” also strengthen earlier laws and regulations meant to discourage insurers from selling products that could be used as a substitute for major medical coverage.
Before the ACA came along, those were known as “limited-benefit health plans,” “mini medical plans” or “mini med plans.”
For many decades, insurers have sold health insurance policies, known as indemnity policies, that paid fixed benefits when insureds needed specified types of care, such as hospital care.
The ACA includes a provision that lets insurers continue to sell the kinds of supplemental health insurance policies traditionally “excepted from” federal major medical rules, such as the Health Insurance Portability and Accountability Act of 1996 major medical provisions.