On July 12, 2023, the Biden Administration published a Notice of Proposed Rule Making (“NPRM”) that would redefine and significantly curtail short-term limited duration insurance products. If adopted, approximately 3M Americans’ insurance coverage would be jeopardized. Timing of this NPRM dramatically emphasizes the need for individual health insurance options, and positions Presidio to serve as a release valve for these individuals, many of whom will be actively looking for coverage during 2024 open enrollment.

Background: What is Short-Term Limited Duration Insurance?

Short-Term Limited Duration Insurance (“STLDI”) preexisted the Patient Protection and Affordable Care Act (“ACA”) as a stop-gap measure for individuals in between coverage, but its importance was thrown into relief because of the ACA. The ACA subjected individual health insurance coverage to restrictions including guaranteed issue, prohibition of preexisting condition exclusions, and minimum essential coverage that includes access to free contraception, among others.((Title XXVII of the Public Health Service Act (“PHS Act”) )) While many of these restrictions are laudable in ideal scenarios (excepting the contraception mandate), they also had the effect of constraining insurance providers,¹ limiting competition,((Average insurers per state dropped from 5.0 in 2014 to 3.5 in 2018, with many states and metropolitan service areas having a single insurer for extended periods (Insurer Participation on the ACA Marketplaces, 2014-2021 (KFF)) )) and increasing premiums.((Premiums rose 121% for the first five years of the ACA (Rate Review Data (cms.gov)) )) As a result, pre-subsidy insurance premiums skyrocketed with the implementation of the ACA, leaving many families in want of alternative insurance options.((Id. ))

Importantly, STLDI is generally exempt from many of the ACA’s requirements because it is not considered “individual health insurance coverage” for ACA purposes.((42 U.S.C. 300gg-91(b)(5))) As a result, a market emerged through which creative insurance providers leveraged STLDI products, offering families affordable insurance alternatives. These products are often more affordable than their ACA corollaries because – unlike ACA products – STLDI can be underwritten, meaning the premiums are used to fund healthcare expenses of a healthier risk pool.((See Estimated Financial Effects of the Short-Term, Limited-Duration Policy Proposed Rule (cms.gov) (CMS chief Actuary estimated -49% change compared to average gross premium in the ACA marketplace as a result of 2018 STLDI expansion). The NPRM similarly acknowledged that STLDI premiums may be 54% lower than unsubsidized ACA coverage (88 FR 44596 (July 12, 2023), citingWhy do Short-Term Health Insurance Plans Have Lower Premiums than Plans that Comply with the ACA? (KFF)). ))

What exactly is meant by the terms “short-term” and “limited duration” has become something of a political volleyball. Critics are wary that STLDI has been hijacked to hoodwink consumers and end-run the ACA,((Shortchanged: How the Trump Administration’s Expansion of Junk Short-Term Health Insurance Plans is Putting Americans at Risk (U.S. House of Representatives Committee on Energy and Commerce Democratic Staff Report))) whereas proponents of STLDI appreciate the optionality these plans provide to families underserved by the ACA.((The Value of Short-Term Health Plans: Rebutting the Energy and Commerce Democratic Staff Report (Health Affairs)))

NPRM Changes

A 2018 rule currently in effect permits STLDI polies to cover a maximum period of less than 12 months, renewable up to 36 months in total.((83 FR 38212 (August 3, 2018))) STLDI policies must contain clear disclaimers alerting the policyholder of the policy’s nature and limitations.²

The NPRM proposes to limit STLDI maximum coverage periods to less than 3 months, or no more than 4 months together with all extensions and renewals.((88 FR 44596 (July 12, 2023))) It also prevents what it calls “stacking” policies from a single insurer within 12 months of the initial policy’s effective date.² It is unclear how the definition would permit an individual losing coverage early in the year to maintain coverage until open enrollment (typically beginning November 1), an observation unscrupulously referenced in the NPRM itself.((Id.)) The NPRM also proposes limits to fixed-indemnity insurance policies, similarly aimed at eliminating alternatives to ACA plans in the name of consumer protectionism, that would further limit options available to price-conscious shoppers.((Id.)) Table 1 compares current versus proposed STLDI rules.

Table 1

NPRM Effects

If implemented, the NPRM would effectively eviscerate the vast majority of alternative health insurance products currently available, leaving families with three primary options:

1. Enroll in ACA products;
2. Join a health sharing plan; or
3. Go uninsured.

The NPRM gives short shrift to the reality that most of the 3M Americans insured through STLDI policies are unlikely to enroll in ACA products when their policies expire, noting only that there would be an unquantified “potential increase in the number of uninsured individuals” as a result of the proposed rule.(( Id.))In fact, approximately 3M Americans are insured through STLDI policies,³ and the NPRM estimates only 120K will convert to ACA plans between 2024 and 2028.((88 FR 44596 (July 12, 2023))) That leaves a whopping 2.88M Americans unaccounted for.

Conclusion

Individuals and families at risk of losing health insurance as a direct result of the rules proposed in the NPRM are in need of creative solutions to provide financially-secure insurance options that 1) are affordable, 2) maintain access to broad PPO networks, and 3) do not force families to pay for services that violate their consciences. If the rules proposed in the NPRM are finalized, approximately 3M individuals who previously did not find value in ACA products will be actively shopping for new insurance. This casts new light on the need for creative insurance solutions providing valuable options and ensuring families retain access to affordable and secure health insurance. Companies like Presidio are needed now more than ever to provide these options to individuals who will be actively shopping for health insurance that meets their unique needs, and to serve as a backstop to ACA markets to reduce the number of uninsured individuals.((Evidence indicates that increasing ACA alternatives – including through deregulation of STLDI – reduces uninsured rates (Renewable Term Health Insurance: Better Coverage Than Obamacare, Manhattan Institute (manhattan-institute.org)))

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1. For example, due in part to medical loss ratio requirements of the ACA, 15 states currently have no PPO individual ACA market products (opting instead for narrow-network HMO products) (Rate Review Data (cms.gov)) [↩]
2. Id. [↩] [↩]
3. Shortchanged: How the Trump Administration’s Expansion of Junk Short-Term Health Insurance Plans is Putting Americans at Risk (U.S. House of Representatives Committee on Energy and Commerce Democratic Staff Report) [↩]