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Proposed Rule Affecting Short-Term, Limited-Duration Insurance

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On July 7, 2023 the Department of Health and Human Services, the Department of Labor, and the Department of the Treasury (collectively, “Departments”) released a proposed rule (“Rule”) affecting “short-term, limited-duration insurance” (“STLDI”) under the Public Health Service Act (“PHSA”). The Rule was created in response to an executive order that encouraged the Departments to protect and strengthen the Patient Protection and Affordable Care Act (“ACA”) and promote equitable access to high-quality, affordable, comprehensive coverage.

STLDI is a type of health insurance that is designed to fill temporary health coverage gaps that arise when transitioning from one plan to another, e.g., transitioning between employment-based coverages. STLDI is not considered “individual health insurance coverage” under the PHSA and is therefore generally exempt from most federal consumer protections and health coverage requirements, including the prohibitions on discrimination, preexisting condition exclusions, and lifetime and annual dollar limits.

Initial STLDI contracts are currently permitted to last up to 12 months, with a maximum duration of 36 months after renewals and extensions. Under the Rule, initial STLDI contract periods would be capped at three months, with a maximum coverage period of four months after renewals and extensions. The Rule is essentially a reversion to the 2016 STLDI rule, before it was expanded in 2018 during the prior administration.

The Departments also propose to redefine STLDI to prohibit the same issuer from issuing multiple STLDI policies to the same policyholder within a 12-month period. Insurers had been evading maximum STLDI duration limits by providing separate, sequential STLDI policies to the same policyholder, a practice known as “stacking.” The Rule would allow an individual to enroll in consecutive STLDI contracts that collectively exceed four months in duration only if the contracts are sold by different issuers.

The Departments believe that these changes will differentiate STLDI more clearly from comprehensive coverage, realign the federal definition of STLDI with its traditional purpose of bridging short gaps in comprehensive coverage, ensure consumers do not mistakenly enroll in STLDI as a long-term alternative to comprehensive coverage, and reduce the financial risks associated with enrolling in STLDI as a long-term alternative to comprehensive coverage.

Comments to the proposed rulemaking were due by September 11, 2023, but final rules have not yet been issued. There likely will be changes in the final Rule; the Departments specifically requested comments concerning how competition between STLDI and comprehensive coverage could be further mitigated and suggested strategies to help consumers further distinguish between STLDI and comprehensive coverage. 

If you have questions about implementing healthcare plans or the associated healthcare compliance responsibilities, please reach out to a member of our Employee Benefits and Executive Compensation Group.

Proposed Rule Affecting Short-Term, Limited-Duration Insurance